Helping Parents Be Sure Their Families are Protected

Helping Parents Be Sure Their Families are Protected:  Yes, it is old-school, but if your family is on the traditional side, headed up by a breadwinner dad who runs the finances, then you need to make plans to ensure that your family will be okay, if something should happen to you.

This advice also applies to mothers who are the main breadwinners and run their family’s finances, even though the title of this Forbes article is “How Fathers Can Make Sure Their Families Are Financially Protected.”

Do you have enough life insurance? Be sure you’re adequately insured, so your family won’t struggle to pay the bills without your income. Many employees only have enough life insurance from work to cover a year’s worth of salary, which may be enough for some families. However, if your spouse can’t make the mortgage payment on their own, and if they would be unwilling or unable to sell the home, you might want to at least make sure you have enough life insurance to pay off the mortgage. Once you know how much you need, buy a low-cost term policy for the maximum length of time you might need the coverage.

Are your beneficiaries updated on retirement accounts, annuities, and life insurance policies? This is an often overlooked issue. An outdated beneficiary designation could result in your ex-spouse inheriting most of your assets, your latest child being disinherited, or your family having to pay higher taxes and probate fees than is necessary.

Can you add a “payable on death” or a “transfer on death” form on any accounts? You can generally add beneficiaries to bank and investment accounts, saving your family from the time and cost of probate. In some states, you can add beneficiaries to your home and vehicles. Ask your bank for a “payable on death” form and your investment company for a “transfer on death” form.

Is your will drafted?  You need a will to name a guardian for your minor children in most states. It’s a good idea to have a qualified estate planning attorney help you.

Are you organized? Keep a record of where everything and everyone is. You can draft an “In Case of Emergency” folder that has copies of your will, revocable trust, life insurance policy and a summary of brokerage and bank accounts. Let your family know where to find it. You should also share your passwords to your digital accounts.

Making sure that your loved ones are protected when you are too sick or die unexpectedly, is a gift to them, and one that will be long remembered. Make some time in your hectic schedule to prepare your family and yourself for the future.

Reference: Forbes (June 16, 2019) “How Fathers Can Make Sure Their Families Are Financially Protected”

 

How the Blended Family Benefits from an Estate Plan

How the Blended Family Benefits from an Estate Plan: With about half of all marriages ending in divorce, second marriages and blended families have become the new normal in many communities. Estate planning for a blended family requires three-dimensional thinking for all concerned.

An article from The University Herald, “The Challenges and Complexities of Estate Planning for Blended Families, ” clarifies some of the major issues that blended families face. When creating or updating an estate plan, the parents need to set emotions aside and focus on their overall goals.

Estate plans should be reviewed and updated, whenever there’s a major life event, like a divorce, marriage or the birth or adoption of a child. If you don’t do this, it can lead to disastrous consequences after your death, like giving all your assets to an ex-spouse.

If you have children from previous marriages, make sure they inherit the assets you desire after your death. When new spouses are named as sole beneficiaries on retirement accounts, life insurance policies, and other accounts, they aren’t legally required to share any assets with the children.

Take time to review and update your estate plan. It will save you and your family a lot of stress in the future.

Your estate planning attorney can help you with this process.

You may need more than a simple will to protect your biological children’s ability to inherit. If you draft a will that leaves everything to your new spouse, he or she can cut out the children from your previous marriage altogether. Ask your attorney about a trust for those children. There are many options.

You can create a trust that will leave assets to your new spouse during his or her lifetime, and then pass those assets to your children, upon your spouse’s death. This is known as an AB trust. There is also a trust known as an ABC trust. Various assets are allocated to each trust, and while this type of trust can be a little complicated, the trusts will ensure that wishes are met, and everyone inherits as you want.

Be sure that you select your trustee wisely. It’s not uncommon to have tension between your spouse and your children. The trustee may need to serve as a referee between them, so name a person who will carry out your wishes as intended and who respects both your children and your spouse.

Another option is to simply leave assets to your biological children upon your death. The only problem here, is if your spouse is depending upon you to provide a means of support after you have passed.

An estate planning attorney who routinely works with blended families will be able to help you work through the myriad issues that must be addressed in an estate plan. Think of it as a road map for the new life that you are building together.

Reference: University Herald (June 29, 2019) “The Challenges and Complexities of Estate Planning for Blended Families”

 

 

Talking About Financial Planning with Aging Parents

Talking About Financial Planning with Aging Parents: Unless you are raised in a family that talks about money, values and planning, starting a conversation with elderly parents about the same topics can be a little awkward. However, it is necessary.

