What are the Key Documents in Estate Planning? – Annapolis and Towson Estate Planning

A basic estate plan can be fairly straightforward to create with the help of an experienced estate planning attorney.

Here are the main items you need in an estate plan. However, ask your estate planning attorney about what else you may need in your specific circumstances.

Bankrate’s recent article entitled “Estate planning checklist: 3 key steps to making a successful plan” says there are three things you need in every good estate plan: Last Will and Testament, Power(s) of Attorney and an Advance Healthcare Directive – and each serves a different purpose. Let us look at these:

A Last Will and Testament. This is the cornerstone of your estate plan.  A Will instructs the way in which your assets should be distributed.

Everyone needs a Will, even if it is a very basic one. If you do nothing else in planning your estate, at least create a Will, so you do not die intestate and leave the decisions to the courts.

A Power of Attorney (POA). This document permits you to give a person the ability to take care of your affairs while you are still living. A financial POA can help, if you are incapacitated and unable to manage your finances or pay your bills. A medical POA can also help a loved one take care of healthcare decisions on your behalf.

With a financial POA, you can give as much or as little power over your financial affairs as you want. Note that when establishing this document, you should have a conversation with your POA Agent, so if called upon, he or she will have a good understanding of what they can and cannot do financially for you. A healthcare POA also allows a person to make healthcare decisions, if you are unable to do so.

An Advance Healthcare Directive. This document instructs medical staff how you want them to handle your health-related decisions, if you are unable to choose or communicate. It includes resuscitation, sustaining your quality of life, pain management and end-of-life care.

Reference: Bankrate (July 23, 2021) “Estate planning checklist: 3 key steps to making a successful plan”

 

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What are Biggest Mistakes in Estate Planning? – Annapolis and Towson Estate Planning

Bankrate’s recent article entitled “Estate planning checklist: 3 key steps to making a successful plan” talks about five things to watch out for with an estate plan. Therefore, as you are making your estate plan, carefully consider everything, and that means it may take some time to complete your plan.  Let us look at five things to watch out for in that process:

  1. Plan your estate now. Of course, it is not just the old and infirm who need an estate plan. Everyone needs a last will so that their last wishes are respected, knowing that the unexpected can happen at any time.
  2. Say who will take care of your minor children. While last wills may typically focus on what happens to your financial assets, you will also want to specify what happens to any minor children on your passing, namely who takes care of them. If you have underage children, you must state who would be a guardian for that child and where that child will live. Without a last will, a judge will decide who will take care of your children. That could be a family member or a state-appointed guardian.
  3. 3. Ask executors if they are willing and able to take on the task. An executor carries out the instructions in your last will. This may be a complicated and time-consuming task. It involves distributing money in accordance with the stipulations of the document and ensuring that the estate is moved properly through the legal system. Make sure you designate an executor who is up to the task. That means you will need to speak with them and make certain that he or she is willing and able to act.
  4. Consider if you want to leave it all to your children. Many young families simply give all their assets to their children when they die. However, if the parents pass away when the children are young, and they do not establish a trust, they have access to all of the money when they reach the age of majority. This could be a great sum of money for a young adult to inherit with no rules on how to use it.
  5. Keep your estate plan up to date. You should review your estate plan regularly, at least every five years to be sure that everything is still how you intend it and that tax laws have not changed in the interim. Your plan could be vastly out of date, depending on changes since you first drafted it.

Estate planning can be a process where you demonstrate to your friends and family how much you care about them and how you have remembered them with certain assets or property.

It is a way to ensure that your loved ones do not have months of work trying to handle your estate.

Reference: Bankrate (July 23, 2021) “Estate planning checklist: 3 key steps to making a successful plan”

 

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What Should I Know about Cryptocurrency and Estate Planning? – Annapolis and Towson Estate Planning

Cryptocurrency is a digital currency that can be used to buy online goods and services, explains Forbes’ recent article entitled “Cryptocurrency And Estate Planning: What Digital Investors Should Know.” Part of cryptocurrency’s appeal is the technology that backs it. Blockchain is a decentralized system that records and manages transactions across many computers and is very secure.

As of June 24, the total value of all cryptocurrencies was $1.35 trillion, according to CoinMarketCap. There are many available cryptocurrencies. However, the most popular ones include Bitcoin, Ethereum, Binance Coin and Dogecoin. Many believe cryptocurrency will be a main currency in the future, and they are opting to buy it now. They also like the fact that central banks are not involved in the process, so they cannot interfere with its value.

In addition, NFTs or non-fungible tokens, are also gaining in popularity. Each token is one of a kind and they are also supported by blockchain technology. They can be anything digital, such as artwork or music files. NFTs are currently being used primarily as a way to buy and sell digital art. An artist could sell their original digital artwork to a buyer. The buyer is the owner of the exclusive original, but the artist might retain proprietary rights to feature the artwork or make copies of it. The popularity of NFTs is centered around the social value of fine art collecting in the digital space.

