Klitzman Law Group, PLLC

Curated a Collection? You Need an Estate Plan for It

If you’re wondering if you need an estate plan, the simple answer is yes. The reasons are many, but among them is the answer to this question posed in an article from Morningstar, “A dilemma of the ultrawealthy: Who inherits the wine and art collections?”

The number of zeroes appearing after your estate value doesn’t matter to the courts who will decide what happens to your assets after you die if you don’t have a will. If you don’t have a last will and testament, your family will have to go through months or even years of sorting through your affairs. The entire estate will go through probate, which is costly and takes time. Without an estate plan, your heirs will see any inheritance shrink after state and federal estate taxes.

A better way is to have an estate plan created. You need a Power of Attorney and Healthcare Proxy to allow a trusted person to make legal and medical decisions on your behalf if you become incapacitated. You need a will to name an executor, a person of your choosing, to manage your estate after your death. If you have young children, you want to name the person who will take care of them and not hope the court doesn’t pick a family member whose lifestyle and values don’t match your own.

What about the collection you’ve spent a lifetime diligently assembling, thinking it will have greater value for heirs than a traditional financial investment plan? Whether you have a coin or stamp collection, own a small fleet of midcentury cars, or enjoyed curating a wine cellar, your collection has limited appeal for your heirs. Younger generations aren’t as interested as you think in these items, either as a means of amassing wealth or something to fight with their siblings over when you’ve passed.

When faced with shrugs over who wants what from the collection, most people put their heads in the sand and expect the children to figure it out after they’re gone. For one sports memorabilia collector, the eye-opening moment came when he sat down with his adult children to discuss their role in continuing his collection. No one was interested.

His response was proactive. He created a spreadsheet of the assets meticulously documenting their provenance, value and where they could best be sold. He also included information tracking the life-cycle of the collectibles, documenting the family’s lack of interest in the collection and insurance protection.

Another example of the importance of documentation came from the experience of a woman whose uncle had a massive coin collection. Twenty boxes of coins were set out in the family’s den, and she spent evenings creating an equally massive spreadsheet. The spreadsheet was submitted to a reputable antiques company, which sent a representative to review and purchase the collection only because the documentation was thorough and the coins had some value. It must be said—the coin collection was valued at far less than expected.

Depending on the collection, your estate planning attorney may also suggest making a charitable donation to a local, regional, or major cultural center. If you have a collection of movie posters, for instance, a local independent cinema might be able to auction them off at a fundraiser.

Addressing collections of any kind and planning for their eventual sale or distribution should be part of your estate plan. An experienced estate planning attorney can help create an estate plan to protect your assets, even those your heirs don’t value the way you do.

Reference: Morningstar (September 3, 2024) “A dilemma of the ultrawealthy: Who inherits the wine and art collections?”

Are Your Passwords Protected as Well as Your Estate?

In the past, an estate plan distributing traditional assets like real estate, jewelry, investment accounts and tangible personal property was enough. Everyone needs an estate plan, including a last will and testament, Power of Attorney, Healthcare Proxy and possibly trusts. However, today, as explained in a recent article from HeySoCal, “What happens to your passwords when you die?” digital assets may be even more important than traditional assets. Unless you’ve planned in advance for these assets to be managed by a digital executor, they may become a bigger headache for heirs than any outstanding credit card debt.

A survey of 1,000 adults across the U.S. from All About Cookies found that 67% had a plan in place to share log in information for banking accounts, but not in their wills. This is a good news—bad news picture. Any passwords, account numbers or account values included in a will become public record when the will goes through probate. This kind of information—user names, passwords, account numbers or other identifying information—should be included in a separate document and not appear in the will.

Thirty percent of people in relationships said their partner could access their online accounts upon death. This means 70% of people surveyed will have to figure out how to access accounts, pay bills and undo their partner’s digital lives.

Another interesting fact: half of the married people surveyed reported they had an online account their spouses don’t know about, with a median value of $8,000.

