Klitzman Law Group, PLLC

Does Talking with Heirs About Estate Plans Keep Families Closer?

Warren Buffet believes parents should read their wills to their children before they are signed, reports a recent article from yahoo! finance, “Warren Buffet has advice for parents on inheritance planning.” This level of transparency can prevent families from being torn apart after the parents have passed and can serve to bring children closer.

Buffet’s advice is one frequently given by estate planning attorneys to their clients: talk to your heirs about their inheritance while you are living to address issues, clear up any confusion and avoid a lifetime of misunderstandings.

Buffet makes an annual gift to four of his family foundations every Thanksgiving, and this year, he presented a letter on his plans to distribute his wealth. Both Buffet and his late wife Susan believed extremely wealthy parents should be careful to leave their children with enough money to “do anything, but not enough that they can do nothing.”

The three Buffet heirs will not inherit his entire fortune, but they have been put in charge of donating 99.5% of it.

Buffet also has wisdom for families with more modest assets. He said there should be ongoing conversations about the estate plan as soon as children are old enough to understand the concept of an estate plan and the family’s financial situation.

Heirs should be given an opportunity to ask questions. If their suggestions are reasonable, they should be adopted, he said. All three of Buffet's children had questions. Buffet said he often took those requested changes and incorporated them into his will.

The goal is to avoid confusion about decisions while you are still living and can resolve the issues. Many families are pulled apart when parents pass, and their decisions about wealth distribution come as a surprise, creating turbulence among siblings.

While the average American inheritance is more like $46,000, according to the most recent Federal Reserve data (2016-20919), and not the $10 million left to the Buffet children from their mother’s estate, the advice is still good.

Buffet also discussed making sure his children knew early on they would always be asked for donations from sincere people and those who are not. His will contains a provision requiring all three children to approve any donations made by the foundation. They must also give an immediate and definitive response to grant seekers, allowing them to say no because one of their siblings would never agree to the request.

While most people don’t face the challenges of overseeing billions in inheritance or foundations, Buffet’s wisdom in investment and company building appears to extend to his parenting. For the rest of us, a meeting with an experienced estate planning attorney to create an estate plan is the start of a plan to distribute our wealth among heirs.

Families, especially those with many children and the means to be philanthropic, often hold regular meetings with their estate planning attorney and other advisors to discuss wills, trusts and charitable giving to create a legacy.

Reference: yahoo! finance (Nov. 26, 2024) “Warren Buffet has advice for parents on inheritance planning”

Selling Your Business? Plan Early!

If you own a business and plan to sell it eventually, you’ll want to maximize the resulting profits. Start early, says a recent article, “Is the Sale of a Business in Your Future? Be Informed. Plan Early,” from Inc., because it can take years to prepare a business for a successful sale.

A few factors to consider:

• Understand the multiples used by your peer groups and why some companies sell for higher prices than others.
• Adapt and evolve your business, so it achieves a higher value at the time of sale.
• Work with an estate planning attorney and tax adviser to optimize both long-term tax efficiency and financial security after the business is sold, whether for retirement or your next venture.
• Create a plan aligned with goals and values for the capital created when the business is sold.

Understand the value of your business. Key performance indicators (KPIs) reflect more than your sales and overhead costs. Industry trends, potential risks, opportunities and financial and operational health are all concerned. Cash flow matters, as do interest coverage, days sales outstanding, inventory turnover, return on equity and cash flow to revenue. So does customer concentration risk and the management structure in place now and in the future.

How does your company stack up compared to your competitors and industry averages? Planning for the sale of a business requires regular assessment of all these metrics, making the changes needed to improve the value of the business, and continuously measuring and evaluating.

Estate planning protects profits. Today’s historically high estate exemptions, due to sunset in 2026, could play an essential role in whether you plan on selling the business soon. Everyone has a lifetime exemption allowing them to transfer assets during their lifetime or after death without incurring federal estate or gift taxes. In 2024, the lifetime exemption is $13.61 million. Unless Congress acts to renew this level, it will revert to approximately $7 million as of January 1, 2026.

