Your Will and Estate Planning Checklist – Annapolis and Towson Estate Planning

Dying without a Last Will and Testament creates additional costs and eliminates any chance your wishes for loved ones will be followed after your death. Typically, people think about Wills when they marry or have children, and then do not think about Wills or estate plans until they retire. While a Will is important, there are other estate planning documents that are just as important, says the recent article “10 Steps to Writing a Will” from U.S. News & World Report.

Most assets, including retirement accounts and insurance policy proceeds, can be transferred to heirs outside of a Will, if they have designated beneficiaries. However, the outcome of an estate may be more impacted by Power of Attorney for financial matters and Medical Power of Attorney documents.

Here are ten specific tasks that need to be completed for your Will to be effective. Remember, if the Will does not comply with your state’s estate law, it can be declared invalid.

  1. Find an estate planning attorney who is experienced with the laws of your state.
  2. Select beneficiaries for your Will.
  3. Check beneficiaries on non-probate assets to make sure they are current.
  4. Decide who will be the executor of your Will.
  5. Name a guardian for minor children, if yours are still young.
  6. Make a letter describing possessions and who you want to receive them. Be very specific.

There are also tasks for your own care while you are living, in case of incapacity:

  1. Name a person for the Power of Attorney role. They will be your representative for legal and financial matters, but only while you are living.
  2. Name a person for the Medical Power of Attorney to make decisions on your behalf, if you cannot.
  3. Create an Advance Directive, also known as a Living Will, to explain your wishes for medical care, particularly concerning end-of-life care.
  4. Discuss these roles and their responsibilities with the people you have chosen, and make sure they are willing to serve.

Be realistic about the people you are naming to receive your property. If you have a child who is not good with managing money, a trust can be set up to distribute assets according to your wishes: by age or accomplishments, like finishing college, going to rehab, or maintaining a steady work history.

Do not forget to tell family members where they can find your Will and other estate documents. You should also talk with them about your digital assets. If accounts are protected by passwords or facial recognition, find out if the digital platform has a process for your executor to legally obtain access to your digital assets.

Finally, do not neglect updating your Will every three to four years or anytime you have a major life event. An estate plan is like a house: it needs regular maintenance. Old Wills can disinherit family members or lead to the wrong person being in charge of your estate. An experienced estate planning attorney will make the process easier and straightforward for you and your loved ones.

Reference: U.S. News & World Report (May 13, 2021) “10 Steps to Writing a Will”

 

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

What Do I Need to Know about Estate Planning? – Annapolis and Towson Estate Planning

Your idea of planning for the future may include vacations and visits to family and friends—estate planning, not so much. However, it should, advises Real Simple in the article “Everything You Need to Know About Estate Planning—and Why You Should Start Now.” Estate planning concerns decisions about distributing your property when you die, and while that is not as much fun as planning a trip to an adventure park, it has become increasingly important for adults of all ages.

A survey by caring.com found that the number of young adults with a last will (ages 18-34) increased by 63 percent since 2020. Many tough lessons were learned through the pandemic, and the importance of having an estate plan was one of them.

An estate plan is more than documents for when you die. There are also documents for what should happen if you become disabled. The last will is one piece of the larger estate plan. An estate plan is also an opportunity to plan for wealth accumulation and building generational wealth, at any level.

Estate planning is for everyone, regardless of their net worth. People with lower incomes actually need estate planning more than the wealthy. There is less room for error. Estate planning is everything from where you want your money to go, to who will be in charge of it and who will be in charge of your minor children, if you have a young family.

It may be rare for both parents to die at the same time, but it does happen. Your last will is also used to name a guardian to raise your minor children. With no last will, the court will decide who raises them.

If you have filled out 401(k) and life insurance paperwork at work, you have started estate planning already. Any document that asks you to name a beneficiary in case of your death is part of your estate plan. Be certain to update these documents. Young adults often name their parents and then neglect to change the beneficiaries when they get married or have children.