Here are three reasons to have an estate plan, if you buy bitcoin:

  1. No probate. Even if your loved ones knew you had cryptocurrency, and even if they knew where you stored your password, that would not be enough for them to get access to it. Without a proper estate plan, your digital assets may be put through a lengthy and expensive probate process.
  2. Blockchain technology. You must have a private key to access each of your assets. It is usually a long passcode. A comprehensive estate plan that includes this can help you have peace of mind knowing that your investments can be passed on to loved ones’ if anything were to happen to you unexpectedly.
  3. Again, central banks do not play any part in the process, and it is secure because its processing and recording are spread across many different computers. However, there is no governing body overseeing the affairs of cryptocurrency.

Reference: Forbes (July 21, 2021) “Cryptocurrency And Estate Planning: What Digital Investors Should Know”

 

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What’s an Enhanced Life Estate? – Annapolis and Towson Estate Planning

First Coast News’ recent article entitled “Deed named for former first lady could be key to planning your estate” explains that a strategy that is available in Florida and a few other states is called an enhanced life estate or a “Lady Bird” deed, named after former First Lady, Lady Bird Johnson.

This deed states that when I die, you get the property, but until then, I reserve all rights to do whatever I want with it. That contrasts with a traditional life estate where a property owner can plan for one or more others to inherit their house.

Typically, the person with a life estate has a lot less control over what happens in the future, including potentially being thwarted by the very person you are tapping to receive your property at your death, in case you decide you no longer want the house while you are still alive.

The problem is, now you want to sell the property, but since they are a co-owner, they can refuse. And there is nothing you can do about it.

Enhanced life estates are also about protecting property and its eventual recipient from creditors after the death of the owner. That is the benefit of avoiding probate. Medicaid or any other creditor may become a creditor in probate.

A Lady Bird deed supersedes a will.

But there are downsides to the Lady Bird deed. A big drawback is if you change your mind. You have to now record another deed in the public record to remove that, and every deed that you record creates one thing that could go wrong.

However, this can be true of any change made in hope of overriding an earlier estate decision, and Lady Bird deeds are fairly straightforward.

Ask an experienced estate planning attorney if this type of arrangement is available in your state.

Reference: First Coast News (July 19, 2021) “Deed named for former first lady could be key to planning your estate”

 

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No Kids? What Happens to My Estate? – Annapolis and Towson Estate Planning

Just because you do not have children or heirs does not mean you should not write a will. If you decide to have children later on, a will can help protect their financial future. However, even if you die with no children, a will can help you ensure that your assets will go to the people, institutions, or organizations of your own choosing. As a result, estate planning is necessary for everyone.

Claremont Portside’s recent article entitled “What Happens to Your Estate If You Die With No Children” says that your estate will go to your spouse or common-law partner, unless stated otherwise in your will. If you do not have any children or a spouse or common-law partner, your estate will go to your living parents. Typically, your estate will be divided equally between them. If you do not have children, a spouse, or living parents, your estate will go to your siblings. If there are any deceased siblings, their share will go to their children.

The best way to make certain your estate goes to the right people, and that your loved ones can divide your assets as easily as possible, is to write a will. Ask an experienced estate planning attorney to help you. As part of this process, you must name an executor. This is a person you appoint who will have the responsibility of administering your estate after you die.

It is not uncommon for people to appoint one of their children as the executor of their will. But if you do not have children, you can appoint another family member or a friend. Select someone who is trustworthy, responsible, impartial and has the mental and emotional resources to take on this responsibility while mourning your death.

You should also be sure to update your will after every major event in your life, like a marriage, the death of one of your intended beneficiaries and divorce. In addition, specifically designating beneficiaries and indicating what they will receive from your estate will help prevent any disputes or contests after your death. If you have no children, you might leave a part (or your entire) estate to friends, and you can also name charities and other organizations as beneficiaries.

It is important to name who should receive items of sentimental value, such as family heirlooms, and it is a good idea to discuss this with your loved ones, in case there are any disputes in the future.

Even without children, estate planning can be complicated, so plan your estate well in advance. That way, when something happens to you, your assets will pass to the right people and your last wishes will be carried out. Ask an experienced estate planning attorney for assistance in creating a comprehensive estate plan.

Reference: Claremont Portside “What Happens to Your Estate If You Die with No Children”

 

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What Exactly Is a Trust? – Annapolis and Towson Estate Planning

MSN Money’s recent article entitled “What is a trust?” explains that many people create trusts to minimize issues and costs for their families or to create a legacy of charitable giving. Trusts can be used in conjunction with a last will to instruct where your assets should go after you die. However, trusts offer several great estate planning benefits that you do not get in a last will, like letting your heirs to see a relatively speedy conclusion to settling your estate.