Consider this example: a married couple with a net worth of $50 million has never used any part of their lifetime exemption. With no estate planning, they die in 2026, and the exemption is $7 million. Their combined estate tax liability could be $14.4 million.

Working with an estate planning attorney to prepare to take advantage of the exemption, the couple could use their full lifetime exemption in 2024 or early 2025 by creating irrevocable trusts to benefit each other and their children or grandchildren. With the guidance of an experienced professional, they can transfer a combined $27.22 million into irrevocable trusts, taking this significant amount out of their taxable estate. With planning, they could avoid paying more than $5 million in federal estate taxes.

This is a simplified version of one strategy available. Business owners also have other opportunities to obtain discounts on assets for valuation purposes,

Estate planning attorneys are already working with clients to prepare for the end of these exemption rates. As 2025 progresses, you’ll want to contact your own estate planning attorney sooner rather than later. Discuss your timeline for selling your business in light of these changing exemptions, which may turn out to be a significant factor.

Reference: Inc. (Oct. 28, 2024) “Is the Sale of a Business in Your Future? Be Informed. Plan Early”

How Does a Special Needs Trust Work?

The most straightforward description of a special needs trust is designed to hold assets for a disabled person without putting benefits received from the government at risk. It’s essential for those planning for a loved one’s future to understand how special needs trusts work, how they are funded and what they can and cannot accomplish. A recent article appearing in Success, “What Is a Special Needs Trust?” provides more insight.

Individuals with disabilities who qualify for financial support through Medicaid or Supplemental Security Income (SSI) must have limited assets and income. They become ineligible for benefits and resources if they exceed their state’s limits. A Special Needs Trust (SNT) keeps assets separate.

An estate planning attorney creates the SNT and names a trustee for the funds. The trust's assets are to be used for housing, transportation, education, health and other expenses not covered by government benefits.

In some cases, the SNT shouldn’t be funded until necessary. Once money or other assets are in the trust, its use is restricted. Parents are advised to ensure that well-meaning grandparents or other family members don’t bequeath assets directly to their disabled loved ones. They have the option of creating an SNT of their own or bequeathing assets to the SNT created by the parent.

There are different kinds of SNTs. A Third-Party Special Needs Trust is created by a parent or other involved person to benefit a disabled child. If any assets are in the trust when the beneficiary of the trust dies, the person who created the trust decides who receives them. They may choose to donate the assets to a charity or a family member.

If an adult becomes disabled later in life, a different type of trust is used: a First Party Special Needs Trust. These trusts are created to own the assets of the disabled individual. For instance, if someone becomes disabled due to a car accident and receives a legal settlement, the money would go into the trust. This allows the disabled person to continue to receive government benefits. When the person dies, the funds spent on their care are paid back to the government through the Medicaid Repayment Program.

Parents or loved ones need several other legal documents to protect themselves and their disabled family members. An estate planning attorney will draft a will to ensure that the parent’s assets pass into the Special Needs Trust. Everyone should have a Power of Attorney and Medical Power of Attorney to protect themselves in case of incapacity.

Checking beneficiary designations is especially important if a family member receives funding from a Special Needs Trust. The person named on the beneficiary designations receives assets upon the owner’s death, which could put their government benefits at risk. All assets must go into the Special Needs Trust to protect their Medicaid eligibility.

Planning for the future is essential for parents of disabled children and adults. It can’t fix everything, but it can relieve some of the worry, knowing that their loved one’s future is protected.

Reference: Success (Oct. 20, 2024) “What Is a Special Needs Trust?”

How a Serious Diagnosis Changes Estate Planning

A thoughtful conversation with Jonathan Clements, a long-time and well-respected personal finance reporter, appeared in a recent article on Morningstar, “How Illness Can Change the Way You Approach Your Finances.” Clements, who covered personal finance for The Wall Street Journal for decades, was diagnosed with advanced cancer and told he had about a year to live. He spoke with a reporter about his financial and estate planning decisions considering his illness.

