Klitzman Law Group, PLLC

Is It Important to have a Will?

The biggest mistake people make in estate planning is not having a will. Many think that if they don’t have a will, their children or spouses will automatically inherit everything, and their families will know what to do. This simply isn’t true.

A recent article, “5 reasons why having a will is important for you and your loved ones” from Microsoft Start, says depending upon where you live, if you die without a will, your estate will be distributed according to the laws of your state. It won’t matter what you might have wanted to happen or what your spouse or family thinks should happen. And there won’t be any recourse for your spouse or your children.

Part of your assets to be included in your will are known as “digital assets.” The digital content now being included routinely in estate plans includes blog posts, social media, and email accounts, followed by passwords. Other digital assets include cryptocurrencies, NFTs (nonfungible tokens) and online businesses.

The laws of every state are different, and there are jurisdictions within every state. The laws of intestacy are different in each one. Your entire estate might not go to your spouse but be divided between your spouse and your children. If you’ve remarried and your state’s laws give everything to the spouse, your biological children might be disinherited.

If you have relationships outside of marriage or kinship (also known as “bloodlines”), your state’s laws probably don’t recognize those relationships, no matter how lasting they may be. A close friend, family caregiver, or live-in partner may find themselves left out of your inheritance, even if you’ve told them you’ll take care of them.

There are many instances of live-in partners being evicted from homes when family members inherit real estate property and the partners are not co-owners. This is a dramatic example, but it is all too common.

Parents need a will to designate a legal guardian for minor children. The will is used to name who you want to raise your children and look after them financially. Part of your estate planning should include financial planning in the event of something happening where your children will need to be raised by others. You can set up a trust with trustees in charge of funds for the children’s upbringing. I

If the family includes a special needs individual, the estate plan should include a Special Needs Trust to protect their loved one. An SNT allows monies to be set aside for their benefit without placing their government benefits at risk.

An estate planning attorney can help you clarify your wishes and document them in your will. They’ll also help prepare documents like Power of Attorney, Living Will, Healthcare Directives, and others needed to protect you while you are living.

Reference: Microsoft Start (May 2024) “5 reasons why having a will is important for you and your loved ones”

What Happens If You Inherit a Parent’s House?

Inheriting your parent’s home is a combination of sadness, relief, and worry. The last one can be avoided if the right planning is done in advance, says a recent article, “6 lessons I learned from inheriting a parent’ s house” from Bankrate. When all these feelings are combined with navigating the inheritance among siblings, things can get complicated quickly.

Many people think children automatically inherit a house when their parents die, but this isn’t true. It’s possible for children to inherit without a will, but it doesn’t always happen. Every state has its own laws about who inherits what in the absence of a will. Without a will, there will be unpleasant surprises for the family.

Parents need to talk with their children to tell them if they have a will or estate plan and where the will can be found. If there is no will, the parents must meet with an estate planning attorney as soon as possible to ensure their wishes are documented.

Wills and estate plans are never completely done. Wills need to be updated as circumstances change over time. A will created while a parent is in their 50s may not reflect the family's status ten years later. Let’s say one sibling is disabled and receives means-tested government benefits. If the sibling is left something in the will, their benefits could be cut off. If the sibling was well ten years ago, the estate plan didn’t include a special needs trust, which would allow the family to provide for the disabled sibling without putting their benefits at risk.

The general rule for reviewing wills is to review wills every three to five years. They may not always need updating, but they definitely need reviewing.

Heirs need to put everything in writing if they have been left assets like the family home as a group. Siblings will have different lives and needs, so inheritances need to be clarified and documented. A verbal agreement is asking for trouble, even in the best of circumstances. If something happens to a sibling and their spouse has a different idea of what they want to happen to their share of the house, for instance, the way forward won’t be pleasant.

It's best to plan how your assets should be managed after death. Would a revocable trust work better to keep the family home out of probate? If the home is placed in a revocable trust upon the death of the owner, the ownership of the home goes to a trustee, avoiding probate.

Plan ahead and expect surprises. Inheriting a home isn’t great for every family, as it comes with costs. Property taxes, maintenance, and utility costs might make home ownership a burden rather than a blessing. Parents need to think carefully about whether or not inheriting the home will work for the family.

Consulting with an estate planning attorney in advance can facilitate a discussion about how best to pass the family home onto the next generation or determine it’s not in everyone’s best interests. Leaving a legacy of careful planning is as much a gift to the family as the home itself.

Reference: Bankrate (May 3, 2024) “6 lessons I learned from inheriting a parent’ s house”

Should I have an Irrevocable Trust?