Whether you spend eight hours a day on Facebook or have sworn off social media after your teenage grandchildren shared one secret too many, you probably have a bigger digital footprint than you think. Here’s where most people’s digital assets live:

• Banking Accounts
• Computer/Tablet/Phone User Names And Passwords
• Investment and Retirement Accounts
• Bills and Utility Accounts
• Email Accounts
• Social Networking
• Photos and Videos
• Cryptocurrency Wallets
• Personal Websites
• Business Accounts
• Airline and Hotel Reward Accounts

The report found that nearly 40% of respondents store their passwords in their heads, and 39% were found to use simple, easily hackable passwords because they are easier to remember.

If you name your spouse, an adult child or a trusted person as your digital executor and make sure they have access to your digital assets, your family may be spared cybertheft, identity theft and lost assets. If you are comfortable using an online password manager, find one that allows you to name someone to manage the assets upon your passing. If you’re more of a hard-copy person, use a notebook for your passwords. Go through your digital assets and see if there is a way to name a person to be your legacy contact.

In the past, notices from banks, credit card companies, investment companies and tax bills arrived by mail, so an overlooked account would eventually surface. However, in today’s digital world, a post-mortem asset search is far more difficult. Make it easier for your loved ones and create a plan for digital assets. Your estate planning attorney will know what state-specific laws guide this new asset class.

Reference: HeySoCal (August 27, 2024) “What happens to your passwords when you die?”

When Should I Start Doing Estate and Tax Planning?

Estate planning creates a legal framework to manage assets in the event of incapacity or upon death and should include tax planning to protect income and inheritances. A recent article from The Street, “Don’t Be a Grasshopper: The Importance of Proactive Tax and Estate Planning,” references Aesop’s fable of the Ant and the Grasshopper. The ants are always hard at work, preparing for winter, while the grasshoppers play all summer and starve when winter comes.

Fundamentals for estate plans include having an experienced attorney create a last will and testament to convey your wishes for asset distribution. This is also done through the creation (and funding) of trusts, which take assets out of your personal ownership and place them in a separate legal entity. One of the many benefits of trusts is that assets are distributed directly to beneficiaries, without needing to go through probate.

Other estate planning documents include a Power of Attorney, which designates another person of your choice to handle financial and legal decisions on your behalf if you are incapacitated. The Power of Attorney ends upon your death, so it is only used while you are living. Similarly, a Medical Power of Attorney, sometimes known as a Healthcare Proxy, is used to give another person, also of your choosing, the power to be involved with your medical care, speak with your health insurance provider and be part of your health care decision making.

Which estate and tax planning strategies you need will depend in large part upon the size of your estate. If you own a home, a car and investment accounts, a will is needed to distribute your assets and different types of trusts may be needed. If the family includes a disabled family member, you should speak with an estate planning attorney about Special Needs Trusts. If long term care is a concern, a Medicaid Asset Protection Trust may be helpful to protect the well spouse and family.

Proactive planning can be a little more complex for those with significant wealth. Strategies like a Dynasty Trust or Irrevocable Trust may be needed for those whose estates reach estate tax exemption thresholds, which are likely to shrink considerably in the future.

When possible, communicate your wishes with the family so there are no surprises after your passing. Decide how transparent you can be with your children and grandchildren. In some families, this is accomplished with a series of family meetings. For others, holding a meeting in the estate planning attorney’s office with the attorney present to answer questions can be more productive.

Regardless of your estate size and family dynamic, taking the time to create or update an estate plan is a kindness to your loved ones. They’ll know you made an effort to prepare so they can celebrate your life and hold their memories close without the distraction of family fights or protracted court proceedings.

Reference: The Street (September 3, 2024) “Don’t Be a Grasshopper: The Importance of Proactive Tax and Estate Planning”

Should I Give My Kid Their Inheritance Before I Die?

Some wealthy people have publicly declared their intention to give away their wealth before they die to see their philanthropy's impact. However, these people usually don’t have to worry about making ends meet, unexpected medical bills, or expensive home repairs. A recent article, “How to Give an Inheritance While You’re Alive,” from Kiplinger, agrees that more than half of Americans in their 60s will need long-term care services at some point. Don’t rush to give away your kid’s inheritance just yet.

