If Not Now, When? It is the Time for Estate Planning – Annapolis and Towson Estate Planning

What else could possibly go wrong? You might not want to ask that question, given recent events. A global pandemic, markets in what feels like free fall, schools closed for an extended period of time—these are just a few of the challenges facing our communities, our nation and our world. The time is now, in other words, to be sure that everyone has their estate planning completed, advises Kiplinger in the article “Coronavirus Legal Advice: Get Your Business and Estate in Order Now.”

Business owners from large and small sized companies are contacting estate planning attorney’s offices to get their plans done. People who have delayed having their estate plans done or never finalized their plans are now getting their affairs in order. What would happen if multiple family members got sick, and a family business was left unprotected?

Because the virus is recognized as being especially dangerous for people who are over age 60 or have underlying medical issues, which includes many business owners and CEOs, the question of “What if I get it?” needs to be addressed. Not having a succession plan or an estate plan, could lead to havoc for the company and the family.

Establishing a Power of Attorney is a key part of the estate plan, in case key decision makers are incapacitated, or if the head of the household cannot take care of paying bills, taxes or taking care of family or business matters. For that, you need a Durable Power of Attorney.

Another document needed now, more than ever: is an Advance Health Care Directive. This explains how you want medical decisions to be made, if you are too sick to make these decisions on your own behalf. It tells your health care team and family members what kind of care you want, what kind of care you do not want and who should make these decisions for you.

This is especially important for people who are living together without the legal protection that being married provides. While some states may recognize registered domestic partners, in other states, medical personnel will not permit someone who is not legally married to another person to be involved in their health care decisions.

Personal information that lives only online is also at risk. Most bills today do not arrive in the mail, but in your email inbox. What happens if the person who pays the bill is in a hospital, on a ventilator? Just as you make sure that your spouse or children know where your estate plan documents are, they also need to know who your estate planning attorney is, where your insurance policies, financial records and legal documents are and your contact list of key friends and family members.

Right now, estate planning attorneys are talking with clients about a “Plan C”—a plan for what would happen if heirs, beneficiaries and contingent beneficiaries are wiped out. They are adding language that states which beneficiaries or charities should receive their assets, if all of the people named in the estate plan have died. This is to maintain control over the distribution of assets, even in a worst-case scenario, rather than having assets pass via the rules of intestate succession. Without a Plan C, an entire estate could go to a distant relative, regardless of whether you wanted that to happen.

Reference: Kiplinger (March 16, 2020) “Coronavirus Legal Advice: Get Your Business and Estate in Order Now.”

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What are the Main Estate Planning Blunders to Avoid? – Annapolis and Towson Estate Planning

There are a few important mistakes that can make an estate plan defective—most of these can be easily avoided by reviewing your estate plan periodically and keeping it up to date.

Investopedia’s article from a few years ago entitled “5 Ways to Mess Up Estate Planning” lists these common blunders:

Not Updating Your Beneficiaries. Big events like a marriage, divorce, birth, adoption and death can all have an effect on who will receive your assets. Be certain that those you want to inherit your property are clearly detailed as such on the proper forms. Whenever you have a life change, update your estate plan, as well as all your financial, retirement accounts and insurance policies.

Forgetting Important Legal Documents. Your will may be just fine, but it will not exempt your assets from the probate process in most states, if the dollar value of your estate exceeds a certain amount. Some assets are inherently exempt from probate by law, like life insurance, retirement plans and annuities and any financial account that has a transfer on death (TOD) beneficiary listed. You should also make sure that you nominate the guardians of minor children in your will, in the event that something should happen to you and/or your spouse or partner.

Lousy Recordkeeping. There are few things that your family will like less than having to spend a huge amount of time and effort finding, organizing and hunting down all of your assets and belongings without any directions from you on where to look. Create a detailed letter of instruction that tells your executor or executrix where everything is found, along with the names and contact information of everyone with whom they will have to work, like your banker, broker, insurance agent, financial planner, etc.. You should also list all of the financial websites you use with your login info, so that your accounts can be conveniently accessed.

Bad Communication. Telling your loved ones that you will do one thing with your money or possessions and then failing to make provisions in your plan for that to happen is a sure way to create hard feelings, broken relationships and perhaps litigation. It is a good idea to compose a letter of explanation that sets out your intentions or tells them why you changed your mind about something. This could help in providing closure or peace of mind (despite the fact that it has no legal authority).

