Klitzman Law Group, PLLC

Does Marriage have an Impact on a Will?

“Being married is significant both for a married person’s lifetime estate planning and subsequent administration of the estate at death. Important rights and responsibilities exist between married persons.”

It is very difficult to challenge a marriage once it has occurred, since the capacity needed to marry is relatively low. Even a person who is under conservatorship because they are severely incapacitated may marry, unless there is a court order stating otherwise, says the article “Estate Planning: On Being Married, estate planning and administration” from Lake Country News. This unfortunate fact allows scammers to woo and wed their victims.

What about individuals who think they are married when they are not? A “putative” spouse is someone who genuinely believed they were married, although the marriage is invalid, void, or voidable because of a legal defect. An example of a legal defect is bigamy, if the person is already married when they marry another person.

Once a couple is married, they owe each other a duty to treat each other fairly. In certain states, they are prohibited from taking unfair advantage of each other. Depending on the state of residence, property is also owned in different ways. In a community property state, such as California, marital earnings and anything acquired while married is presumed to be community property.

In a community property state, debts incurred before or during the marriage are also shared. In a number of states, marriage is sufficient reason for a creditor to come after the assets of a spouse, if they married someone with pre-marital debts.

There are exceptions. If a married person puts their earnings during marriage into a separate bank account their spouse is not able to access, then those deposited earnings are not available for debtor spouse’s debts incurred before the marriage took place.

If a married person dies without a will, also known as “intestate,” the surviving spouse is the next of kin.  In most cases, they will inherit the assets of the decedent. If the decedent had children from a prior marriage, they may end up with nothing.

These are all reasons why couples should have frank discussions about finances, including assets and debts, before marrying. Coming into the marriage with debt may not be a problem for some people, but they should be advised beforehand.

A pre-nuptial agreement can state the terms of the couple’s financial health as individuals and declare their intentions. An experienced estate planning attorney can create a pre-nuptial to align with the couple’s estate plan, so the estate plan and the pre-nuptial work together.

Marriage brings rights and responsibilities which impact life and death for a couple. Starting a marriage based on full disclosure and proper planning clears the way for a focus on togetherness, and not solely the business side of marriage.

Do I Need an Attorney for Probate?

“A competent elder law or estate attorney can discuss and use, where appropriate, such provisions as the family exemption, benefits to prepaying inheritance tax, even where the tax return is not yet complete and a listing of itemized deductions.”

Having an estate planning attorney manage the probate process can alleviate a great deal of stress for the family, says the recent article “Reasons to hire a lawyer for probate” from The Mercury.

For one thing, the attorney will know what your state requires in the way of executing the will. You may need to pay a state inheritance tax, or you may have to file certain documents specific to your state. Even if the surviving spouse is the only beneficiary and all assets are either jointly titled or are distributed through beneficiary designations, there are other details you may miss.

A surviving spouse will certainly appreciate not having to undertake a mountain of paperwork or electronic forms on their own, especially if there are no adult children living nearby to help. Which beneficiary form needs to be completed, and what will financial institutions need to change accounts to the proper ownership? It can be daunting, especially during mourning.

Depending upon the state, there may be exemptions, discounts and deductions from the estate. A layperson likely does not know if their state deducts the attorney’s fees and/or the executor fees. Even attorneys who do not practice estate law do not always know about these potential benefits.

An estate planning attorney will also know how long the probate process will take. If the surviving spouse is the executor and is unable to attend probate court, some cases accept a remote process. There are also COVID-specific procedures in some states, which a layperson may not know about.

If there are family disputes between beneficiaries regarding distribution, an estate planning attorney could be a very important resource. There may need to be a settlement agreement created that conforms to the state’s law. If it is not handled properly, the agreement could be deemed invalid if challenged in court.

What if the family home is being sold? Sometimes executors working without an attorney do not realize the requirements from title insurance companies regarding the sale of a property where one of the parties has passed. Failing to make sure that these requirements are met, could delay the settlement of the estate and put the property sale in jeopardy.

If there are health or creditor issues, or disputes over property, an estate planning attorney is invaluable in protecting the surviving spouse and/or executor. In many cases, the estate is left with substantial medical bills, Medicaid claims or related costs. Executors may not know their rights, or how to defend the estate. A knowledgeable estate planning attorney will.

Reference: The Mercury (Feb. 8, 2022) “Reasons to hire a lawyer for probate”

When Should I Update My Estate Plan?

“Getting your estate plan in place is never a ‘one and done’ task. Estate planning is an ongoing process and should be viewed that way.”