For single people, estate planning is more important. If you have no estate plan and no children, everything you own will go to your parents. What if you have a partner or best friend and want them to receive your assets? Without an estate plan, they have no legal rights. An estate planning attorney will know how to plan, so your wishes are followed.

Estate planning includes planning for disability, also known as “incapacity.” If you become too sick to manage your affairs, bills still need to be paid. Who can do that for you? Without an estate plan, a family member will need to go to court to be assigned that role—or someone you do not even know may be assigned that role. Your last will names an executor to manage your affairs after you die.

Work with an experienced estate planning attorney to have your last will, power of attorney, medical power of attorney and other parts of your estate plan created. The court system and processes are complex, and the laws are different in every state. Trying to do it yourself or using a template that you download, could leave you with an invalid last will, which will cause more problems than it solves.

Reference: Real Simple (May 12, 2021) “Everything You Need to Know About Estate Planning—and Why You Should Start Now”

 

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

Do You Have to Do Probate when Someone Dies? – Annapolis and Towson Estate Planning

Probate is a Latin term meaning “to prove.” Legally, a deceased person may not own property, so the moment a person dies, the property they owned while living is in a legal state of limbo. The rightful owners must prove their ownership in court, explains the article “Wills and Probate” from Southlake Style. Probate refers to the legal process that recognizes a person’s death, proves whether or not a valid last will exists and who is entitled to assets the decedent owned while they were living.

The probate court oversees the payment of the decedent’s debts, as well as the distribution of their assets. The court’s role is to facilitate this process and protect the interests of all creditors and beneficiaries of the estate. The process is known as “probate administration.”

Having a last will does not automatically transfer property. The last will must be properly probated first. If there is a last will, the estate is described as “testate.” The last will must contain certain language and have been properly executed by the testator (the decedent) and the witnesses. Every state has its own estate laws. Therefore, to be valid, the last will must follow the rules of the person’s state. A last will that is valid in one state may be invalid in another.

The court must give its approval that the last will is valid and confirm the executor is suited to perform their duties. Texas is one of a few states that allow for independent administration, where the court appoints an administrator who submits an inventory of assets and liabilities. The administration goes on with no need for probate judge’s approval, as long as the last will contains the specific language to qualify.

If there was no last will, the estate is considered to be “intestate” and the laws of the state determine who inherits what assets. The laws rely on the relationship between the decedent and the genetic or bloodline family members. An estranged relative could end up with everything. The estate distribution is more likely to be challenged if there is no last will, causing additional family grief, stress and expenses.

The last will should name an executor or administrator to carry out the terms of the last will. The executor can be a family member or a trusted friend, as long as they are known to be honest and able to manage financial and legal transactions. Administering an estate takes time, depending upon the complexity of the estate and how the person managed the business side of their lives. The executor pays bills, may need to sell a home and also deals with any creditors.

The smart estate plan includes assets that are not transferrable by the last will. These are known as “non-probate” assets and go directly to the heirs, if the beneficiary designation is properly done. They can include life insurance proceeds, pensions, 401(k)s, bank accounts and any asset with a beneficiary designation. If all of the assets in an estate are non-probate assets, assets of the estate are easily and usually quickly distributed. Many people accomplish this through the use of a Living Trust.

Every person’s life is different, and so is their estate plan. Family dynamics, the amount of assets owned and how they are owned will impact how the estate is distributed. Start by meeting with an experienced estate planning attorney to prepare for the future.

Reference: Southlake Style (May 17, 2021) “Wills and Probate”

 

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

A Trust can Protect Inheritance from Relatives – Annapolis and Towson Estate Planning Attorneys

It is always exciting to watch adult children build their lives and select spouses.  However, even if we adore the person they love, it is wise to prepare to protect our children, says a recent article titled “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer” from Kiplinger.

After all, why would you want the assets and money that you accumulated over a lifetime to pass to any ex-spouse, if a divorce happens?

With the current federal estate tax exemptions still historically high (although that may change in the near future), setting up a trust to protect wealth from federal estate taxes is not the driving force in many estate plans. The bigger concern is how well your children will do, if and when they receive their inheritance.

