Do Grandchildren Get Some of the Estate If Their Dad Dies before Me? – Annapolis and Towson Estate Planning

It is not that uncommon that a child dies before a parent. The question then arises about who gets that share. Is it the children of the decedent child (the will maker’s grandchildren), or do the will maker’s other children split the share of the decedent child?

Nj.com’s recent article entitled “Who gets this inheritance if a beneficiary dies?” explains that the language of the will itself governs what happens with each beneficiary’s share in the event one of the adult children dies before his or her parents.

Some wills divide the remainder among the will maker’s children who are still living. With this, the surviving siblings would receive the entire estate.

This is called “per capita,” which is a Latin phrase that translates literally to “by head.” In a per capita distribution, each designated beneficiary receives an inheritance only if they’re living when the inheritance vests (at the will maker’s death).

If a beneficiary dies before this, that beneficiary’s share is divided among the surviving named beneficiaries. As a result, the children of the decedent beneficiary get nothing, unless they are specifically designated as beneficiaries.

However, the more common approach is for a will to state: “I give, devise and bequeath my residuary estate to my descendants, per stirpes.”

Per stirpes is a Latin phrase that translates literally to “by roots” or “by branch.” A per stirpes distribution means that a beneficiary’s share passes to their lineal descendants if the beneficiary dies before the inheritance vests. Per stirpes effectively designates a class of beneficiaries to receive estate property, rather than designating only specific individuals to inherit property.

Therefore, providing this language in the will means that if a child predeceases the testator and the predeceased child has surviving descendants, that predeceased child’s share will go to that predeceased child’s descendants … that would be the will maker’s grandchildren.

Ask an experienced estate planning attorney about how each of these designations would work in your specific situation, when you draft or update your will.

Reference: nj.com (Oct. 28, 2021) “Who gets this inheritance if a beneficiary dies?”

 

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

Do I Need a Living Trust? – Annapolis and Towson Estate Planning

Yahoo Finance’s recent article entitled “What Is a Living Trust in Real Estate?” says that a living trust is a legal document that makes it easier for you to pass assets to your loved ones after you die. It allows property to be transferred directly to your designated beneficiaries without needing to go through probate. A living trust will be managed by a trustee, while you are still living (that can be you).  You will name a successor trustee who will manage the trust, if you become incapacitated and distribute its assets after you pass away.

While the trust holds these assets, you are still considered in possession of them while you are alive (assuming you named yourself the trustee). Therefore, you can move assets in and out of the trust as you see fit. If you have a revocable trust, you can even cancel or change it at any time.

Creating a living trust can simplify the inheritance process for your family when you die. That is because any property you own is subject to the probate process when you die. Probate can be a very lengthy process.

While waiting, your family may be unable to manage, use, or sell the property you left behind. Until probate is complete, your executor will be responsible for maintaining the property, including paying taxes, making repairs and paying the bills (like insurance).

A living trust is a beneficial financial product for many reasons. First, it bypasses the probate courts. There are some types of assets that will pass on to your beneficiaries directly, and others will need to clear the probate courts before they can be disbursed to your beneficiaries. This probate process can take months or even years and can be both costly and complicated.

Another benefit of a trust is that you keep control of your estate, even after you pass away. A living trust lets you set rules, timelines and stipulations for your estate. This may be something like keeping your children from getting a substantial sum of money in their early 20s. With a living trust, you can state instructions for your trustee as to when your kids receive that inheritance. For example, you may provide that they receive their inheritance in stages, like a third at 30, 35 and 40.

Finally, a trust is private. Unlike a will, your trust can be kept as private as you want. Once you pass away, and your will is filed with the probate court, it becomes public record. However, if you would rather have your estate and your wishes kept out of the public eye, a trust can help you do so.  Because a trust skips the probate process, it is also much harder for someone to challenge your directives.

Reference: Yahoo Finance (Oct. 7, 2021) “What Is a Living Trust in Real Estate?”