Estate planning documents, including wills, trusts, power of attorney and related documents, are designed to reflect life, which inevitably includes a steady stream of changes. Tax laws change, as do families and relationships. A recent article from The Press-Enterprise titled “Avoid probate and audit an estate plan regularly” recommends a review with your estate planning attorney every three to five years. A lot happens in three to five years, including national elections and federal tax legislation.

Start by considering the people you have named to serve after you are incapacitated or after death, including your executor, guardian for minor children, trustee, power of attorney, healthcare proxy and successor trustee. Do you still want those people in their respective roles? Are they still willing to act on your behalf? If they have moved away or have died, you will need to identify new people and update your estate plan.

Has your estate plan stayed current? Some attorneys take a walk down memory lane when they review estate plans, as planning strategies change over the years, reflecting tax laws and social expectations. An old trust might have a provision requiring a division of the trust into two shares at the first spouse’s death. This was done so both spouses’ estate tax exemptions were used. However, the law changed in 2011 and now the surviving spouse automatically preserves the deceased spouses’ estate tax exemption for later use. Dividing the assets into two separate trusts is no longer necessary.

Depending upon your situation, there may be reasons to retain this or other out-of-date provisions.  However, you will not know until you review the documents with an experienced estate planning attorney.

Do your trusts accomplish your current goals? If your trusts were created to protect a spendthrift heir who has now become a model fiscal citizen, you may want to make changes. If you have left your assets outright to beneficiaries and one has entered into a questionable marriage, it is time to protect your beneficiary by having a trust created.

Beneficiary designations should be reviewed every time an estate plan is reviewed. It is likely that you own several assets controlled by beneficiary designations. These may include annuities, life insurance, IRAs, Roth IRAs, investment accounts and many other assets. The beneficiary designation always supersedes the will. Estate planning attorneys, insurance agents and financial advisers see this go wrong all the time.

No matter what your will says, if the name on the beneficiary designation is alive, they will receive the asset. It does not matter if you have not spoken to them in twenty years, or the divorce was ten years ago. This issue is not just about keeping your ex’s hands out of your estate. Here is a good example: a spouse names a now-deceased husband as the beneficiary of an IRA. No contingent beneficiary was named, and no new beneficiary form was updated after the husband died. When the second spouse dies, the default beneficiary of the IRA, worth around $500,000, is the estate. Instead of being distributed directly to a beneficiary, the funds are now part of the probate estate. The IRA will end up in the living trust through a pour-over will stating “I leave everything to my trust.” A simple update could have avoided legal fees, executor fees and delays.

Your estate plan is only as good as its last review. Getting comfortable with the concept of reviewing it every three to five years will protect your goals and your family.

Reference: The Press-Enterprise (Feb. 6, 2022) “Avoid probate and audit an estate plan regularly”

Is a Medicaid Annuity a Good Idea?

“For couples who face depleting their own assets, using a Medicaid-compliant annuity could be a way to preserve assets and still qualify for Medicaid.”

What happens when one spouse needs nursing home care? Medicare typically does not cover long-term care.  The current median monthly cost of a private room at a nursing home is about $8,000, according to the recent article “A ‘Medicaid annuity’ may be a useful option when your spouse needs nursing home care” from CNBC. For people with limited assets and income, Medicaid will pay.

However, what about families who have some assets but are not wealthy enough to be able to pay for their care without leaving the well spouse impoverished? It is a common situation, which requires advance planning. Elder law attorneys work with families to determine what options are available.

For some families, spending down assets by paying off debt or making purchases to qualify is one way. For others, buying a Medicaid Compliant Immediate Annuity is another. This allows the couple to convert countable assets for Medicaid purposes into an income stream for the well spouse.

Medicaid Compliant Annuities are complex financial instruments and are not for everyone. They are often used in a crisis situation, when there are no other options.

Medicaid has a five-year look-back period in most states. The program reviews all assets and transactions from the prior five years to make sure assets were not transferred out of ownership solely so the person can qualify for Medicaid.

All assets are counted, whether they are owned by the ill spouse or the well spouse. The limits on assets, which include cash, investments and bank accounts, among others, vary slightly by state. However, they can be as low as $2,000. An experienced elder law attorney helps to navigate this process.

For a married couple, in some states, the healthy spouse may have up to $137,400 in total assets. Anything above that is considered available to use for long-term care. Some states have limits on income, while other states do not count the healthy spouse’s income.