For most people, the solution is transferring wealth through estate planning, using a last will and testament. You won’t need the assets after death; your loved ones will be grateful for the bequest.

However, there are some downsides to hanging on to all of your assets while you’re living. If you’re lucky enough to live into your nineties, your “kids” may be in their sixties or seventies when you die. Their need for help with a deposit to buy a home will be long past.

It’s heart-warming to be able to help your family when they can use the help. You get to see how your hard work has helped the next generation. If you’re involved in charitable causes, a donation while you are living allows you to see the impact of your own giving.

Giving with warm hands or while living isn’t possible for everyone. If you think it might be possible, start by crunching the numbers. How much can you really afford to give away? You’ll need to be very intentional about planning. Just deciding to cut back on spending won’t be enough.

Your estate planning attorney may talk with you about using trusts. Creating and funding a trust means lowering your taxable estate, creating more wealth to pass onto heirs and, if you wish, having the trust distribute assets while you’re living. If you use a living trust, you will be able to change the terms whenever you want. Therefore, if it becomes clear you will need the money, you have access to it.

You’ll also need to determine if you have enough funds to pay for long-term care or if you need to begin planning for Medicaid eligibility. A living trust is countable as an asset for Medicaid. However, a Medicaid Asset Protection Trust is not. Your estate planning attorney will help you plan this out.

Home equity is something Boomers, in particular, should consider when considering paying for long-term care. The proceeds from the sale of your home could cover the cost of long-term care. Another option is taking out a reverse mortgage, which lets you enjoy the equity in your home without selling the property.

In 2024, taxpayers may gift up to $18,000 to as many people as they want without incurring gift taxes or filing a gift tax return. Married couples may give up to $36,000 to as many people as they wish. If this might work with your retirement finances, it’s a good way to reduce your estate tax burden.

There are many strategies for making gifts while you’re living. Take a clear, objective look at how much you’ll need to enjoy your retirement years before making any big decisions. Talk with your estate planning attorney about how to make this happen. Congratulations—you’ll get to see your legacy in action if it's something you can realistically do.

Reference: Kiplinger (September 1, 2024) “How to Give an Inheritance While You’re Alive”

What Is a ‘Second Retirement,’ and How to Plan for It?

Many spouses design their retirement finances and estate plans with their spouses. However, planning for the second phase of retirement and estate plans also needs to be done. When the first spouse dies, the surviving spouse would be well served by a plan for the “second retirement,” as explored in a recent article from Nasdaq, “I’m a Financial Expert: 7 Ways Ever Woman Can Prepare for a ‘Second Retirement.’”

In 2021, data from the U.S. Census Bureau shows that 30% of all older women were widows. There were also more than three times as many widows as widowers.

How do you plan? It depends on your age and financial situation. For instance, becoming a widow in your 60s is very different from becoming widowed in your 80s. If your network of friends and family was through your spouse, this may also change dramatically after their death.

The most important question is what the household income will be upon losing the first spouse. This must be considered if the decedent had a pension, annuity, or other income source that stopped upon their death. A surviving spouse can’t claim a deceased spouse’s Social Security benefits in addition to their own. You can only receive one of two benefits—either your retirement or survivor benefit.

Some pensions end upon the account owner's death, while some allow for survivor benefits. These are usually a percentage of the original amount, or they may offer a lump sum payment.

Living costs will change when the first spouse dies. The surviving spouse may be able to move to a smaller home or sell a second car. However, certain costs will go away. Meanwhile, other costs may occur, like one-time taxes on inherited IRAs and taxes on the sale of property and vehicles. Losing the spouse might mean some services, like home maintenance, will need to be paid for.

The death of a spouse will incur certain legal and administrative costs. If there was no will, probate is expensive and will be necessary. An estate planning attorney may be needed to help settle an estate if there was no will, while costs will be less if a will and trusts were created before the spouse died.

Major changes in circumstances like the death of a spouse can throw even the highest functioning people into a difficult emotional state. Planning for the “second retirement” will ideally help the surviving spouse to make the transition into their new life easier, or at least as easy as possible.