You may have heard the terms “revocable trusts” and “irrevocable trusts.” Both are created to hold assets for different purposes. The differences are explained in a recent article from Kiplinger, “With Irrevocable Trusts, It’s All About Who Has Control.”

Both types of trusts are separate legal entities created through contracts. They name a trustee who is in charge of the trust and its assets. The trustee is a fiduciary, having a legal obligation to manage the assets in the trust for the beneficiaries. Depending on how the trust is structured, these are the people who will receive assets or income generated by the assets in the trust.

With the revocable trust, the grantor—the person who creates the trust—can be a trustee and maintain total control of the trust. They can change the terms of the trust, beneficiaries, and successor trustees at any time. In exchange for this level of control, however, come some downsides. The revocable trust doesn’t have the same level of protection as an irrevocable trust while the grantor is living.

The irrevocable trust trades control for benefits. The grantor of an irrevocable trust can’t change the trust once it’s been created, nor can they move assets in and out of the trust at will. Beneficiaries may not be changed either. However, when the irrevocable trust is properly created with an experienced estate planning attorney, they achieve many estate and tax goals.

Your estate planning attorney will be able to explain which irrevocable trust suits your situation, as there are many different kinds.

An irrevocable trust where the grantor is also the beneficiary is referred to as a Domestic Asset Protection Trust or DAPT. The grantor is allowed to be the beneficiary of the trust, but it has to be created in one of the 20 jurisdictions where the grantor is allowed to be the beneficiary. You can have a trust created in a jurisdiction other than your own.

The first step is to determine how to fund an irrevocable trust, where assets are transferred into the trust. There are fine points here. For instance, you can’t fund an irrevocable trust if there are issues with the IRS or the threat of litigation from a creditor. If the dispute goes to court, a judge can set aside the transfers into the trust as they were made with the intent to circumvent a creditor’s claim under fraudulent transfer laws.

Creating irrevocable trusts, like much of estate planning, needs to be completed before issues arise. Decisions about naming trustees, successor trustees, beneficiaries, and funding sources should be discussed with an experienced estate planning attorney first.

Reference: Kiplinger (April 28, 2024) “With Irrevocable Trusts, It’s All About Who Has Control”

Estate Planning Questions for Couples with a Big Age Gap

Even if it was never an issue in the past, when couples with a significant age gap reach their 60s and 70s, the age difference can present challenges. When one partner is ten or more years younger than the other, assets need to last longer, and the impact of poor planning or mistakes can be far more complex. The article in Barron’s “Big Age Gap With Your Spouse? What You Need to Know” explains several vital issues.

Examine healthcare coverage and income needs. Health insurance can become a significant issue, especially if one partner is old enough for Medicare and the other does not yet qualify. How will the couple ensure health insurance if the older partner retires and the younger depends on the older partner for healthcare? The younger partner must buy independent healthcare coverage, which can be a budget-buster.

Be strategic about Social Security. Experts advise having the older spouse delay taking Social Security benefits if they are the higher-income partner. If the older spouse passes, the younger spouse can get the bigger of the two Social Security benefits. Delaying benefits means the benefits will be higher.

Planning for RMDs—Required Minimum Distributions. Roth conversions may be a great option for couples with a significant age gap. Large traditional tax-deferred individual IRAs come with large RMDs. When one spouse dies, the surviving spouse is taxed as a single person, which means they’ll hit high tax brackets sooner. However, if the couple converted their IRAs to Roths, the surviving spouse could withdraw without taxes.

Estate planning becomes trickier with a significant age gap, especially if the spouses have been married before. Provisions in their estate plan need to be made for both the surviving spouse and children from prior marriages. An estate planning attorney should be consulted to discuss how trusts can protect the surviving spouse, so no one is disinherited. Beneficiary accounts also need to be checked for beneficiary designations.

Couples with a significant age gap need to address their own mortality. A younger partner who is financially dependent on an older partner needs to be involved in estate and finance planning, so they know what assets and debts exist. Life has a way of throwing curve balls, so both partners need to be prepared for incapacity and death.

Plans should be reviewed more often than for couples in the same generation. A lot can happen in six months, especially if one or both partners have health issues.

Reference: Barron’s (May 19, 2024) “Big Age Gap With Your Spouse? What You Need to Know.”

Caregiving and Estate Planning Provides Peace of Mind for All Generations

If your goal is to keep the farm, ranch, or small business in the family, planning, including estate planning and caregiving, is the number one strategy to making it happen. Families may dissolve the farm or business without advance planning to pay for long-term care expenses. A recent article from AgWeek, “Caregiving plans can provide peace of mind for farming and ranching families,” explains what needs to be done.