If a couple has $100,000 above the state’s asset cap, they can purchase an annuity payable to the well spouse, based on their own life expectancy. For the annuity to be Medicaid compliant, it must meet several requirements. The state has to be named the remainder beneficiary for at least the amount Medicaid paid for the sick spouse’s nursing home care. The annuity must be an immediate annuity, meaning the income stream begins immediately, and it must be irrevocable.

Medicaid programs are run by the state, so each state has its own rules, asset limits, etc. A detailed conversation with a local elder law attorney with experience with Medicaid will be necessary. There are some states that do not allow the use of annuities for Medicaid planning.

Reference: CNBC (Jan. 26, 2022) “A ‘Medicaid annuity’ may be a useful option when your spouse needs nursing home care”

Can You Set Up a Trust After Death?

“In estate planning, the use of trusts to manage the distribution of assets is becoming increasingly more common. However, for many people, the idea of setting up a trust during his or her lifetime is overwhelming and perhaps even unnecessary.”

If you want the power of a trust without the work of maintaining it, a testamentary trust may be the right solution for your estate plan. Estate planning attorneys rely on many trusts, but two categories are most common: inter vivos trusts, trusts set up during your lifetime to offer the most flexibility, and testamentary trusts, as described in the article “Trusts can be created after death” from The News-Enterprise.

For an inter vivos trust, the grantor (the person making the trust) places property into the trust. These assets are thereby removed from the probate estate and pass directly to beneficiaries. Placing property into the trust requires having assets retitled and some trusts pay taxes. Not everyone wants to do the work. However, it is not onerous unless the estate is large, in which case an estate planning attorney can manage the details.

The testamentary trust is quite simple. The terms and directions for the trust are the same as in inter vivos trust but are inside the last will and testament. There is no separate trust document. The trust is located within the will.

The costs of creating a testamentary trust are lower, since the trust does not exist until the person dies. Your executor is responsible for transferring assets into the trust. Many wills contain “trigger” trusts, which only become effective if pre-determined circumstances of the beneficiary occur to trigger the trust. If a beneficiary becomes disabled, for instance, the provisions become active.

There are some disadvantages to be aware of, which your estate planning attorney can explain if they pertain to your situation.

Testamentary trusts must by their nature go through probate before they are created. People use trusts to protect their privacy. However, a testamentary trust becomes part of the public record as part of the probate estate. With a testamentary trust, trust documents are private during your life and after you have died.

If dependents require funds from the trust because they are disabled or dependent, they must wait until the grantor dies and probate is completed, since the trust does not exist until after probate. As most people know, probate does not always occur in a timely manner.

Other issues: some life insurance companies may not permit a testamentary trust to be a beneficiary. The trust may only be funded with assets left after creditors have been paid. If there is a home to be sold, assets may not be available for a year or more.

Testamentary trusts do not shield assets during your lifetime, another key benefit for using a trust.

Testamentary trusts offer certain means of controlling distribution of assets after death, but should be considered with all factors in mind, benefits and drawbacks. In estate planning, as in life, it is always best to prepare for the unexpected.

Reference: The News-Enterprise (Feb. 8, 2022) “Trusts can be created after death”

Who Is the Best Choice for Power of Attorney?

“These agents take over your affairs in specific areas, if you become physically or mentally incapacitated.”

Picking a person to serve as your Power of Attorney is an extremely important part of your estate plan, although it is often treated like an afterthought once the will and trust documents are completed. Naming a POA needs to be given the same serious consideration as creating a will, as discussed in this recent article “Avoid powers of attorney mistakes” from Medical Economics.

Choosing the wrong person to act on your behalf as your Power of Attorney (POA) could lead to a host of unintended consequences, leading to financial disaster. If the same person has been named your POA for healthcare, you and your family could be looking at a double-disaster. What’s more, if the same person is also a beneficiary, the potential for conflict and self-dealing gets even worse.

The Power of Attorney is a fiduciary, meaning they are required to put your interests and the interest of the estate ahead of their own. To select a POA to manage your financial life, it should be someone who you trust will always put your interests first, is good at managing money and has a track record of being responsible. Spouses are typically chosen for POAs, but if your spouse is poor at money management, or if your marriage is new or on shaky ground, it may be better to consider an alternate person.

If the wrong person is named a POA, a self-dealing agent could change beneficiaries, redirect portfolio income to themselves, or completely undo your investment portfolio.

The person you name as a healthcare POA could protect the quality of your life and ensure that your remaining years are spent with good care and in comfort. However, the opposite could also occur. Your healthcare POA is responsible for arranging for your healthcare. If the healthcare POA is a beneficiary, could they hasten your demise by choosing a substandard nursing facility or failing to take you to medical appointments to get their inheritance? It has happened.