 

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

Do College Kids Need Estate Planning? – Annapolis and Towson Estate Planning

The topic of estate planning is frequently overlooked in the craze to get kids to college.

When your child leaves home, it is important to understand that legally you may not hold the same rights in your relationship that you did for the first 18 years of your child’s life.

Wealth Advisor’s article entitled “Estate Planning Documents Every College Student Should Have in Place” says that it is crucial to have these discussions as soon as possible with your college student about the plans they should put into place before going out on their own or heading to college. An experienced estate planning attorney can give counsel on the issues concerning your child’s physical health and financial well-being.

When your child turns 18, you are no longer your child’s legal guardian. Therefore, issues pertaining to his or her health cannot be disclosed to you without your child’s consent. For instance, if your child is in an accident and becomes temporarily incapacitated, you could not make any medical decisions or even give consent. As a result, you would likely be denied access to his or her medical information. Ask your child to complete a HIPAA release. This is a medical form that names the people allowed to get information about an individual’s medical status, when care is needed. If you are not named on their HIPAA release, it is a major challenge to obtain any medical updates about your adult child, including information like whether they have been admitted to a hospital.

In addition, your child also needs to determine the individual who will manage their healthcare decisions, if they are unable to do so on their own. This is done by designating a healthcare proxy or agent. Without this document, the decision about who makes choices regarding your child’s medical matters may be uncertain.

Your child should ensure his or her financial matters are addressed if he or she cannot see to them, either due to mental incapacity or physical limitations, such as studying abroad. Ask that you or another trusted relative or friend be named agent under your child’s financial power of attorney, so that you can help with managing things like financial aid, banking and tax matters.

Reference: Wealth Advisor (Sep. 24, 2021) “Estate Planning Documents Every College Student Should Have in Place”

 

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

Who Pays Mortgage When I Pass Away? – Annapolis and Towson Estate Planning

No one automatically assumes your mortgage after your death, says Credible’s recent article entitled “What Happens to Your Mortgage When You Die?”

Your estate executor—the individual you name to carry out your will and manage your estate after you die—will continue to make payments using funds from the estate, while everything is being settled. Later, the person who inherits the home might be able to assume the loan.

If you are a co-borrower or co-signer with the decedent, you do not have to do anything to take over the mortgage because you are already responsible for paying it.

Mortgage loans have a due-on-sale clause, also called an acceleration clause. This requires the loan to be paid in full, if it transfers to a new owner. However, federal law prohibits lenders from accelerating a loan in the event of a borrower’s death.

Those who acquire ownership this way are considered “successors in interest,” and lenders must treat them as if they were the borrower. A successor in interest can assume the loan without having to apply or qualify, and continue making the payments. You also can modify the mortgage to avoid foreclosure, if you want to keep the home.

A significant step in estate planning is drafting a will stating exactly how you want your estate handled after you die and naming an executor.

When planning to bequeath a mortgaged home, you should disclose the mortgage to your executor and close relatives. If you fail to do so, they will not know how to make payments. As a result, the home could be inadvertently lost to foreclosure.

Finally, think about whether the person who inherits your home will be able to afford mortgage payments and upkeep.

An experienced estate planning attorney can help you devise a strategy to keep your gift from becoming a burden to your loved ones.

Reference: Credible (Sep. 24, 2021) “What Happens to Your Mortgage When You Die?”

 

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

Will Gift to Heir Be a Benefit or Burden? – Annapolis and Towson Estate Planning

Research shows that getting a lot of money can have harmful consequences. According to MarketWatch, a study found that a third of people who received an inheritance had negative savings within two years of the event.

Watertown Public Opinion’s recent article “How to make sure you leave inheritances that are helpful, not harmful” says that, on average, an inheritance is gone in about five years because of careless debts and bad investment behaviors.

However, a minority of heirs do not mishandle their inheritances. Nonetheless, it is good to explore exactly what you intend the gift to accomplish, prior to leaving money or property to someone. It is also important to consider the possible negative consequences of a gift.