Accelerated Giving to Children. Clements has been giving more to his children and funding 529 plans for grandchildren. He lives in one of the few states with an inheritance tax—Pennsylvania. His wife won’t have to be concerned with the inheritance taxes. However, his children will. The Keystone State puts a 4.5% tax on every dollar they inherit, regardless of whether they live in Pennsylvania.

Streamline Investment Accounts. Even before the diagnosis, Clements noted he had simplified his financial accounts. He’d had four credit cards and trimmed that number to two, learning that closing credit card and bank accounts takes a lot of time and effort.

Shred Outdated Records. Like so many of us, he had bank records going back decades. A shredder has been working overtime in his home, getting rid of bank documents and tax returns dating from 1986. Clements now has seven years of tax returns and supporting materials.

Powers of Attorney. Despite such a serious diagnosis, Clements admitted to not having a Power of Attorney until recently. He had moved from New York to Pennsylvania four years ago to be closer to his daughter and grandsons.  However, he had never gotten around to updating his POA. Sound familiar? If you moved and haven’t updated your POA, now would be a good time to do so.

The Problem with Inertia and Estate Planning. Clements is far from the only person to delay getting estate planning documents taken care of, readily admitting, “The cobbler’s children have no shoes.” Everyone should have an estate plan created by an experienced estate planning attorney, with adjustments made if they move, have children or grandchildren, divorce, or remarry. Many people fail to make these updates, and their loved ones are left to deal with the aftermath.

Talk With Your Family About Your Estate Plan, Finances and Wishes. After decades of writing on personal finance, Clements is well-versed in all personal finance matters, investments and how they impact estate planning. However, when he sat down to speak with his family after the diagnosis to talk about his estate, what he thought was simple and straightforward wasn’t clear to them.

Beneficiary designations, last will and testament, investments, how wills go through probate and how some assets pass through probate, and others don’t were second nature to him but not to family members. The initial family meeting was followed by countless conversations with his two adult children and his wife to clarify things like probate, Roth IRAs versus traditional IRAs and how assets are passed.

Having a conversation with your loved ones and meeting with an experienced estate planning attorney should be done before a terminal diagnosis arrives. It takes time to work through the details, and family members will need more than one conversation to fully understand your wishes. Leaving behind a well-organized estate is leaving a gift to loved ones.

Reference: Morningstar (Oct. 20, 2024) “How Illness Can Change the Way You Approach Your Finances”

Why an Updated Estate Plan Is Critical, Especially Now

Without a properly prepared and current estate plan, property is distributed following the intestacy law of the decedent’s state of residence. In most cases, the laws are centered around kinship, with spouses and children dividing percentages of the estate.

If you had something else in mind, it wouldn’t matter—the time to create and update an estate plan is while you’re living. We all know this. However, many just keep procrastinating. A recent article, “Make sure your estate plan is updated to reflect law changes,” from Los Altos Town Crier, explains precisely what pitfalls your loved ones will face if you put off creating an estate plan until it’s too late.

Probate can be minimized or avoided with a professionally prepared estate plan. The probate experience varies with the jurisdiction: in some courts, it’s a streamlined process, while in others, it is a series of delays, sometimes stretching out over months or even years. The time and costs of probate also depend upon the complexity of the estate. In some states, probate can cost 4—7% of the estate’s total value.

An estate planning attorney works with clients to create a means of passing assets to their intended beneficiaries without court involvement. This takes many different shapes depending on the family, the value of the assets, the structure of ownership, etc. Trusts, payable on death accounts, joint tenancy ownership and LLCs (Limited Liability Corporations) are just a few means of passing wealth without involving probate.

Estate planning attorneys help clients control how and when assets are passed to heirs. For instance, if someone had a child who is exceptionally mature and responsible, they may wish to provide the child with their inheritance upon their death. A trust can be created to address the concerns of a family with an adult child who, for whatever reason, cannot manage money. The trust can have a trustee who will be charged with distributing assets according to directions provided by the parents—after achieving certain milestones, at specific ages, or when the trustee deems funds should be distributed.