Most POAs, both healthcare and financial, are not evil characters like we see in the movies, but often incompetence alone can lead to a negative outcome.

How can you protect yourself? First, know what you are empowering your POAs to do. A boilerplate POA limits your ability to make decisions about who may do what tasks on your behalf. Work with your estate planning attorney to create a POA for your needs. Do you want one person to manage your day-to-day personal finances, while another is in charge of your investment portfolio? Perhaps you want a third person to be in charge of selling your home and distributing your personal possessions, if you have to move into a nursing home.

If someone, a family member, or a spouse, simply presents you with POA documents and demands you sign them, be suspicious. Your POA should be created by you and your estate planning attorney to achieve your wishes for care in case of incapacity.

Different grown children might do better with different tasks. If your trusted, beloved daughter is a nurse, she may be in a better position to manage your healthcare than another sibling. If you have two adult children who work together well and are respected and trusted, you might want to make them co-agents to take care of you.

Your estate planning attorney has seen all kinds of family situations concerning POAs for finances and healthcare. Ask their advice and don’t hesitate to share your concerns. They will be able to help you come up with a solution to protect you, your estate and your family.

Reference: Medical Economics (Feb. 3, 2022) “Avoid powers of attorney mistakes”

Can You Get a Tax Deduction for Giving a Gift?

“In terms of federal tax law changes, the last year had much ado but little change.”

Despite multiple proposals and countless legislative revisions, changes to everything from realizations of gains at death, lower federal transfer tax exemptions, raised estate tax rates and eliminating benefits of irrevocable grantor trusts, to name a few, have failed to become reality. However, that doesn’t mean the proposals have disappeared for good, according to the article “Five Situations When Taxable Gifts Make Sense” from Wealth Management. In this environment, estate planning still needs to be done, although the tools to do so may be slightly different in case the tax laws change—or if they don’t.

Here are five different situations where making taxable gifts over the current $16,000 gift tax annual exclusion make sense.

If you want to make a gift. You may want to make a gift, so a child can buy a home or start a business venture. Perhaps you want to bring a child into the ownership of a family business, or you simply want to share your wealth, more than the $16,000 exclusion. The federal gift tax exemption has never been this high, and the only tax downside might be the need to file a gift tax return.

What about the Step Up in Basis? The main reason not to make taxable gifts now is the step-up in income tax basis. Under current rules, assets transferred at death receive a step-up in income tax basis to the value at the time of death. Assets transferred by gift don’t receive this benefit. If you wanted to give a $2 million property with a $100,000 tax basis, you’ll need to be prepared for the tax consequences.

Do you own rapidly appreciating assets? The main reason to make taxable gifts concerns appreciation. If your estate is well over the estate tax exemption, your heirs will save 40 cents for every dollar of appreciation, better in the hands of heirs rather than part of your estate. In this case, giving early makes all the difference. Business owners may give stock based on the growth they hope to achieve for a company.

Do you have a very large estate with high-basis assets and haven’t used your exemption? By all means, be generous! Under the current rules, even with no legislative changes, everything will be cut in half in 2026.

Are you sure your tax liability is going to increase in the future? Then making gifts today will help in the future.

Gifting can be a good way to spread income among family members, while avoiding having assets subject to a wealth tax. Gifting may also work to establish structures, like irrevocable grantor trusts or family limited partnerships, which might be more complicated in the future.

It’s hard to say what the transfer tax rules will be five, fifteen, or fifty-five years from now. However, there are situations where making significant gifts makes sense. Remember, while the only sure things in life are death and taxes, tax laws do change.

Reference: Wealth Management (Feb. 2, 2022) “Five Situations When Taxable Gifts Make Sense”

Can You Get a Tax Deduction for Giving a Gift?

“In terms of federal tax law changes, the last year had much ado but little change.”

Despite multiple proposals and countless legislative revisions, changes to everything from realizations of gains at death, lower federal transfer tax exemptions, raised estate tax rates and eliminating benefits of irrevocable grantor trusts, to name a few, have failed to become reality. However, that doesn’t mean the proposals have disappeared for good, according to the article “Five Situations When Taxable Gifts Make Sense” from Wealth Management. In this environment, estate planning still needs to be done, although the tools to do so may be slightly different in case the tax laws change—or if they don’t.

Here are five different situations where making taxable gifts over the current $16,000 gift tax annual exclusion make sense.

If you want to make a gift. You may want to make a gift, so a child can buy a home or start a business venture. Perhaps you want to bring a child into the ownership of a family business, or you simply want to share your wealth, more than the $16,000 exclusion. The federal gift tax exemption has never been this high, and the only tax downside might be the need to file a gift tax return.