No Estate Plan. While this is about the most obvious mistake in the list, it is also one of the most common. There are many tales of famous people who lost virtually all of their estates to court fees and legal costs, because they failed to plan.

These are just a few of the common estate planning errors that commonly happen. Make sure they do not happen to you: talk to a qualified estate planning attorney.

Reference: Investopedia (Sep. 30, 2018) “5 Ways to Mess Up Estate Planning”

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What’s the Best Way to Provide for My Family when I’m Gone? – Annapolis and Towson Estate Planning

The estate planning process should begin when you are at least 18 years old, of sound mind and as free as possible from emotional stress, suggests Essence’s recent article entitled “Death And Money: How To Protect And Provide For The Loved Ones You Leave Behind.” You do not want to do this kind of planning when you are on your sickbed or when your mental capabilities are in decline.

If you are new to estate planning, here are the necessary steps to ensure you start the process on the right foot. Work with an experienced estate planning attorney to be certain that your plan is correct and legal.

A will. This is a legal document that details how to distribute your property and other assets upon death. A will can also nominate guardians for minor children. Without this, the state will dictate how to distribute your assets to your beneficiaries, according to the laws of intestate succession. If you already have a will, be sure it is updated to reflect an accurate listing of assets and beneficiaries that may be changed with a divorce, financial changes, or the birth or adoption of a child.

Life insurance. This is a great idea to protect and provide for your family when you are gone. Life insurance pays out money either upon your death or after a set period. Even if you have a life insurance policy as an employee benefit, this coverage is not portable, which means it does not follow you when you switch jobs. This can result in gaps in coverage at times when you may need it most.

Work with a legal professional. Estate planning is not a DIY project, like cleaning the garage. You should have the counsel and assistance of an experienced estate planning attorney to help you create a comprehensive estate plan. An estate planning attorney can also coordinate with your financial advisor to manage your estate’s finances, such as making recommendations and funding investment, retirement and trust accounts.

An estate planning attorney also can make sure that all of your beneficiaries and secondary beneficiaries are up-to-date on your investment accounts, pensions and insurance policies. An estate planning attorney will also help you with the best options for maintaining your estate after death or in the event of incapacity. In addition to preparing a will, your attorney can create a living trust that details your desires regarding your assets, your dependents and your heirs while you are still alive. He can also draw up your power of attorney for your health care, verify property titles and create legal document to ensure a succession plan for your business.

Finally, an estate planning attorney or probate attorney can help the personal representative or executor of an estate with closing responsibilities setting up an estate account, tax filings and paying the final distributions to beneficiaries.

A key to estate planning is to get (and stay) organized. Know the location and passwords (if applicable) of all your important legal and financial documents. You should also communicate the location of these files to trusted family members and to your estate planning or probate attorney.

Reference: Essence (Jan. 29, 2020) “Death And Money: How To Protect And Provide For The Loved Ones You Leave Behind”

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How Bad Can a Do-It-Yourself Estate Plan Be? Very! – Annapolis and Towson Estate Planning

Here is a real world example of why what seems like a good idea backfires, as reported in The National Law Review’s article “Unintended Consequences of a Do-It-Yourself Estate Plan.”

Mrs. Ann Aldrich wrote her own will, using a preprinted legal form. She listed her property, including account numbers for her financial accounts. She left each item of property to her sister, Mary Jane Eaton. If Mary Jane Eaton did not survive, then Mr. James Aldrich, Ann’s brother, was the designated beneficiary.

A few things that you do not find on forms: wills and trusts need to contain a residuary, and other clauses so that assets are properly distributed. Ms. Aldrich, not being an experienced estate planning attorney, did not include such clauses. This one omission became a costly problem for her heir that led to litigation.

Mary Jane Eaton predeceased Ms. Aldrich. As Mary Jane Eaton had named Ms. Aldrich as her beneficiary, Ms. Aldrich then created a new account to receive her inheritance from Ms. Eaton. She also, as was appropriate, took title to Ms. Eaton’s real estate.

However, Ms. Aldrich never updated her will to include the new account and the new real estate property.