In a perfect world, we’d all have our estate plans created when we started working, updated when we married, updated again when our kids were born and had them revised a few times between the day we retired and when we died. In reality, a recent report by Merrill Lynch and Age Wave says that only half of Americans have a will by age 50.

More than 50% said their lack of proper planning could leave a problem for their families.

CNBC’s recent article, “How to have ‘the (money) talk’ with your parents,” explains that, according to the study, just 18% of those 55 and older have the estate planning recommended essentials: a will, a health-care directive and a power of attorney.

To start, get a general feel for your aging parents’ financial standing.

This should include where they bank, and whether there’s enough savings to cover their retirement and long-term care. If they don’t have enough saved, they’ll lean on you for support.

Next, start a list of the legal documents they do have, such as a power of attorney, a document that designates an agent to make financial decisions on their behalf and a health-care directive that states who has the authority to make health decisions for them.

You should include information on bank accounts and other assets. It is also important to list their passwords to online accounts and Social Security numbers.

Next, your parents should create an estate plan, if they don’t already have one. When you put a plan in place for how financial accounts, real estate and other assets will be distributed, it helps the family during what’s already a difficult time. Having an estate plan in place keeps the courts from determining where these assets go.

While you’re at it, talk to your own children about your financial picture.

Many people think they don’t need to yet have the talk. However, the perfect time to have the conversation, is when you are healthy.

Here’s an encouraging fact: young adults who discuss money with their parents are more likely to have their own finances under control. They are also more likely to have a budget, an emergency fund, to put 10% or more of their income toward savings and have a retirement account. That’s all according to a separate parents, children and money survey from T. Rowe Price.

For many families, having a conversation during a family meeting at their estate planning attorney’s office while working on their estate plan, is a good way to start a dialogue. Working with a professional who has the family’s best interest in mind, with two or even three generations in the room, can prevent many stressful problems for the family in the future.

Reference: CNBC (June 30, 2019) “How to have ‘the (money) talk’ with your parents”

 

 

How To Avoid Senior Financial Abuse

How To Avoid Senior Financial Abuse:  Medical research has demonstrated a clear link between accelerated cognitive aging to financial vulnerability, even without any kind of dementia. In other words, as described in the article “Be prepared to avoid financial exploitation” from SBJ, we may feel fine and we may be fine, but our cognitive abilities change as we age.

One of the first signs of cognitive decline is diminished financial capacity, or the progressive loss of a person’s ability to manage banking and investment decisions. If you have an aging parent, you may have seen them struggle with tasks that were previously easy for them to do, like balancing a checkbook or tracking investments.

It’s estimated that for every 44 cases of senior financial abuse, only one is reported to authorities.  In a 2010 study by a nonprofit, one in five adults 65 and older have been a victim of financial fraud or manipulation.

There are several actions that can be taken to mitigate the risk of financial fraud and exploitation. However, the first one is planning before signs of cognitive impairment are seen. Here’s how:

Financial preparation. First, designate a trusted emergency contact for all financial accounts to receive information, if the institution suspects exploitation. Have an estate planning attorney create a durable power of attorney to appoint a trusted individual to act on your behalf. “Durable” means that it will remain in effect, even if you become incapacitated.

Prepare a will to dispose of assets after your death.

Don’t discuss your will or any financial matters with people who are new in your life. That includes caregivers, the new neighbor down the street or people who call claiming some distant connection.

Monitor your credit report and stay up to date with the latest in scams. Seniors are now being targeted by thieves presenting themselves as calling from the Social Security Administration and threatening to cut off benefits. The SSA does not call to threaten individuals, and it never asks for payment in gift cards.

Plan how to transition your financial accounts. That may mean having a professional manage your finances, but make sure they are a licensed fiduciary, so that your interests must come first. Your estate planning attorney may know of these services.

Not all financial institutions have addressed the issue of safeguarding customers from financial fraud and exploitation. Find out what your bank, financial advisor and investment companies are doing. Do they monitor accounts for unusual transactions? What tools are available to account holders to detect suspicious activity?

Speak with your estate planning attorney about making sure all  your legal documents are properly prepared for any cognitive decline, to protect yourself and your family.

Reference: SBJ (June 10, 2019) “Be prepared to avoid financial exploitation”

 

Protecting Kids from Too Much, Too Fast, Too Soon

Protecting your children from frittering away an inheritance, is often done through a spendthrift trust but that trust can also be used to protect them from divorce and other problems that can come their way, according to Kiplinger in “How to Keep Your Heirs from Blowing Their Inheritance.”