What about the Step Up in Basis? The main reason not to make taxable gifts now is the step-up in income tax basis. Under current rules, assets transferred at death receive a step-up in income tax basis to the value at the time of death. Assets transferred by gift don’t receive this benefit. If you wanted to give a $2 million property with a $100,000 tax basis, you’ll need to be prepared for the tax consequences.

Do you own rapidly appreciating assets? The main reason to make taxable gifts concerns appreciation. If your estate is well over the estate tax exemption, your heirs will save 40 cents for every dollar of appreciation, better in the hands of heirs rather than part of your estate. In this case, giving early makes all the difference. Business owners may give stock based on the growth they hope to achieve for a company.

Do you have a very large estate with high-basis assets and haven’t used your exemption? By all means, be generous! Under the current rules, even with no legislative changes, everything will be cut in half in 2026.

Are you sure your tax liability is going to increase in the future? Then making gifts today will help in the future.

Gifting can be a good way to spread income among family members, while avoiding having assets subject to a wealth tax. Gifting may also work to establish structures, like irrevocable grantor trusts or family limited partnerships, which might be more complicated in the future.

It’s hard to say what the transfer tax rules will be five, fifteen, or fifty-five years from now. However, there are situations where making significant gifts makes sense. Remember, while the only sure things in life are death and taxes, tax laws do change.

Reference: Wealth Management (Feb. 2, 2022) “Five Situations When Taxable Gifts Make Sense”

What Happens to Parents’ Debt when They Die?

“Adult children typically don’t have to pay their parents’ bills. However, there are exceptions.  Even when a child doesn’t have to pay directly, debt could reduce what they inherit.”

There are two common myths about what happens when parents die in debt, says a recent article “How your parents’ debt could outlive them” from the Greenfield Reporter. One is the adult child will be liable for the debt. The second is that the adult child won’t.

If your parents have significant debts and you are concerned about what the future may bring, talk with an estate planning attorney for guidance. Here’s some of what you need to know.

Debt doesn’t disappear when someone dies. Creditors file claims against the estate, and in most instances, those debts must be paid before assets are distributed to heirs. Surprisingly to heirs, creditors are allowed to contact relatives about the debts, even if those family members don’t have any legal obligation to pay the debts. Collection agencies in many states are required to affirmatively state that the family members are not obligated to pay the debt, but they may not always comply.

Some family members feel they need to dig into their own pockets and pay the debt. Speak with an estate planning lawyer before taking this action, because the estate may not have any obligation to reimburse you.

For the most part, family members don’t have to use their own money to pay a loved one’s debts, unless they co-signed a loan, are a joint-account holder or agreed to be held responsible for the debt. Other reasons someone may be obligated include living in a state requiring surviving spouses to pay medical bills or other outstanding debts. If you live in a community property state, a spouse may be liable for a spouse’s debts.

Executors are required to distribute money to creditors first. Therefore, if you distributed all the assets and then planned on “getting around” to paying creditors and ran out of funds, you could be sued for the outstanding debts.

More than half of the states still have “filial responsibility” laws to require adult children to pay parents’ bills. These are old laws left over from when America had debtors’ prisons. They are rarely enforced, but there was a case in 2012 when a nursing home used Pennsylvania’s law and successfully sued a son for his mother’s $93,0000 nursing home bill. An estate planning attorney practicing in the state of your parents’ residence is your best source of the state’s law and enforcement.

If a person dies with more debts than assets, their estate is considered insolvent. The state’s law determines the order of bill payment. Legal and estate administration fees are paid first, followed by funeral and burial expenses. If there are dependent children or spouses, there may be a temporary living allowance left for them. Secured debt, like a home mortgage or car loan, must be repaid or refinanced. Otherwise, the lender may reclaim the property. Federal taxes and any federal debts get top priority for repayment, followed by any debts owed to state taxes.

If the person was receiving Medicaid for nursing home care, the state may file a claim against the estate or file a lien against the home. These laws and procedures all vary from state to state, so you’ll need to talk with an elder law attorney.

Many creditors won’t bother filing a claim against an insolvent estate, but they may go after family members. Debt collection agencies are legally permitted to contact a surviving spouse or executor, or to contact relatives to ask how to reach the spouse or executor.

Planning in advance is the best route. However, if parents are resistant to talking about money, or incapacitated, speak with an estate planning attorney to learn how to protect your parents and yourself.

Reference: Greenfield Reporter (Feb. 3, 2022) “How your parents’ debt could outlive them”