Determine if the gift will actually cost the recipient time or money. As an example, leaving the family home, vacation property, land, or a ranch to someone can often cost them money they may not have in maintenance or taxes.

You should also consider if it results in causing difficult emotional issues between siblings, and whether it might encourage bad financial behavior. If a beneficiary has not developed healthy financial behaviors, a significant inheritance might actually create new financial troubles instead of addressing existing ones.

A good way to make certain that your bequests are helpful is to explore your own intentions. Ask yourself if you want to leave enough money for the beneficiary to become financially independent and if you would you like your bequest used in a specific way, like to pay off debt or fund education.

Do you care how they spend the money?

Another way to provide for thoughtful, conscious inheritances, is to speak with the intended recipients.

Ask them directly whether someone would want a bequest, such as a valuable art or coin collection or perhaps an expensive vacation home. Discuss the options and possibilities and do not simply take for granted what your heirs might want or what they might do with an inheritance.

Leaving a family member an inheritance can be helpful in some instances, but may be exceedingly destructive in others. No two situations are alike, and if you want to increase the chances that your bequests will be helpful, explore and improve your own relationship with money. Examining that relationship can help make sure that what you leave to heirs will be a benefit not a burden.

Reference: Watertown Public Opinion (Nov. 1, 2021) “How to make sure you leave inheritances that are helpful, not harmful”

 

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

Can My Power of Attorney Change My Will? – Annapolis and Towson Estate Planning

A power of attorney cannot change a properly written will. But note that an agent can make many changes to the assets in the estate, says Yahoo Finance’s recent article entitled “Can a Power of Attorney Change a Will?”

A power of attorney is a document that grants a person, known as the attorney in fact or agent, the authority to make legally binding decisions on your behalf. This can mean managing financial assets, making choices regarding medical care, signing contracts and other commitments.

Your attorney in fact can access confidential materials and their decisions are as binding as if you had made them yourself. In some instances, you may want your power of attorney to be broad and at other times you may want to limit the authority under your power of attorney by time, scope, or both.

Provided a will is valid, an attorney in fact under a power of attorney cannot modify or rewrite it. It is not within their scope of authority, even if it specifically says otherwise in their power of attorney assignment.

A will written by a power of attorney is invalid on its face.

The authority of a power of attorney typically ends once the principal (the person granting authority) dies. At that point, the principal’s legal rights transfer to their estate. The executor of the estate takes over and manages all of the deceased’s affairs from that point forward.

Thus, an attorney in fact appointed under a power of attorney cannot change a will while the principal is alive because they do not have the authority to do so. In addition, they cannot change an estate once the principal dies because their role as attorney in fact under the power of attorney ends with his or her death.

It is important to understand that a person with a general power of attorney can still change the circumstances surrounding a will. He or she can make changes to your estate—essentially, before it becomes your estate. For example, an attorney in fact can make significant financial decisions on your behalf. As a result, they may be able to restructure your personal finances according to their own best judgment. The effect is that it may invalidate sections of your will if the power of attorney dissolves or changes assets that you had assigned to various heirs. This does not always require bad faith and unfair dealing, but that can also occur.

If you include a general power of attorney as part of your elder care plan, you should discuss your estate wishes with your attorney in fact in advance. Remember that issues such as power of attorney and estate law are highly specific to each state. Talk to an experienced estate planning attorney about a power of attorney.

Reference: Yahoo Finance (Sep. 17, 2021) “Can a Power of Attorney Change a Will?”

 

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

What Do I Do with Estate Plan after Divorce? – Annapolis and Towson Estate Planning

If you forget to update your will after a divorce, you risk your assets being distributed to your ex-spouse when you pass away.

Investopedia’s recent article “Here’s what you need to remove and add to your will when your marriage is over,” says that many states have laws that, after a divorce, automatically revoke gifts to a former spouse listed in a will. There are states that also revoke gifts to family members of a former spouse. If you are in a state that has such a law, gifts to former stepchildren would also be revoked after your divorce.