Speak frankly with an estate planning attorney about revising your estate planning documents and preparing for the second retirement. There will be more than enough to deal with at the time; it will be better if planning can be done in advance.

Reference: Nasdaq (August 17, 2024) “I’m a Financial Expert: 7 Ways Ever Woman Can Prepare for a ‘Second Retirement’”

What Happens to Digital Assets When You Die?

Remember the phrase “Swedish death cleaning?” This trend was based on decluttering your life while you’re living so you don’t leave a disaster for loved ones when you pass. Digital death cleaning may be even more critical than decluttering because you can’t clean out what you can’t find.

A recent article from The Wall Street Journal, “Why Everyone Needs a ‘Digital Death-Cleaning’ Plan,” offers a way to get organized so digital assets aren’t lost or used for identity theft and even worse cybercrimes.

Create categories and label files. A file with deeply personal materials might be labeled “DoD—Delete Upon Death,” while a file containing information about finances could be labeled “Relevant.” The goal is to let survivors know if they will need the files.

DoD files are stuff you don’t want anyone to read after you’ve passed. Years of complaints about your ex-spouse or the difficulties in raising children might be better-left unread. Another idea is to put these kinds of files on a hard drive somewhere and label them, so they can be destroyed as per the instructions in your will. Don’t count on encryption to protect files. Just as any password can be hacked, any file can be opened.

Relevant files include information about your estate, finances and account passwords. If you keep instructions about heating or air conditioning systems on the computer, they may be needed to keep things running—for example, if your oil burner is cranky and needs extra TLC at the start of every heating season.

You’ll probably have files to label “Memorabilia.” These may be photos, videos, or anything you think children or grandchildren would like to read in the distant future to learn about you, your family history and the world you lived in.

All your organizing will work best if you also leave a physical document with a list of digital assets, such as subscriptions, email addresses, utility login info, etc.

Talk with your estate planning attorney to determine how your state addresses digital assets in wills. Most states have adopted a uniform law concerning digital assets, so you’ll want the estate plan to follow these rules.

Finally, consider digitizing your life. If you have a collection of photos, articles you’ve published, or ephemera, all of it can fit into a shoebox if it’s been digitized and stored on thumb drives. You’ll be able to enjoy it as an online memory book now, and your children won’t be stuck clawing through an endless series of boxes later. If you’re a true packrat, chances are your children know it and will appreciate your efforts to lighten their lives after you’ve passed.

Doing your digital cleaning is also the time to review your estate plan, especially if it’s been a few years since it was reviewed. If you don’t have an estate plan, now is the time to meet with an experienced estate planning attorney to create a will, plan for incapacity with a Power of Attorney and Health Care Power of Attorney and related documents depending upon your unique situation.

Reference: The Wall Street Journal (Aug. 6, 2024) “Why Everyone Needs a ‘Digital Death-Cleaning’ Plan”

Do You Need an Estate Plan?

No matter your age or assets, estate planning attorneys know why everyone needs an estate plan, as explained in the article “Estate planning: Not just for the wealthy” from The Las Cruces Bulletin. The word “estate” is the legal term meaning all a person’s possessions. An estate plan also does more than distribute possessions after a person dies.

Establishing an estate plan protects people if they become disabled or incapacitated. If you can't, it allows you to name another person to manage your financial and legal affairs. This is done through a Power of Attorney. Once you have the right person and the right Power of Attorney in place, it will be easier for the business side of your life to be taken care of if you are physically or mentally unable to complete basic tasks necessary to maintain the business side.

If you die without a last will and testament, your property will be distributed according to the state’s laws. Suppose you become incapacitated and there is no Power of Attorney in place. In that case, your family must go to court and pursue a guardianship and conservatorship proceeding to take charge of your medical care and property. It is not only stressful and expensive. There may also be decisions and actions taken before the court finalizes these arrangements. The family won’t be able to do anything while waiting.

People often come to an estate planning attorney’s office only after experiencing the loss of a parent or family member who didn’t have an estate plan. When they have had to go through court proceedings, not be able to access accounts and wrestle with the many decisions surrounding settling an estate, they find themselves vowing not to put their own loved ones through the same difficult situation.