Working with an experienced estate planning attorney, you can create a trust to minimize taxes, protect assets and spare your family from going through the lengthy probate process to divide up your assets after you pass away. A trust can also let you control to whom your assets will be disbursed, as well as how the money will be paid out. That is a major point if the beneficiary is a child or a family member who does not have the ability to handle money wisely. You can name a trustee to execute your wishes stated in the trust document. When you draft a trust, you can:

  • Say where your assets go and when your beneficiaries have access to them
  • Save your beneficiaries from paying estate taxes and court fees
  • Shield your assets from your beneficiaries’ creditors or from loss through divorce settlements
  • Instruct where your remaining assets should go if a beneficiary dies, which can be helpful in a family that includes second marriages and stepchildren; and
  • Avoid a long probate court process.

One of the most common trusts is called a living or revocable trust, which lets you put assets in a trust while you are alive. The control of the trust is transferred after you die to beneficiaries that you named. You might want to ask an experienced estate planning attorney about creating a living trust for several reasons, such as:

  • If you would like someone else to take on the management responsibilities for some or all of your property
  • If you have a business and want to be certain that it operates smoothly with no interruption of income flow, if you die or become disabled
  • If you want to shield assets from the incompetency or incapacity of yourself or your beneficiaries; or
  • If you want to decrease the chances that your will may be contested.

A living trust can be a smart move for those with even relatively modest estates. The downside is that while a revocable trust will usually keep your assets out of probate if you were to die, there still will be estate taxes if you hit the threshold.

By contrast, an irrevocable trust cannot be changed once it has been created. You also relinquish control of the assets you put into the trust. However, an irrevocable trust has a key advantage in that it can protect beneficiaries from probate and estate taxes.

In addition, there are many types of specialty trusts you can create. Each is structured to accomplish different goals. Ask an experienced estate planning attorney about these.

Reference: MSN Money (July 9, 2021) “What is a trust?”

 

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What Is the Best Way to Make Sure Children Can Handle an Inheritance? – Annapolis and Towson Estate Planning

One strategy to get your children prepared to handle the assets they will eventually inherit, is to have them meet with your professional advisors. They can explain what you have been doing.

FedWeek’s recent article entitled “Preparing Your Heirs for Their Inheritance” suggests that your children should meet with your accountant for an explanation of any tax planning tactics that you have been implementing. That way those tactics can be continued after your death. If you have a broker or a financial planner, your heirs should meet with this adviser for a review of your portfolio strategies.

Know that if you hold investment property, it might pose special problems.

While your investment portfolio can be split between your children, who can follow their individual inclinations, it is tough to divide physical property. Your kids might disagree on how the property should be managed.

With any assets—but especially rental property—you have to be realistic. Ask yourself if your children can work together to manage the real estate.

If they cannot, you may be better off leaving your investment property to the one child who really can manage real estate and leave your other children non-real estate assets instead. You might also provide that some of your children can buy out the others at a price set by an independent appraisal.

Another way you can help is by proper handling of appreciated assets, such as stocks.

If you purchased $20,000 worth of XYZ Corp. shares many years ago, those shares are worth $50,000. If you sell those shares to raise $50,000 in cash for retirement spending, you will have a $30,000 long-term capital gain.

You might raise retirement cash, by selling other securities where there has been little or no appreciation.

That will allow you to keep the shares and leave them to your children. At your death, your shares may be worth $50,000, and that value becomes the new basis (cost for tax purposes) in those shares. If your children sell them for $50,000, they will not owe capital gains tax.

All of the appreciation in those shares during your lifetime will not be taxed.

Reference: FedWeek (March 31, 2021) “Preparing Your Heirs for Their Inheritance”

 

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What Happens If Trust Not Funded – Annapolis and Towson Estate Planning Attorneys

Revocable trusts can be an effective way to avoid probate and provide for asset management, in case you become incapacitated. These revocable trusts — also known as “living” trusts — are very flexible and can achieve many other goals.

Point Verda Recorder’s recent article entitled “Don’t forget to fund your revocable trust” explains that you cannot take advantage of what the trust has to offer, if you do not place assets in it. Failing to fund the trust means that your assets may be required to go through a costly probate proceeding or be distributed to unintended recipients. This mistake can ruin your entire estate plan.

Transferring assets to the trust—which can be anything like real estate, bank accounts, or investment accounts—requires you to retitle the assets in the name of the trust.

If you place bank and investment accounts into your trust, you need to retitle them with words similar to the following: “[your name and co-trustee’s name] as Trustees of [trust name] Revocable Trust created by agreement dated [date].” An experienced estate planning attorney should be consulted.