After Ms. Aldrich’s death, James Aldrich became enmeshed in litigation with two of Ms. Aldrich’s nieces over the assets that were not included in Ms. Aldrich’s will. The case went to court.

The Florida Supreme Court ruled that Ms. Aldrich’s will only addressed the property specifically listed to be distributed to Mr. James Aldrich. Those assets passed to Ms. Aldrich’s nieces.

Ms. Aldrich did not name those nieces anywhere in her will, and likely had no intention for them to receive any property. However, the intent could not be inferred by the court, which could only follow the will.

This is a real example of two basic problems that can result from do-it-yourself estate planning: unintended heirs and costly litigation.

More complex problems can arise when there are blended family or other family structure issues, incomplete tax planning or wills that are not prepared properly and that are deemed invalid by the court.

Even ‘simple’ estate plans that are not prepared by an estate planning lawyer can lead to unintended consequences. Not only was the cost of litigation far more than the cost of having an estate plan prepared, but the relationship between Ms. Aldrich’s brother and her nieces was likely damaged beyond repair.

Reference: The National Law Review (Feb. 10, 2020) “Unintended Consequences of a Do-It-Yourself Estate Plan”

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If I’m 35, Do I Need a Will? – Annapolis and Towson Estate Planning

Estate planning is a crucial process for everyone, no matter what assets you have now. If you want your family to be able to deal with your affairs, debts included, drafting an estate plan is critical, says Wealth Advisor’s recent article entitled “Estate planning for those 40 and under.”

If you have young children, or other dependents, planning is vitally important. The less you have, the more important your plan is, so it can provide as long as possible and in the best way for those most important to you. You can not afford to make a mistake.

Talk to your family about various “what if” situations. It is important that you have discussed your wishes with your family and that you have considered the many contingencies that can happen, like a serious illness or injury, incapacity, or death. This also gives you the chance to explain your rationale for making a larger gift to someone, rather than another or an equal division. This can be especially significant, if there is a second marriage with children from different relationships and a wide range of ages. An open conversation can help avoid hard feelings later.

You should have the basic estate plan components, which include a will, a living will, advance directive, powers of attorney, and a designation of agent to control disposition of remains. These are all important components of an estate plan that should be created at the beginning of the planning process. A guardian should also be named for any minor children.

In addition, a life insurance policy can give your family the needed funds in the event of an untimely death and loss of income—especially for young parents. The loss of one or both spouses’ income can have a drastic impact.

Remember that your estate plan should not be a “one and done thing.” You need to review your estate plan every few years. This gives you the opportunity to make changes based on significant life events, tax law changes, the addition of more children, or their changing needs. You should also monitor your insurance policies and investments, because they dovetail into your estate plan and can fluctuate based on the economic environment.

When you draft these documents, you should work with a qualified estate planning attorney.

Reference: Wealth Advisor (Jan. 21, 2020) “Estate planning for those 40 and under”

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

A designated beneficiary is named on a life insurance policy or some type of investment account as the individual(s) who will receive those assets, in the event of the account holder’s death. The beneficiary designation does not replace a signed will but takes precedence over any instructions about these accounts in a will. If the decedent does not have a will, the beneficiary may see a long delay in the probate court.

If you have done your estate planning, most likely you have spent a fair amount of time on the creation of your will. You have discussed the terms with an established estate planning attorney and reviewed the document before signing it.

FEDweek’s recent article entitled “Customizing Your Beneficiary Designations” points out, however, that with your IRA, you probably spent far less time planning for its ultimate disposition.

The bank, brokerage firm, or mutual fund company that acts as custodian undoubtedly has a standard beneficiary designation form. It is likely that you took only a moment or two to write in the name of your spouse or the names of your children.

A beneficiary designation on account, like an IRA, gives instructions on how your assets will be distributed upon your death.

If you have only a tiny sum in your IRA, a cursory treatment might make sense. Therefore, you could consider preparing the customized beneficiary designation form from the bank or company.

For more customization, you can have a form prepared by an estate planning attorney familiar with retirement plans.

You can address various possibilities with this form, such as the scenario where your beneficiary predeceases you, or she becomes incompetent. Another circumstance to address, is if you and your beneficiary die in the same accident.