We all want the best for our kids, and if we’ve been fortunate, we are happy to leave them with a nice inheritance that makes for a better life. However, regardless of how old they are, we know our  children best and what they are capable of. Some adults are simply not prepared to handle a significant inheritance. They may have never learned how to manage money or may be involved with a significant other who you fear may not have their best interests in mind. If there’s a problem with drug or alcohol use, or if they are not ready for the responsibility that comes with a big inheritance, there are steps you can take to help them.

Don’t feel bad if your children aren’t ready for an inheritance. How many stories do we read about lottery winners who go through all their winnings and end up filing for bankruptcy?

An inheritance of any size needs to be managed with care.

A spendthrift trust protects heirs, by providing a trustee with the authority to control how the beneficiary can use the funds. A trust becomes a spendthrift trust, when the estate planning attorney who creates it uses specific language indicating that the trust qualifies as such, and by including limitations to the beneficiary’s control of the funds.

A spendthrift trust also protects assets from creditors, because the heir does not own the assets. The trust owns the assets. This also protects the assets from divorces, lawsuits and bankruptcies. It’s a good way to keep the money out of the hands of manipulative partners, family members and friends.

Once the money is paid from the trust, the protections are gone. However, while the money is in the trust, it enjoys protection.

The trustee in a spendthrift trust has a level of control that is granted by you, the grantor of the trust. You can stipulate that the trustee is to make a set payment to the beneficiary every month, or that the trustee decides how much money the beneficiary receives.

For instance, if the money is to be used to pay college tuition, the can write a check for tuition payments every semester, or they can put conditions on the heir’s academic performance and only pay the tuition, if those conditions are met.

For a spendthrift trust, carefully consider who might be able to take on this task. Be realistic about the family dynamics. A professional firm, bank, or investment company may be a better, less emotionally involved trustee than an aunt or uncle.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.

Reference: Kiplinger (June 5, 2019) “How to Keep Your Heirs from Blowing Their Inheritance.”

 

What Should I Know: Estate Planning as a Single Parent

Every estate planning conversation eventually comes to center upon the children, regardless of whether they’re still young or adults.

Talk to a qualified estate planning attorney and let him or her know your overall perspective about your children, and what you see as their capabilities and limitations. This information can frequently determine whether you restrict their access to funds and how long those limitations should be in place, in the event you’re no longer around.

Kiplinger’s recent article, “Estate Planning for Single Parents” explains that when one parent dies, the children typically don’t have to leave their home, school and community. However, when a single parent passes, a child may be required to move from that location to live with a relative or ex-spouse.

After looking at your children’s situation with your estate planning attorney to understand your approach to those relationships, you should then discuss your support network to see if there’s anyone who could serve in a formal capacity, if necessary. A big factor in planning decisions is the parent’s relationship with their ex. Most people think that their child’s other parent is the best person to take over full custody, in the event of incapacity or death. For others, this isn’t the case. As a result, their estate plan must be designed with great care. These parents should have a supportive network ready to advocate for the child.

Your estate planning attorney may suggest a trust with a trustee. This fund can accept funds from your estate, a retirement plan, IRA and life insurance settlement. This trust should be set up, so that any court that may be involved will have sound instructions to determine your wishes and expectations for your kids. The trust tells the court who you want to carry out your wishes and who should continue to be an advocate and influence in your child’s life.

Your will should also designate the child’s intended guardian, as well as an alternate, in case the surviving parent can’t serve for some reason. The trust should detail how funds should be spent, as well as the amount of discretion the child may be given and when, and who should be involved in the child’s life.

Your trust should state who has authorized visitation rights, including the right to keep the child for extended visits or for vacation. It should also name the persons who are permitted to advise or consent on major decisions in the child’s life, on issues about education, healthcare and activities.

A trust can be drafted in many ways, but a single parent should discuss all of their questions with an estate planning attorney.

Reference: Kiplinger (May 20, 2019) “Estate Planning for Single Parents”

 

What Happens If I Write a Handwritten Will?

Aretha Franklin died last August, and it was first reported that she didn’t have a will. However, recent news reports from Detroit say that, as her estate is being thoroughly reviewed, relatives have discovered a total of three different wills—one of which was located under some seat cushions! What Happens If I Write a Handwritten Will?