Some people recognize that their children are simply not up to the task. They worry about potential divorces, or a spendthrift spouse. The answer is estate planning in general, and more specifically, a well-designed trust. By establishing a trust as part of an estate plan, these assets can be protected.

If an adult child receives an inheritance and commingles it with assets owned jointly with their spouse—like a joint bank account—depending upon the state where they live, the inheritance may become a marital asset and subject to marital property division, if the couple divorces.

If the inheritance remains in a trust account, or if the trust funds are used to pay for assets that are only owned in the child’s name, the inherited wealth can be protected. This permits the child to have assets as a financial cushion, if a divorce should happen.

Placing an inheritance in a trust is often done after a first divorce, when the family learns the hard way how combined assets are treated. Wiser still is to have a trust created when the child marries. In that way, there is less of a learning curve (not to mention more assets to preserve).

Here are three typical situations:

Minor children. Children who are 18 or younger cannot inherit assets. However, when they reach the age of majority, they can. A sudden and large inheritance is best placed in the hands of a Trustee, who can guide them to make smart decisions and has the ability to deny requests that may seem entirely reasonable to an 18-year-old, but ridiculous to a more mature adult.

Newlyweds. Most couples are divinely happy in the early years of a marriage. However, when life becomes more complicated, as it inevitably does, the marriage may be tested and might not work out. Setting up a trust after the couple has been together for five or ten years is an option.

Marriage moves into the middle years. After five or ten years, it is likely you will have a clearer understanding of your child’s spouse and how their marriage is faring. If you have any doubts, talk with an estate planning attorney, and set up a trust for your child.

Estate plans should be reviewed every four or five years, as circumstances, relationships and tax laws change. A periodic review with your estate planning attorney allows you to ensure that your estate plan reflects your wishes.

Reference: Kiplinger (April 16, 2021) “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer”

 

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

Will Inheritance and Gift Taxes Change in 2021? – Annapolis and Towson Estate Planning

Uncertainty is driving many wealth transfers, with gifting taking the lead for many wealthy families, reports the article “No More Gift Tax Exemption?” from Financial Advisor.  For families who have already used up a large amount or even all of their exemptions, there are other strategies to consider.

Making gifts outright or through a trust is still possible, even if an individual or couple used all of their gift and generation skipping transfer tax exemptions.  Gifts and generation skipping transfer tax exemption amounts are indexed for inflation, increasing to $11.7 million in 2021 from $11.58 million in 2020.  Individuals have $120,000 additional gift and generation-skipping transfer tax exemptions that can be used this year.

Annual exclusion gifts—individuals can make certain gifts up to $15,000 per recipient, and couples can give up to $30,000 per person.  This does not count towards gift and estate tax exemptions.

Do not forget about Grantor Retained Annuity Trust (GRAT) options. The GRAT is an irrevocable trust, where the grantor makes a gift of property to it, while retaining a right to an annual payment from the trust for a specific number of years.  GRATS can also be used for concentrated positions and assets expected to appreciate that significantly reap a number of advantages.

A Sale to a Grantor Trust takes advantage of the differences between the income and transfer tax treatment of irrevocable trusts.  The goal is to transfer anticipated appreciation of assets at a reduced gift tax cost.  This may be timely for those who have funded a trust using their gift tax exemption, as this strategy usually requires funding of a trust before a sale.

Intra-family loans permit individuals to make loans to family members at lower rates than commercial lenders, without the loan being considered a gift.  A family member can help another family member financially, without incurring additional gift tax.  A bona fide creditor relationship, including interest payments, must be established.

It is extremely important to work with a qualified estate planning attorney when implementing tax planning strategies, especially this year.  Tax reform is on the horizon, but knowing exactly what the final changes will be, and whether they will be retroactive, is impossible to know.  There are many additional techniques, from disclaimers, QTIPs and formula gifts, that an experienced estate planning attorney may consider when planning to protect a family legacy.

Reference: Financial Advisor (April 1, 2021) “No More Gift Tax Exemption?”