These situations are not fun to think about, but they are the issues usually covered in a will. Therefore, they should be addressed, if a sizeable IRA is at stake.

After this form has been drafted to your liking, deliver at least two copies to your custodian. Request that one be signed and dated by an official at the firm and returned to you. The other copy can be kept by the custodian.

Reference: FEDweek (Dec. 26, 2019) “Customizing Your Beneficiary Designations”

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A 2020 Checklist for an Estate Plan – Annapolis and Towson Estate Planning

The beginning of a new year is a perfect time for those who have not started the process of getting an estate plan started. For those who already have a plan in place, now is a great time to review these documents to make changes that will reflect the changes in one’s life or family dynamics, as well as changes to state and federal law.

Houston Business Journal’s recent article entitled “An estate planning checklist should be a top New Year’s resolution” says that by partnering with a trusted estate planning attorney, you can check off these four boxes on your list to be certain your current estate plan is optimized for the future.

  1. Compute your financial situation. No matter what your net worth is, nearly everyone has an estate that is worth protecting. An estate plan formalizes an individual’s wishes and decreases the chances of family fighting and stress.
  2. Get your affairs in order. A will is the heart of the estate plan, and the document that designates beneficiaries beyond the property and accounts that already name them, like life insurance. A will details who gets what and can help simplify the probate process, when the will is administered after your death. Medical questions, provisions for incapacity and end-of-life decisions can also be memorialized in a living will and a medical power of attorney. A financial power of attorney also gives a trusted person the legal authority to act on your behalf, if you become incapacitated.
  3. Know the 2020 estate and gift tax exemptions. The exemption for 2020 is $11.58 million, an increase from $11.4 million in 2019. The exemption eliminates federal estate taxes on amounts under that limit gifted to family members during a person’s lifetime or left to them upon a person’s passing.
  4. Understand when the exemption may decrease. The exemption amount will go up each year until 2025. There was a bit of uncertainty about what would happen to someone who uses the $11.58 million exemption in 2020 and then dies in 2026—when the exemption reverts to the $5 million range. However, the IRS has issued final regulations that will protect individuals who take advantage of the exemption limits through 2025. Gifts will be sheltered by the increased exemption limits, when the gifts are actually made.

It is a great idea to have a resolution every January to check in with your estate planning attorney to be certain that your plan is set for the year ahead.

Reference: Houston Business Journal (Jan. 1, 2020) “An estate planning checklist should be a top New Year’s resolution”

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What Does an Estate Planning Attorney Really Do? – Annapolis and Towson Estate Planning

Vents Magazine’s recent article, “Understanding What an Estate Planning Attorney Does,” explains that estate planning is a legal set of instructions for your family about how to distribute your wealth and property after you die. Estate planning attorneys make sure the distribution of property happens according to the decedent’s will.

An estate planning attorney can provide legal advice on how to prepare your will after you pass away or in the event that you experience mental incapacity. She will have all the information and education on all the legal processes, beginning with your will and moving on to other important estate planning documents. She will also help you to understand estate taxes.

An estate planning attorney will also help to make certain that all of your savings and property are safe and distributed through the proper legal processes.

Estate planning attorneys can also assist with the power of attorney and health care directives. These documents allow you to designate an individual to decide issues on your behalf, in the event that you become mentally incapable of making decisions for yourself. They can also help you with a guardian who will look after your estate.

It’s important that you select the right estate planning attorney to execute the legal process, as you’ve instructed in your estate plan. You should only retain an attorney with experience in this field of law because other legal counsel won’t be able to help you with these issues—or at least, they may say they can, only to find out later that they’re not experienced in this area.

You also want to feel comfortable with your estate planning attorney because you must disclose all your life details, plans and estate issues, so she can create an estate plan that’s customized to your circumstances.

If you choose the right attorney, it will save you money in the long run. She will help you save from all the estate taxes and make all the processes smooth and easy for you and your loved ones.

Reference: Vents Magazine (December 12, 2019) “Understanding What an Estate Planning Attorney Does”

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How Do I Reduce My Blended Family Fighting Concerning My Estate Plan? – Annapolis and Towson Estate Planning

The IRS recently announced that in 2020, the first $11.58 million of a taxable estate is free from federal estate taxes. Therefore, a vast majority of estates won’t have to pay federal estate taxes. However, a TD Wealth survey at the 53rd Annual Heckerling Institute on Estate Planning found that family conflict was identified as the leading threat to estate planning.