Incapacity is unpleasant to consider but is as much a part of estate planning as planning for asset distribution after death. Without having a plan for incapacity, the family may be forced to go to court and petition for a supervised conservatorship, a costly and stressful process.

Incapacity or death are the last things on the minds of new parents. However, when a new child joins the family, updating an estate plan to include naming a guardian becomes critical. If there is no will or the will has never been updated to reflect the addition of children, the court determines who will raise the children. Any interested party may petition the court to be appointed as a guardian. The court ultimately makes the decision. However, the decision by the parents, as expressed in an estate plan, will have more weight than an estranged sibling.

An estate plan protects the family by lessening the chances of family disputes and legal battles, which can lead to lifelong divisions. A meeting with an estate planning attorney will give you insight into the importance of having an estate plan and how it serves as a gift to loved ones.

Reference: Los Altos Town Crier (Oct. 29, 2024) “Make sure your estate plan is updated to reflect law changes”

Estate Planning and Protecting Your Privacy

It’s never too early to start considering your estate plan and preparing for what you want to leave behind. This includes some things, like personal journals, you might not want to leave behind. These are just a few good points made in a recent article from yahoo! finance, “Planning your estate? Decide who gets your passwords—and who will burn your journals.”

 

If your journals are online, you’ll want to leave the platform information, login name and password of whoever you’ve decided is going to manage the journals after you’ve passed. You might consider following the example of one person, who has a pact with her estate planning attorney and close friend: whoever dies first will burn and delete all of their journals. They don’t have deep, dark secrets; they don’t want hurt feelings or misunderstandings with their family members.

Most estate planning focuses on dividing financial assets and personal possessions and deciding who will be the executor, the person in charge of administering the estate. However, there’s more than real estate and investment accounts to consider. Digital assets need to be addressed, and because they exist online and with no paper trail, they can become problematic.

Estate planning attorneys advise everyone to have an estate plan. Don’t think you have all the time in the world to do it, since we never know when an accident or diagnosis may occur. Think through all of your belongings, digital and otherwise, and make a plan so your loved ones aren’t faced with secrets or surprises.

Think of your estate plan as a kindness to loved ones. They are overwhelmed by grief and not in the best state of mind to make hard decisions, like figuring out what kind of end-of-life care you want. By having estate planning documents with specific directions, you’ve helped them through a tough time.

Some people are really good with details. One woman with no living relatives created a notebook with all her accounts and passwords and specific directions for what she wanted to happen with everything she owned, from real estate to a favorite vase. She also planned her own funeral, knowing there wouldn’t be anyone to do it, and having specific thoughts about what she wanted to occur. She listed the guests to be invited and a menu for the funeral luncheon, including who was to cater it.

Most people don’t go to this level of detail. However, it would be helpful if they did.

Regardless of your age, you’ll need to do some estate planning. Start by taking a look at your accounts. If there’s an option to name a beneficiary to inherit the account upon your death, write in a name. If you’re young, it may be a parent or a sibling. If you’re older, it’s more likely to be a spouse or an adult child. Create a notebook of your own with a list of your accounts, including digital assets.

Consult an estate planning attorney to create a will, and don’t neglect a Power of Attorney and a Healthcare Power of Attorney. These last two documents will permit a person of your choosing to take over financial and legal matters in case of incapacity. A healthcare power of attorney, sometimes called a healthcare proxy, lets a person of your choice make decisions regarding healthcare on your behalf. If you don’t have these documents, your loved ones will need to go to court and obtain guardianship and/or conservatorship if you’re too sick or are injured and can’t communicate your wishes.

For some families, the arrival of the holiday season offers many opportunities to discuss their hopes and plans. Even if you only touch on a few points, it might be a good time to start the conversation, providing clarity and promoting the understanding that these topics must be discussed in advance.

Reference: yahoo! finance (Oct. 24, 2024) “Planning your estate? Decide who gets your passwords—and who will burn your journals”