Part of the issue is that most ranchers and business owners won’t qualify for Medicaid because they own a significant asset. Having to sell off something they’ve worked their entire lives to build is often a result of no planning.

If you have a long-term care insurance policy, it needs to be carefully reviewed to determine what conditions need to be met for benefits to be paid. For example, most policies have a “waiting period,” so you’ll need to plan how to pay for caregiving during the months before the policy kicks in.

There’s also confusion about the difference between Medicare and Medicaid. Medicare is health insurance for medical expenses, while Medicaid is usually used for long-term care and caregiving needs. However, Medicaid is a needs-based program. An estate planning attorney can help the family determine what needs to happen in advance, whether the goal is to protect the farm, ranch, or small business while helping the aging parent become eligible for Medicaid.

Estate planning includes planning for incapacity, which can occur at any time but is more likely as we age. Suppose the individual hasn’t completed a power of attorney, healthcare power of attorney, and other medical directives. In that case, the family will need to go to court to obtain conservatorship or guardianship to take over the person’s financial matters and make healthcare decisions on their behalf. An estate planning attorney can help the family prepare the documents and create a plan.

Having an estate plan in place is also another means of protecting the family’s assets from elder abuse. Everything needs to be documented, and records need to be well-organized so every family member knows where documents are, where assets are and the plan for the inevitable events of aging.

Meeting with an estate planning attorney to create the last will and testament, power of attorney and all other planning documents can minimize the stress and costs involved. Without planning, everything becomes far more complicated, costly and stressful for all concerned.

Reference: AgWeek (May 14, 2024) “Caregiving plans can provide peace of mind for farming and ranching families”

Good News about Social Security

The simplest explanation is that Social Security is paying out more than is being collected and going into the trust funds to make up the difference. If this were to continue, the trust funds would be exhausted at some point, and the only money for benefits would be revenue being collected at the present time. However, there is no need to worry, says this article “Social Security Retirees Just Got Some Good news About Future Benefit Cuts” from yahoo! finance.

While future cuts are a possibility, there’s also good news, according to the 2024 Social Security Trustees Report. The Old-Age and Survivors Insurance (OASI) Fund will be able to continue to pay full benefits until 2033. If nothing changes, there must be a 21% benefit cut. The Disability Insurance (DI) Trust Fund is anticipated to be able to pay benefits until at least 2098.

What would happen if the OASI Fund were emptied? A few things could happen. A law change could combine the OASI and DI funds. Because this is a real possibility, the trustees share data on when the combined funds might be emptied.

In 2023, the Trustees Report said the combined funds would pay full benefits until 2034, but this year’s report shows there’s enough money to pay full benefits until 2035. It also notes that if any cuts were to go into effect, the money coming into Social Security from the combined funds would be able to pay 83% of promised benefits, up from 80% in 2023.

These may sound like small improvements but indicate a trend in the right direction. Much of this is due to stronger-than-expected economic growth, which has led to improved labor productivity and lower projections for long-term disability insurance benefits. Taken together, Social Security’s long-term stability is looking good.

The additional year means any benefit cuts will be smaller than previously anticipated. If needed, Congress could also act to fund the trust funds. There’s still reason to worry about what might happen in 2035, since many seniors count on Social Security to fund most of their retirement.

Lawmakers will unlikely allow this program to be defunded, since seniors continue to be a major voting bloc. Similar situations occurred in the early 1980s, and Congress passed amendments to protect the program.

The new issue? Those amendments from forty years ago included a change to Full Retirement Age, when a person may collect an unreduced benefit. They also imposed a tax on some benefits for high-wage earners. As a result, there may be changes in the future.

Overall, though, the news is good. Hopefully, the good economic news will keep coming to protect Social Security, giving lawmakers more time to figure out ways to fund this vital program.

Reference: yahoo! finance (May 16, 2024) “Social Security Retirees Just Got Some Good news About Future Benefit Cuts”

What Happens When Executors Keep Beneficiaries in the Dark?

A couple who never had children created a will, leaving their six nieces and nephews equal shares of their estate upon their deaths. When the uncle died, the aunt remarried years later but never changed the will, except for giving her second husband a life tenancy in the family home. A recent article from Market Watch asks if what happened next is right: “My late aunt gave her husband a life tenancy in her home—but her attorney won’t even let us see the will. Is this a bad sign?”

The problems began when the aunt’s attorney told the nieces and nephews that they were responsible for the taxes and property insurance while the life tenant lived in the home. The nieces and nephews had never seen a copy of the will, so they are unsure of their responsibilities as remaindermen. Nothing in the estate needed to go through probate, so the aunt’s will was not available to beneficiaries through the county court.