An estate planning attorney will also help the family prepare for things like funeral services. These are not easy conversations, but they are necessary if you want your wishes to be followed. If, for instance, your preference is cremation rather than burial, these wishes would need to be made clear. Do you want your family to follow your faith’s traditions in a memorial service? They might not if you don’t tell them.

Funeral and memorial wishes should not be in your will. The last will and testament may not be reviewed for several weeks after death or longer after funeral and memorial services. Your estate planning attorney will know the best way to include your intentions in your estate plan.

An estate planning attorney can also help create a Special Needs Trust, which is used if someone in the family is receiving government benefits because of a disability. These benefits are “means-tested,” and an inheritance could make the person ineligible and undo all their service plans.

All parents must have a last will, which includes directions for who they want to become their children’s guardian to ensure that people of their choice raise them. Otherwise, this is another decision to be made by the court. A family member may not necessarily be chosen to care for your children.

Finally, your estate plan protects the family when there are complicated relationships among family members. Blended families, families with estranged members, or economic disparities among children are especially vulnerable to family fighting when parents die, and assets need to be distributed.

Having an estate plan provides peace of mind for everyone. It establishes your wishes, provides direction, avoids conflict and allows the family to grieve without guessing.

Reference: The Las Cruces Bulletin (Aug. 28, 2024) “Estate planning: Not just for the wealthy”

Don’t Wait until the Last Minute to Address Estate Exemption Changes

As a result of the Tax Cuts and Jobs Act of 2017, individuals and married couples could transfer large amounts of their wealth without incurring federal estate or gift taxes for several years. The exemptions, still now in effect, are $13.61 million for individuals and $27.22 million for married couples.

A recent article from Reuters, “Avoiding the mad dash to 2026: the use of LLCs for vanishing gift exemptions,” advises high net worth individuals and families to consider using a Limited Liability Company to use the high exemption amounts before they decrease.

By forming and funding an LLC and then gifting the ownership interest in the LLC to subsequent generations, donors receive several benefits. They can centralize management of the underlying assets, use gifting to move assets out of their estate before 2026 and integrate the use of LLC gift interests into a long-term estate planning strategy. This strategy may apply to families who own businesses and real estate property.

The federal exemption amounts need to be used by December 31, 2025. If an individual only uses $5 million of their exemption before the deadline and then the exemption decreases to roughly $7 million, they’ll only have an exemption of $2 million for future lifetime gifts or upon their death. This is a “use it or lose it” opportunity.

The IRS has confirmed it won’t “claw-back” exemptions done before the law sunsets. If a person or a couple uses their exemption in a timely manner, the estate won’t be penalized. Donors who use the full exemption will be grandfathered into the higher exemptions, if the exemptions expire.

If a surviving spouse has remaining Deceased Spousal Unused Exemptions, or DSUE, they must first use all remaining DSUE before using their own exemptions. Let’s say a surviving spouse has $8 million of remaining DSUE and $13.61 of their own gift tax exemption. They would have to make gifts of at least $21.61 to use the entire remaining exemption.

If you are considering using the LLC gift strategy, you should start by forming an LLC and transferring assets into it. The assets may include cash, securities, private investments and real estate that you would otherwise have gifted to the next generation. Once the property has been contributed to the LLC, there will be time to decide how to make the gifts.

It is possible that the legislation could be negotiated towards the end of 2025. However, the LLC will already be in place, and the assets will still be under the donor's control and ownership.

Given the uncertainty over the future of these federal exemptions, meet with your estate planning attorney now to develop a strategy to maximize wealth transfer. Other tools must also be explored, all of which take time to consider and execute.

Reference: Reuters (Aug. 26, 2024) “Avoiding the mad dash to 2026: the use of LLCs for vanishing gift exemptions”

Michael Jackson’s Estate Continues to Unwind

A long-standing tax dispute between Michael Jackson’s estate and the IRS and other legal challenges have still not been resolved after more than a decade. His musical legacy is incredibly profitable, but as explained by a recent article from UPI, “$600M fight over Michael Jackson’s catalog offers estate planning lesson,” the estate battles continue. The latest installment: a California appellate court approved a sale of assets valued at $600 million proposed by Jackson’s estate in late August.