Most married people leave everything in their will to their surviving spouse. If that is the way that your will currently reads, be certain that you change your ex as a beneficiary and add a new beneficiary. Remember that many types of assets are passed outside of a will, such as life insurance, 401k’s and other investments. Therefore, you must change the beneficiary designation on those documents.

Property Transfers. Update your will for any property gained or lost during the divorce. If you have assets that are specifically identified in your will, be sure to update them for any changes that may have happened because of the divorce.

The Executor of your Will. If your ex-spouse is named in your will as your executor, you should change this.

A Guardian for Minor Children. If you have children with your ex-spouse, you will want to update your will to appoint a guardian, if you and your ex-spouse pass expectantly at the same time. If you die, your children will likely be raised by your ex-spouse.

The Best Way to Change Your Will After Divorce. It is easy: tear up your old will (literally) and begin again because you probably left everything or almost everything to your spouse in your original will. Just because you are legally married until a judge signs a divorce decree, you can still modify your will or estate plan at any time. Ask an estate planning attorney because there are some actions you cannot take until the divorce is final.

Can an Ex Challenge Your Will? An ex-spouse or even ex-de facto partner can challenge the will of a former spouse or partner. Whether the challenge will be successful will depend on the court’s interpretation of a number of factors.

Reference: Investopedia (Sep. 14, 2021) “Here’s what you need to remove and add to your will when your marriage is over”

 

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

How Can I Pass Wealth to My Children and Grandchildren? – Annapolis and Towson Estate Planning

AARP’s recent article “6 Ways to Pass Wealth to Your Heirs” says that providing financial security to your heirs after you are gone is a goal you can reach in a number of ways.

Let us look at a few common options, along with their pluses and minuses:

  1. 401(k)s and IRAs. These grow tax-free while you are alive and will continue tax-free growth after your beneficiaries inherit them. Certain heirs, such as spouses and people with disabilities, can hold these accounts over their lifetime. Withdrawals from Roth IRAs and Roth 401(k)s are nearly always tax-free. However, other heirs not in those categories have to empty these accounts within 10 years.
  2. Taxable accounts. Heirs now get a nice tax break on investments that have grown in value over time. Say that years ago you bought stock for $300 that now trades for $3,000. If you sold it now, you would owe taxes on $2,700 in capital gains. However, if your son inherited the stock when it was trading at $3,000 and sold it at that price, he would owe no taxes on the sale. However, note that the Biden administration has proposed limiting the amount of investment capital gains free from taxes in this situation, which could impact wealthier families.
  3. Your home. If you own a home, it will typically be the most valuable non-financial asset in your estate. Heirs might not have to pay capital gains tax on it, if they sell it. However, use caution: whoever inherits the home will have to cover large expenses, such as upkeep and taxes.
  4. Term life insurance. This can be a great tool for loved ones who depend on your income or rely on your unpaid caregiving. You can get a lot of coverage for very little money. However, if you purchase plain-vanilla term insurance and do not die while the policy is in force, you do not get the money back.
  5. Whole life insurance. These policies provide a guaranteed death benefit for heirs and a cash-value component you can access for emergencies, long-term care, or other needs. However, these policies are more expensive than term insurance.
  6. Annuities. A joint-and-survivor annuity guarantees the survivor (your spouse, perhaps) a steady stream of income for life. Annuities with a death benefit can provide a lump sum for a beneficiary. However, while you are alive, annual fees for variable annuities can be high, limiting potential returns. Moreover, cashing in your annuity for a lump sum may be expensive or impossible.

Bonus Tip. Discuss your plans with your children sooner rather than later, especially if you are leaving them different amounts or giving a large sum to a favorite cause, so you have time to explain your rationale.