Investment News’ recent article, “Reducing potential family conflicts,” explains that a blended family can result from multiple marriages, children from a current or former marriage, or children involved in multiple marriages. There are more “blended families” in the U.S. than ever before. More fighting over estate planning occurs in blended families.

The key element in any conflict resolution is open and honest communication. It’s especially the case, when it involves a blended family. In many instances, it’s best to explain a proposed estate plan to the family in advance.

If anyone objects, listen to their point of view and try to be empathetic to their position. You may wind up with a compromise, or, if no changes are made, at least the family member had an opportunity to air their grievances.

One potential solution to minimize conflicts within a blended family may be a prenuptial agreement. The agreement is signed prior to the marriage and outlines the financial rights of each spouse, in the event of a divorce or death. Prenups are particularly useful in second marriages, especially when there is a disparity in age and wealth between the parties.

However, not every married couple in a blended family has a prenuptial agreement. Even if they do, blended families can still have family conflicts in estate planning.

It is important to remember communication, reducing the chances of a will contest with a “no-contest” clause, asking your attorney about a revocable living trust and compromise.

Estate planning can be particularly difficult for blended families. Talk with an experienced estate planning attorney about the techniques that can help reduce potential family conflicts.

Reference: Investment News (December 9, 2019) “Reducing potential family conflicts”

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What’s the Best Way to Take My Required Minimum Distribution? – Annapolis and Towson Estate Planning

CNBC’s recent article, “These tips can help retirees make required minimum distributions easy and tax penalty free,” gives the steps to follow, so we don’t leave money on the table.

RMDs or required minimum distributions, are the minimum amount people age 70½ and older must withdraw from their retirement funds. If you’ve inherited a retirement account, you may also have to make a withdrawal. The amount you need to withdraw varies from year to year and is based on specific calculations, including what your account values were as of December 31 the prior year and your age.

The time to get started on your RMD for this year is right now, because the paperwork may take some time. You have until April 1, if you just turned 70½ this year. Let’s look at a few tips:

Get your paperwork organized. In order to know how much you have to withdraw, you have to have an accurate picture of what you own. Create a list of accounts and take an inventory first, so you know where all your retirement accounts are located.

Know what you can take from what account. If you have multiple IRAs, you can take your total RMD from any one of those accounts because of the aggregation rule. However, with multiple IRAs, you still must calculate the amount you take out based on the value of all of them. It’s that same with multiple 403(b) retirement accounts. The rule doesn’t apply to 401(k) plans. If you have multiple 401(k) accounts, you must take money from each one, and you can’t take an RMD from an IRA to satisfy a 401(k), or vice versa.

Understand the rules, if you’re still working. If you’re 70½ and still employed, you could get a break from taking your RMD in certain circumstances. Generally, 401(k) plans have a still-working rule, which stipulates that you don’t have to take the RMD until you retire. However, you can only delay the RMDs, if the plan is attached to the company where you’re currently employed. Other accounts from a previous employer are excluded, so you must still take distributions from those.

Keep an eye on any inherited accounts. If you’ve inherited a retirement account, you may have to take an RMD by the end of this year. That generally doesn’t apply if you inherited the money from your spouse, because spouses can do a rollover and keep postponing the distributions. However, if you’re a non-spouse beneficiary, you probably must take a distribution by the end of 2019. If you inherited the account in 2018, you’ll need to take your first RMD in 2019.

RMDs from a Roth IRA will likely be tax-free. However, if you’ve inherited one of these accounts and you didn’t take that money out, you’ll have to pay a 50% penalty on the funds you should’ve withdrawn.

Consider giving to charity. A good way to avoid paying taxes on your RMD, is to give the money to charity. A qualified charitable distribution lets you make donations to a charity directly from your IRA, instead of taking the RMD yourself. Therefore, if your RMD is $5,000, and you typically give $5,000 to charity each year, you can donate that money directly and not pay tax on it.

Reference: CNBC (November 29, 2019) “These tips can help retirees make required minimum distributions easy and tax penalty free”

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