There are lessons to be learned, even if you’re not the King of Pop:

Jackson did have a will, which was signed in 2002. Nearly everything he owned was left in a trust for his children, with his mother receiving a small lifetime interest. The will gave his executors the right to sell estate assets as they think best, with proceeds to be distributed to the children. In February 2024, they negotiated to sell a large part of his catalog to a joint venture with Sony for $600 million. However, Jackson’s mother objected because, as she told the court, Michael had told family members before he died the assets should never be sold.

The court cleared the way for the sale, as a person’s expressed wishes aren’t the same as the instructions in a will, trust, contract, or deed.

In California, as in many states, a will must be in writing, signed by the person making the will—known as the “testator”—and signed by two witnesses. This reasoning is simple. People create wills to preserve reliable evidence of their intent for the estate plan.

However, when the testator’s intent is questioned, courts typically allow witnesses to testify about how the text should be interpreted. Michael’s will gave his executors broad powers to sell estate property. His mother believed he wanted to gift his music catalog to the trust.

Executors need the ability to make decisions about buying and selling estate property during probate, so they don’t need court approval for routine transactions. The overall goal is to increase the value of the estate distributed to beneficiaries.

Estate planning attorneys often advise clients against attaching restrictions to the sale of property. It’s impossible to know how various types of property will be valued in the future. For example, Joseph Pulitzer, a media baron and founder of the Pulitzer Prize, used his will to bar executors from selling any part of his newspaper business. Twenty years after Pulitzer died, trustees had to go to court to gain permission to revise the will so heirs could sell the newspaper. The value of the newspaper had decreased significantly. However, it still had enough value to be salable.

The bottom line is that wills and trusts are enforceable parts of an estate plan. When questions are raised, courts are reluctant to make changes based on posthumous testimony from others.

An experienced estate planning attorney will ensure that your wishes are documented and enforceable in your last will and testament and your trust. Take the long view with your wishes, since restrictions that make sense when your will is created may not serve your heir’s best interests in the future.

Reference: UPI (Aug. 28, 2024) “$600M fight over Michael Jackson’s catalog offers estate planning lesson”

What’s the Primary Purpose of a Living Trust?

One of many options for people who want to pass an inheritance to loved ones is a living trust, also known as a revocable trust. There are several benefits, as detailed in this article from msn.com, “3 Benefits of Using a Living Trust to Pass an Inheritance to Your Family.”

Trusts are used to avoid the probate process. This is a court process where the court evaluates the will, decides whether or not it is valid and then supervises how the assets in the estate are distributed. If you’ve ever had the misfortune of experiencing the probate process, you know it can be stressful.

Probate takes time. While it varies depending on the jurisdiction, it can take months and sometimes years to complete. While the estate is in probate, heirs cannot access estate assets.

Probate can be expensive. There are court costs, administrative fees, legal fees and accountant's fees if the estate is complicated.

Probate is public, and trusts are private. Once a will is entered into probate, it becomes public information and anyone can access it. This includes estranged relatives, creditors, salespeople and thieves. They all look at the will to learn about the size of the estate, asset values, names of beneficiaries and where they live and whatever information is in the will.

The only people who have access to trusts are the estate planning attorney who created them, the trustee and the beneficiaries. This level of privacy is sometimes a bigger reason to have a trust than avoiding probate, especially for people who scammers could target.

Trusts allow flexibility. Living trusts are also called “revocable” because they can be changed during your lifetime. You can change the terms of the trust, the names of the beneficiaries, what assets you want heirs to receive, etc. If you have a big change in your financial situation, good or bad, the trust can be modified.

If a revocable trust sounds like a good option for your situation, speak with an experienced estate planning attorney. They’ll help you create a trust and estate plan to protect you and your loved ones.

Reference: msn.com (Aug. 21, 2024) “3 Benefits of Using a Living Trust to Pass an Inheritance to Your Family”