This case illustrates several important estate planning points. First, an executor of a will (or an administrator of an estate) is required to keep beneficiaries “reasonably informed” of the will’s contents after probate. It seems reasonable for the nieces and nephews to be able to see the will.

In most cases, the person given the life tenancy is responsible for paying taxes and property insurance and for the general upkeep of the residence. Any other arrangement is unusual, so the nieces and nephews are right to want to see the will.

The life tenant has rights, including the ability to rent out the property. However, they can’t do anything to decrease the house's value. It’s important to know that elderly people may be unable to apply for Medicaid because they live in the house this way.

If it has been months since the person died and there hasn’t been any communication from the executor, a few different scenarios are possible. It may be that the executor doesn’t know they are required to keep beneficiaries informed. However, it’s also possible that the executor is engaging in illegal behavior.

In most states, the executor is responsible for providing beneficiaries with a complete inventory and appraisal of all the estate's assets. Depending on the state, probating an estate may take more than six months, and creditors have a certain number of months to file a claim.

Suppose the beneficiaries wish to replace the executor. In that case, they can do so by speaking with an estate planning attorney and being prepared to go to court and prove the executor is either self-dealing, incompetent or has a conflict of interest.

However, once the will is probated, it will become part of the public record and must be filed in probate court. Depending on the jurisdiction, the court will give the beneficiaries the right to access the will.

The best option for the nieces and nephews is to consult an estate planning attorney to explore their options. If they live in a different state, a local estate planning attorney can recommend someone in their aunt’s jurisdiction to help.

Reference: Market Watch (April 28, 2024) “My late aunt gave her husband a life tenancy in her home—but her attorney won’t even let us see the will. Is this a bad sign?”

Estate Planning Checklist to Keep You Focused

The estate tax exemption many taxpayers enjoy is scheduled to sunset at the end of 2025. According to a recent article from Kiplinger, “13 Smart Estate Planning Moves,” this large exemption had many people thinking they didn’t need to worry about estate taxes or other ways their legacies could be threatened.

Here are steps to discuss with your estate planning attorney:

Rethink your IRA investment strategy. With limited exceptions, inherited accounts must be emptied within ten years of the original owner’s death.

The age for RMDs (Required Minimum Distributions) rose to 73 in 2023 and will increase to 75 in 2033. You could take a voluntary distribution and convert it to a Roth IRA if you're younger. Taxes are paid when you make a contribution, grow tax-free and there are no taxes on withdrawals. It’s a good deal, depending on your circumstances.

Use the annual gift tax exclusion to make gifts to as many people as you wish, up to $18,000 per person in 2024. A recent change to the 529 College Savings Account rules lets a gift giver fund five years of gifting into one account.

Pay medical or education expenses for someone else. Just remember to make checks out directly to the educational institution or care provider, not to the person.

Set up an irrevocable trust for a spouse, specifically a Spousal Lifetime Access Trust (SLAT), which lets you name a spouse as the beneficiary and children or grandchildren as remainder beneficiaries. Your spouse can tap it for health, education and living expenses.

Preserve assets with a bypass trust, funded at the first spouse's death. The surviving spouse has access to the funds, with expenses for health, education, maintenance and support generally approved.

If you need to protect assets from creditors or litigation, a domestic asset protection trust allows you to keep funds out of your estate while you can be a beneficiary.

Use a revocable trust to manage assets. You won’t get any estate tax breaks. However, it’s easier for a successor trustee to take charge in case of incapacity.

Plan for Medicaid by transferring assets to a Medicaid Asset Protection Trust. MAPTs are state-specific, so consult with an experienced estate planning attorney.

Get your assets organized. If possible, consolidate accounts with one institution. This will keep your estate settlement less complicated and, therefore, less costly.

Reference: Kiplinger (May 9, 2024) “13 Smart Estate Planning Moves”

Who Gets Access to Your Digital Assets Account When You Die?

With so much of our lives now lived online, it’s hard to remember how we lived in a world without email, internet, or mobile phones. However, the question of what happens to our online lives after we die becomes a challenge for loved ones, says a recent article, “One day you’ll leave this earth, but your data will live on in a messy future” from WFIN.COM. Few people 65 and older have a digital estate plan, meaning the next generation must clean up what’s left behind.

Let’s start by defining digital assets and digital legacy. Digital assets are anything in digital format, including photos, videos, emails, social media account content, websites and cryptocurrency. A digital legacy is all the digital assets left behind when someone passes.