 

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

What is not Covered by a Will? – Annapolis and Towson Estate Planning

A Last Will and Testament is one part of a holistic estate plan used to direct the distribution of property after a person has died.  A recent article titled “What you can’t do with a will” from Ponte Vedra Recorder explains how Wills work, and the types of property not distributed through a Will.

Wills are used to inform the probate court regarding your choice of Guardians for any minor children and the Executor of your estate. Without a Will, both of those decisions will be made by the court.  It is better to make those decisions yourself and to make them legally binding with a will.

Lacking a Will, an estate will be distributed according to the laws of the state, which creates extra expenses and sometimes, leads to life-long fights between family members.

Property distributed through a Will necessarily must be processed through a probate, a formal process involving a court.  However, some assets do not pass through probate.  Here is how non-probate assets are distributed:

Jointly Held Property. When one of the “joint tenants” dies, their interest in the property ends and the other joint tenant owns the entire property.

Property in Trust. Assets owned by a trust pass to the beneficiaries under the terms of the trust, with the guidance of the Trustee.

Life Insurance. Proceeds from life insurance policies are distributed directly to the named beneficiaries.  Whatever a Will says about life insurance proceeds does not matter—the beneficiary designation is what controls this distribution, unless there is no beneficiary designated.

Retirement Accounts. IRAs, 401(k) and similar assets pass to named beneficiaries.  In most cases, under federal law, the surviving spouse is the automatic beneficiary of a 401(k), although there are always exceptions.  The owner of an IRA may name a preferred beneficiary.

Transfer on Death (TOD) Accounts. Some investment accounts have the ability to name a designated beneficiary who receives the assets upon the death of the original owner.  They transfer outside of probate.

Here are some things that should NOT be included in your Will:

Funeral instructions might not be read until days or even weeks after death. Create a separate letter of instructions and make sure family members know where it is.

Provisions for a special needs family member need to be made separately from a Will.  A special needs trust is used to ensure that the family member can inherit assets but does not become ineligible for government benefits.  Talk to an elder law estate planning attorney about how this is best handled.

Conditions on gifts should not be addressed in a will. Certain conditions are not permitted by law.  If you want to control how and when assets are distributed, you want to create a trust. The trust can set conditions, like reaching a certain age or being fully employed, etc., for a Trustee to release funds.

Reference: Ponte Vedra Recorder (April 15, 2021) “What you can’t do with a will”

 

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

How Digital Assets Figure into Estate Planning – Annapolis and Towson Estate Planning

Yahoo Finance’s recent article entitled “Who inherits your selfies when you die?” laments that the internet ruins everything, and a simple death is no exception.

If asked to close out a family member’s estate, it now includes social media accounts, cloud storage and frequent flyer miles.

Digital assets are files created electronically.  They exist as data held on a digital storage drive or computer hard drive.

However, items made by hand can become a digital asset, such as a painting or handwritten notes become digital assets, if they are scanned and uploaded to a computer.

It can also be images, photos, videos, files containing text, spreadsheets, or slide decks.

The first time anyone has to deal with the laws and rules about incapacity and death, is when a loved one becomes ill or has passed away.  It is an emotionally tough time, and they are likely to be grieving when trying to make important decisions on a project they know nothing about.

Know that we no longer solely have a paper trail to our lives.  Think about the number of digital accounts you log into to manage your household and personal finances.

It is significant, and an executor’s role is now dependent on knowing and finding both our physical and digital lives.

Your executor will not know what you have, unless you tell them in advance.

Your home office is paperless and behind a locked screen.  We all have wishes and preferences about those assets, and these wishes and preferences need to be documented and shared.

Today’s home office is a digital home office.  We will soon have the same spectrum of choices in estate planning for our digital assets, as we have for our physical ones.

However, right now, there are not a lot of pre-planning options.

You should create a list of your digital assets and passwords, so others you trust will know where to find them.  Back up data should be stored in the cloud to a local computer or storage device.

Ask an experienced estate planning attorney about how to organize and address your digital assets in your estate plan.