Each of Aretha’s wills is handwritten. The three documents have been submitted as part of the probate process to have the court determine if any of them will have legal standing.

Aretha Franklin’s actions—or her lack of the right actions—may could cost her heirs a considerable amount of money in legal fees. It also will make the probate process longer and more stressful. In addition, the ultimate court decision concerning her estate may not be consistent with her wishes.

Fox Business’ recent article, “Aretha Franklin’s handwritten wills found: Big estate planning no-no,” asks what can we learn from the Queen of Soul’s Estate Planning blunders?

First, do it right and ask an estate planning attorney to help you draft your will. He or she will make sure that your will and estate plan comply with the laws on your state. Probate and estate laws may be slightly different in every state, so be certain your will reflects your location and circumstances to be valid.

Don’t make a handwritten or “holographic” will. A handwritten will is valid in a surprisingly large number of states: Alaska, Arizona, Arkansas, California, Colorado, Idaho, Kentucky, Maine, Michigan, Mississippi, Montana, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming. However, talk to an experienced estate planning attorney in your state, if you have questions about a holographic will.

Spend the money and do it right. Hire a qualified estate planning attorney to make certain that everything is done correctly, so it’s the way you want it, and it will be upheld if questioned in court after you’re gone. That includes having the will witnessed and/or notarized.

Of course, while you can download a free form from the internet or pay $50 to buy a package, you should invest the extra funds to hire a legal professional to help can save your family a big expense in future extra legal fees.

Further, you should review your will at least every few years to make sure it accurately reflects your current wishes and to be certain that everything is consistent between the will and other documents, like beneficiaries listed on your insurance policies or investment accounts.

You also need to make sure your heirs can find the will. Hiding it in the sofa isn’t the recommended procedure, because who’s to say that Franklin didn’t stash a fourth or fifth handwritten will in a wardrobe or in the food pantry!

Lastly, be sure you let your family and loved ones know your wishes as you prepare these documents. Be proactive about estate planning and do it right.

Reference: Fox Business (May 22, 2019) “Aretha Franklin’s handwritten wills found: Big estate planning no-no”

 

Estate Planning Basics: Property Transfers & Gift Taxes

Estate Planning Basics: As we age, our needs change. That includes our needs for the property that we own. For one person, the family home was rented to the daughter and her spouse as a “rent-to-own” property. This is generous, since it gives the daughter an opportunity to build equity in a home. The parent had questions about what kind of a deed would be needed for this transaction, and if any gift taxes need to be paid on the gift of the house and a separate parcel of land. The answers are presented in the article “Dealing with property transfers and gift taxes” from Chicago Tribune.

For starters, there are tax advantages while the person is living, since the home is an investment for the owner, as described above. On the day that the home is deeded over to the daughter, she will own the home at the cost basis of the parent. Here is why. The IRS defines the “cost basis” of a real estate property as the price that the owner paid for it, plus the cost of purchase and any fees associated with the sale plus the cost of any new materials or structural improvements.

When you give someone a home, they receive it at the price that was paid for it plus these costs.

Let’s say this person paid $50,000 for the family home, and it’s now worth $100,000. If you give the home to a family member, it’s as if she paid $50,000 for it, not $100,000. There may be tax consequences when she goes to sell it, but that’s in the distant future.

It’s different if the home is inherited. In that case, if the house was valued at $100,000 on the date that the owner died, the heir’s cost basis would be $100,000. However, if the heir sold the property on the exact same day (this is an unlikely scenario), there would be no tax owed on the sale for the heir.

This is a very simplified explanation of how a home can be passed from one generation to the next. It would be best to speak with a good estate attorney, who can evaluate all the factors, since every situation is different. One suggestion might be to put the property into a living trust, in which case the daughter will still pay rent to the parent, but then would inherit the property when the parent died.

The estate planning attorney could use the same living trust for the separate parcel of land. Once the home and the land are deeded into the living trust, the owner can state her wishes for how the properties are to be used.

As for the question of gift taxes, anyone can give anyone else $15,000 per year, with no need to file any forms with the IRS or pay any taxes. If you give someone more than $15,000 in one year, the IRS requires a gift tax form with the federal income tax return.

A meeting with an estate planning attorney and going over Estate Planning Basics is the best way to ensure that the transfer of a family home to a family member is handled correctly and that there are no surprises.

Reference: Chicago Tribune (April 23, 2019) “Dealing with property transfers and gift taxes”

 

Free Virtual Estate Planning Workshop