A digital legacy may include personal, financial and creative digital property. For instance, if you’re a prolific blogger, you own intellectual property. What do you want to have happen to your blogs after you’ve died? Or, if you have a craft business on Etsy, who will manage it?

Digital assets don’t disappear when you become incapacitated or die. They live on unless someone has been designated as a digital executor and there is a plan to manage the assets. What happens also depends upon the platform’s privacy and legacy policies. In some cases, accounts and their contents are deleted after a certain period of inactivity.

What happens if no digital estate planning takes place?

• Online financial assets, including bank accounts and cryptocurrency, have economic value your executor needs to be able to access and manage. If they can’t locate a username and password or are stymied by third-party verification like facial recognition, gaining access to your assets will take a long time.
• If you’re among the millions who enjoy creating a family history with genealogy websites, years of work you may have wanted to pass to the next generation may become inaccessible or vanish.
• Identity theft and fraud are common occurrences when digital assets are not managed or deleted after the original owner dies.
• Some platforms allow users to name a legacy contact who can access their accounts, gather and download content and close accounts. You’ll need to review your social accounts to determine what each platform permits and set up legacy or memory accounts.

A digital executor doesn’t always need passwords and usernames to delete, memorialize, or close your accounts. However, they will still need an inventory of your accounts and a clear directive explaining what you want to happen to your assets after your passing. Password sharing, while common, is not legal. Most states have passed some version of the RUFADAA—Revised Uniform Fiduciary Access to Digital Assets Act. Talk to your estate planning attorney about incorporating digital estate planning into your estate plan.

As a side note, if gathering your account information seems overly burdensome, imagine what would happen if your executor, already busy with so many tasks, needed to become a digital sleuth to determine what assets you have and how to access them.

Reference: WFIN.COM (May 11, 2024) “One day you’ll leave this earth, but your data will live on in a messy future”

Another Lesson in Updating Beneficiary Designations

 

 

 

 

 

If you’re among the many who have IRAs, 401(k)s and other retirement accounts with beneficiary designations, now is the time to ensure they have been updated to reflect your current wishes. This is the vital lesson sent by a federal court case described in the article “Court Backs 401(k) Beneficiary Designation in Estate Claim” from the National Association of Plan Advisors.

Jeffrey Rolison worked for Proctor & Gamble for many years. When he enrolled in the company’s 401(k) plan, he named his then-girlfriend, whom he lived with, as the sole beneficiary of his 401(k). The couple broke up in 1989—just two years after he had enrolled in the 401(k) plan.

Over the years, the account grew to $754,000. However, Rolison never changed the beneficiary. According to the court decision, The Proctor & Gamble U.S. Business Services Co. et al. v. Estate of Jeffrey Rolison et al., heard in the U.S. District Court for the Middle District of Pennsylvania, P&G notified Rolison many times over the years of his ability to change the beneficiary designation. The option was sent by mail in the earlier years of his enrollment, and as time passed, it became an option he could have taken care of online.

The court said he was given notice and direction but never changed his beneficiary. Estate planning attorneys reading this already know the outcome. However, the estate devoted countless years and resources to battling this issue, with many motions for summary judgment, a denied motion for certification to appeal and many, many motions for reconsideration.

The judge in the case for summary judgment, where the court decides without going to trial, explained the party seeking summary judgment is responsible for informing the court of the reason for its request and demonstrating the absence of a genuine dispute of fact. The court said it failed to do so.

Rolison’s estate claimed that Proctor & Gamble violated its fiduciary duty under ERISA (a federal law governing employee benefits) by not disclosing material information to Rolison. The estate said P&G should have told him who his designated beneficiary was, not just his option to make a change. The argument was that the company only provides “generic beneficiary information” to employees and doesn’t inform them of their “specific beneficiary status.”

Proctor & Gamble argued that the Court had, in previous decisions, determined that the company had fulfilled all disclosure requirements. The estate didn’t disprove that P&G informed Rolison and all employees how to change their beneficiary designations. The judge agreed.

The court said Rolison had been informed of his options over the course of thirteen years. If he didn’t go online to add a designation, the paper beneficiary designation would stand.

Although the relationship had ended two decades earlier, Rolison had such a large account that he didn’t update his beneficiary designation. Was this what he intended? It’s possible, but it stands as a strong example of why beneficiary designations need to be updated: to ensure that assets pass to the right person and to prevent an estate from being depleted by long, costly litigation.

Any time you meet with your estate planning attorney to update your estate plan should be a reminder to update beneficiary designations. However, if you haven’t reviewed these accounts in years, review them immediately.

Reference: National Association of Plan Advisors (May 6, 2024) “Court Backs 401(k) Beneficiary Designation in Estate Claim”