Reference: Yahoo Finance (April 16, 2021) “Who inherits your selfies when you die?”

 

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

I am Concerned That My Son-in-Law will get My Estate – Annapolis and Towson Estate Planning

A frequent question people have when updating their wills with an experienced estate planning attorney, is whether they still need a trust for an adult child.  The child has graduated college, is on her second well-paying job, is married and has children of her own.  The child is a responsible young adult.  However, an issue may arise with the adult child’s spouse and the potential for divorce.

Kiplinger’s recent article entitled “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer” says that people do not want money they have worked hard for to be directed to their son’s or daughter’s ex-spouse, if a divorce occurs.

The current federal estate tax exemption in 2021 is $11.7 million per person or $23.4 million for married couples, so creating a trust to save taxes upon death is not as big a factor as it used to be.  The larger question is how well we think our children will handle receiving a large sum of money.  Some parents want a trust because they worry about their adult child losing thousands of dollars of their inheritance as a result of a failed marriage.  By creating a trust as part of their estate plan, these parents can help protect their child’s assets in a divorce settlement.

In many situations, if a child receives an inheritance and combines it with assets they own jointly with their spouse, like a bank account, car or house, depending on where they live, the inheritance may become subject to marital property division, if the adult child and spouse later divorce.  However, if the child’s inheritance is in a trust account, or they use trust funds to pay for assets only in their name, the inherited wealth can further be protected from a divorce.

Trusts can be complicated and require more administrative work and costs, which may cost more than just leaving assets outright to your children.  This is worth it for those who want to protect their child’s wealth.  If your child is under 18, you are not thinking about divorce, but because of their youth, leaving assets in trust for them is often a good idea.  A trustee will oversee the child’s assets and will be able to guide them to make sound decisions with any inherited funds.  If your child is newly married, rather than creating a trust right after your child’s marriage, see how the marriage goes over the next five to 10 years.  Then ask yourself how comfortable you are with your child’s relationship and how you feel about your son-in-law or daughter-in-law.

Consider your estate plan as a five-year plan.  Review your will, trust and other estate planning documents every five years.  This can help you carefully evaluate relationships, finances and the emotional dynamics of your family.  An experienced estate planning attorney can also adjust or cancel the trust during your life, as your family situation changes.

Reference: Kiplinger (April 16, 2021) “Worried about Your Child’s Inheritance If They Divorce? A Trust Can Be Your Answer”

 

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

How can I Revoke an Irrevocable Trust? – Annapolis and Towson Estate Planning

Is there a way to get a house deed out of the trust?

Nj.com’s recent article entitled “Can I dissolve an irrevocable trust to get my house out?” says that prior to finalizing legal documents, it is important to know the purpose and consequences of the plan.

An experienced estate planning attorney will tell you there are a variety of trust types that are used to achieve different objectives.

There are revocable trusts that can be created to avoid probate, and others trusts placed in a will to provide for minor children or loved ones with special needs.

Irrevocable trusts are often created to shield assets, including the home, in the event long-term nursing care is required.

Conveying assets to an irrevocable trust typically starts the five-year “look back” period for Medicaid purposes, if the trust is restricted from using the assets for, or returning assets to, the individual who created the trust (known as the “grantor”).

When you transfer assets to a trust, control of the assets is given to another person (the ‘trustee”).

This arrangement may protect assets in the event long-term care is required. However, it comes with the risk that the trustee may not always act how the grantor intended.

For instance, the grantor cannot independently sell the house owned by the trust or compel the trustee to purchase a replacement residence, which may cause a conflict between the grantor and trustee. Because the trust is irrevocable, it could be difficult and expensive to unwind.

In light of this, it is important to designate a trustee who will work with and honor the wishes of the grantor.

An experienced estate planning attorney retained for estate and asset planning should provide clear, understandable and thoughtful advice, so the client has the information needed to make an informed decision how to proceed.

Reference: nj.com (April 6, 2021) “Can I dissolve an irrevocable trust to get my house out?”

 

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

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”

 

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