Reference: AARP (Sep. 9, 2021) “6 Ways to Pass Wealth to Your Heirs”

 

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

What is the Difference between a Trust and a Will? – Annapolis and Towson Estate Planning

Trusts and wills are two different ways to distribute and control your assets after your death. They have some key differences. Family trusts and wills are both worthwhile estate planning tools that can make sure your assets are protected and will pass to heirs the way you intended, says MSN’s recent article entitled “Family Trusts vs. Wills: What Are the Differences Between These Estate-Planning Options?”

This article tells you what you need to know about the differences between family trusts and wills to help you avoid estate planning mistakes.

Remember that without a will, the state probate laws will determine what happens to your assets. It may or may not be what you want. In contrast, a will lets you state to whom you want to distribute your assets.

Note that a trust permits the grantor (the person making the trust) to do what he or she wants with the assets. A trust also avoids probate.

A family trust is a wise choice for those who want to provide for the management of their assets if they become incapacitated, people interested in keeping information about their assets and who inherits those assets private and those who have a significant number of assets or a large estate. Here are some other situations in which a family trust would be appropriate to use:

  • Asset protection from creditors and divorce
  • For disabled beneficiaries who need to qualify for government benefits
  • For tax-planning; and
  • For cost and time efficiency over a lengthy probate process.

Everyone should have a will. It is a way to leave bequests, nominate guardians for a minor child and an executor.

If you have a family trust, you still need a will. There may be some assets not owned by the trust, such as vehicles and other personal property. There may also be payments due you at your death. Those assets must go through probate, if not arranged to avoid probate.

Once that process is complete, the assets are distributed to the family trust and are governed by its provisions. This is what is known as a “pour-over will” because the assets “pour over” to the family trust.

Contact an experienced estate planning attorney to discuss the estate planning options available for you and your situation.

Reference: MSN (Aug. 27, 2021) “Family Trusts vs. Wills: What Are the Differences Between These Estate-Planning Options?”

 

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

Do I Need a 529 Education Savings Plan? – Annapolis and Towson Estate Planning

Statecollege.com’s recent article entitled “Did You Know 529s Are Powerful Estate Planning Tools?” explains that specialized savings accounts, informally referred to as 529s, could be at the top of your list. These accounts have a number of advantages for beneficiaries. There are also benefits for the donors in the high maximum contribution limits and tax advantages.

Special tax rules governing these accounts let you decrease your taxable estate. That might minimize future federal gift and estate taxes. In 2021, the lifetime exclusion is now $11.7 million per person, so most of us do not have to concern ourselves with our estates exceeding that limit. However, remember that the threshold will revert back to just over $5 million per person in 2026.

Under the rules that govern 529s, you can make a lump-sum contribution to a 529 plan up to five times the annual limit of $15,000. As a result, you can give $75,000 per recipient ($150,000 for married couples), provided you document your five-year gift on your federal gift tax return and do not make any more gifts to the same recipient during that five-year period. You can, however, go ahead and give another lump sum after those five years are through. The $150,000 gift per beneficiary will not have a gift tax, as long as you and your spouse follow the rules.

Many people think that gifting a big chunk of money in a 529 means they will irrevocably give up control of those assets. However, 529 plans let you have considerable control—especially if you title the account in your name. At any time, you can get your money back, but it will be part of your taxable estate again subject to your nominal federal tax rate. There is also a 10% penalty on the earnings portion of the withdrawal, if you do not use the money for your designated beneficiary’s qualified education expenses.

If your chosen beneficiary does not need some or all of the money you have put in a 529, you can earmark the money for other types of education, like graduate school. You can also change the beneficiary to another member of the family as many times as you like. This is nice if your original beneficiary chooses not to go to college at all.

In addition, you can take the money and pay the taxes on any gains. Normally, you would also expect to pay a penalty on the earnings but not for scholarships. The penalty is waived on amounts equal to the scholarship, provided they are withdrawn the same year the scholarship is received, effectively turning your tax-free 529 into a tax-deferred investment. You can always use the money to pay for other qualified education expenses, like room and board, books and supplies.

Reference: statecollege.com (Aug. 29, 2021) “Did You Know 529s Are Powerful Estate Planning Tools?”

 

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