Depending on the institution, you might be able to change the name on an existing account. If not, you will need to create a new account in the name of the trust, and then transfer the funds. The financial institution will probably require a copy of the trust, or at least of the first page and the signature page, as well as the signatures of all the trustees.

Provided you are serving as your own trustee or co-trustee, you can use your Social Security number for the trust. If you are not a trustee, the trust will have to obtain a separate tax identification number and file a separate 1041 tax return each year. You will still be taxed on all of the income, and the trust will pay no separate tax.

If you are placing real estate in a trust, ask an experienced estate planning attorney to make certain this is done correctly.

You should also consult with an attorney before placing life insurance or annuities into a revocable trust and talk with an experienced estate planning attorney, before naming the trust as the beneficiary of your IRAs or 401(k). This may impact your taxes.

Reference: Point Verda Recorder (Nov. 19, 2020) “Don’t forget to fund your revocable trust”

 

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What Happens If You Fail to Submit a Change of Beneficiary Form? – Annapolis and Towson Estate Planning

Wealth Advisor’s recent article entitled “I’m being denied an inheritance. Can they do that?” explains the situation where an individual, Peter, was given a CD/IRA by a friend named Paul.

Paul told Peter that he wanted him to have it, in case anything happened to him. Paul was married and did not tell his wife about this. Paul’s wife was the beneficiary of several other accounts.

Paul told Peter to sign a document before he died, and they got it notarized.

Paul died somewhat unexpectedly, and Peter took the signed and notarized beneficiary designation form to the bank to see about collecting the money.

However, the bank told Peter that there was no beneficiary designation given to them prior to Pauls’ death.

Is there anything that Peter can do?

The article explains that it is a matter of timing, and it is probably too late. That is because it looks like Paul failed to submit a written beneficiary change form to the financial institution prior to his death.

As a result, the financial institution must distribute the CD to the person or entities that otherwise would be entitled to receive it.

In most states, you can choose any IRA beneficiary you want. However, in nine community property states, you are required to name your spouse as your heir. If you want to name anyone else, your spouse must give written permission. The same laws apply, if you want to change your beneficiary designation.

The nine community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

The only way for Peter to see the money, is if he can show that Paul intended for him to receive the asset. That bank does not want to be sued by another person, who claims they are entitled to the CD.

In this situation, it is best to speak with an experienced estate planning attorney who can examine the specifics of this type of issue.

Reference: Wealth Advisor (Nov. 24, 2020) “I’m being denied an inheritance. Can they do that?”

 

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How Much Power Does an Executor Have? – Annapolis and Towson Estate Planning

The Pauls Valley Daily Democrat’s recent article entitled “It doesn’t end with the will” explains that there is constant confusion about wills. This misunderstanding involves the scope of power of those named in the will as the personal representative (or executor) of the decedent’s estate. Let us try to straighten out some of these myths or pieces of bad information about wills and probate.

The Executor Does Not Need Court Permission. False. An estate executor or personal representative cannot distribute a decedent’s assets to themselves or to any heirs, until okayed by the court. Many people think that a will provides immediate authorization to distribute the assets of an estate.

If He Had A Will, We Do Not Need Probate. Another incorrect belief is that if a person dies with a will, probate is not needed or required. If a person has a will, the will and the distributions named in it can only be made valid by the probate court. There are ways to avoid the probate process. However, the fact that a person had a will does not do it.

The Executor Can Start Giving Away Stuff ASAP. This is also false. Some people think that as soon as a person receives appointment as the personal representative or executor from the probate court, they can begin distributing assets from the decedent’s estate. Nope. If this were true, it would defeat the objectives of probate, which is court oversight and control.

The Court Does Not Monitor The Executor’s Actions. This statement is also incorrect. The entire probate process is structured to provide a court monitored coordination of a decedent’s estate to make certain that his or her wishes are followed. This also helps to prevent unauthorized distributions or “raids” on a decedent’s assets by improper persons.

Remember, the executor’s Letters Testamentary authorize that person to act for the estate—they do not permit any distributions before court approval or final probate court order.

What Does Probate Do? Probate fulfills these purposes:

  • At death, the deceased’s property is subject to control and monitoring by the court.
  • The court then starts to see what the decedent’s wishes were for distribution and who was named to administer the estate.
  • The court must also review the scope of the estate, define all assets in the estate and determine all debts of the estate.
  • Probate requires a notice to creditors, so the executor has a complete list of debts of the estate and to give each creditor the opportunity to be paid.
  • The court watches any transfers, sales of assets or payments during probate.
  • The executor is authorized to receive money and manage the assets of the estate, but he cannot withdraw or transfer assets from the estate.
  • At a final hearing and after notice to interested parties, the court determines who should get distributions.

Ask an experienced estate planning attorney about the probate process and how to devise a complete estate plan.

Reference: Pauls Valley Daily Democrat (Oct. 1, 2020) “It doesn’t end with the will”

 

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