by Dan McCarthy | Feb 2, 2022 | Estate Planning, Trusts and Wills
- I don’t own much and neither does my family. Can’t we delay estate planning until we can afford it?
You shouldn’t. It is crucial to give legal authority to a person of your choice, to care for your children if anything should happen to you. You don’t want your children to become wards of the court, or to be delivered to a family member you don’t like. Second, the cost to you at the front end (now) is much less than it could be later when you might face steep legal fees to get the job done. We’re all in favor of lawyers earning a living. We just never want any of our clients to have to pay for costs that are unnecessary or avoidable.
- My son just graduated from high school. He owns nothing but an autographed baseball and a 1997 Chevy pickup. Surely I don’t have to worry about an estate plan for him?
You should. Estate planning isn’t just about owning property. Life needs protecting, too. If your child should lose consciousness in an accident, and he or she is over the age of 18, you as a parent will no longer have the legal authority to decide what medical treatment he should receive. Insurance companies might refuse to deal with you.
Just imagine the stress of it. You’d be there to help, but nobody would be legally required to listen to you. You would have to go to court and get a guardianship – over your own child.
Instead, just think how much easier (and less expensive) it would be to get your adult child to come in to see us, while all is OK now, to make out powers of attorney. Those are documents that convey legal authority onto you, or on people of your adult child’s choice, to act on your child’s behalf if he or she becomes unable.
- Our kids are grown and married. Can’t my spouse and I postpone planning?
You shouldn’t. First, you can never tell when disaster might strike. Second, your kids may seem happily married now, but there’s no telling how long for – and you don’t want to see their, and possibly your, money and property lost in bitter divorce proceedings or lawsuits or bankruptcies.
- Our kids are able-bodied, thank goodness. Why should we worry about protecting disability benefits for them if they don’t need them?
They might not need those benefits now. But if they become disabled in the future, and if they inherit money from you, inherited money could cost them thousands of dollars a year in benefits.
- My doctors know best. I’m not going to tell them how to do their jobs, and I don’t want anyone else doing that either. What’s wrong with that?
Do you want to be kept alive on machines, possibly for years, when you no longer can care for yourself, recognize loved ones, converse, or even swallow? These days, medical machines can breathe for you through a tube in your throat, keep your heart beating, and deliver food and fluids through a tube in your stomach. Many who are on these machines die in the hospital, their arms tied down to prevent dislodging the tubes. Health-care providers are ethically obligated to keep you alive to the bitter end. Few of us want that. You can decline those extreme measures with our carefully crafted legal documents.
- Can’t I just grab a will of the internet, do a transfer-on-death deed for my land, put my kids on my bank account, and call it done?
Just look at some of the complications, in the above answers. An estate plan should protect disabled children’s inheritances from the loss of valuable government benefits. It should avoid probate court. It should protect money from creditors or divorce or remarriage. It should avoid disputes between children as joint owners.
Even a relatively simple situation contains many moving parts. It takes expertise to coordinate the various strategies. Don’t risk a result you wouldn’t want. Call us to create a plan that harmonizes the moving parts, so the gears will work together and you will leave the legacy you intended.
- Can’t I just forget the whole thing and let my kids deal with it after I’m gone?
Sure you can. But your kids will not thank you for leaving a disorganized mess behind, and that may be how they remember you.
Here’s one good idea:
Come see us now. The documents we create for you might be “just pieces of paper,” but they are worth a great deal more than that. At a stressful time when additional hurdles are the last thing you need, powers of attorney and other estate-planning options could save you and your family delay, expense, and heartache. If you need assistance or would like to talk about your specific situation, contact our Cincinnati office at (513) 815-7006.
by Dan McCarthy | Jan 26, 2022 | Estate Planning
In order for your parents to be properly prepared for the future, it is critical to discuss finances with them. To broach the topic, you might bring up current events like the coronavirus pandemic, its effect on economic conditions, and how it relates to the security of their financial future. The conversation should come from a calming place of love and concern. Speak to them respectfully about how the coronavirus pandemic has you thinking about the importance of their planning and preparedness.
Once you begin the conversation, move away from the pandemic as your introductory technique as you do not want to create a sense of panic or fear. Instead, delve into legal and financial reviews, processes, and parameters. US News reports that your parents’ financial analysis should include essential legal documents, financial accounts, and associated vital contacts, long-term care decisions, and claims. If you live apart, lay the groundwork to help them with their finances remotely.
It is generally most comfortable to begin your conversation with legal documents that hopefully your parents already have in a place like a will, trust, living will, and a health care proxy. If your parents do not have these documents, they must retain an attorney and create the ones that best suit their needs. If you need to help your parents manage their finances, you must have a durable power of attorney. A durable power of attorney allows you to make financial decisions for your parents in the event they become incapacitated. This is an essential estate planning document. In the absence of a durable power of attorney, the courts become involved, and solving health or financial issues becomes a lengthy, expensive process over which you have little control. If your parents already have their legal documents drawn up, find out where they keep them and review them carefully. If any documents need to be amended, suggest that your parents meet with an attorney to make the relevant changes. Be sure their documents reflect the state law in which they reside.
Once you have assessed your parents’ legal documents, it is time for some financial discovery. Even if your parents do not currently need help, having an overview of their finances and a durable power of attorney to help them in the future is crucial to their aging success. Begin by listing all of their accounts, account numbers, usernames, and passwords as well as employee contact names. Include insurance policies, the agent’s name, and where the policy is, as well as how they pay their premiums. Include any online medical accounts or list their doctors’ names and office numbers. The idea is to create a comprehensive list of all of these accounts. Gather your parents’ Medicare and Social Security numbers and their drivers’ license numbers. Know where they keep this information so that in the future you will know where to look. Also, learn about any online bill paying or automated, re-occurring activity. These usually include monthly bills like electricity, natural gas, water, etc. but may also include quarterly payments or annual subscriptions.
If your parents still live in their long-time home, discuss if it is viable that they live out their days there, or if downsizing to a retirement community or moving closer to where you live appeals to them. Help them come to a decision that is best for their set of circumstances. If they do not have long-term care insurance or some other mechanism to aid them in times of need, talk about the topic, and try to come up with a solution. If they do have long-term care, be sure you have a copy of the policy, contact information, and the name of the insurer and agent. Review the requirements for receiving benefits so you can help them when they need to file a claim as most policies have a waiting period of 30 to 90 days before benefits begin. Know what to expect.
Digital technology has made oversight of parents and their finances easier than ever as long as you have a durable power of attorney and access to their account information. If they do not yet pay their bills online, or use auto payment, help them set up this option for their monthly bills. Remind them you will provide oversight to ensure proper billing. Offer to help them with their annual tax filings. Your help relieves some pressure on them and provides you with information about the goings-on in your parents’ accounts. For your parents’ peace of mind, you can establish a monthly video chat to let them know their bill payments are progressing normally. Your involvement will allow you to identify any abnormalities in account activity, which may indicate scam attempts.
Having these financial and planning conversations with your parents today can help them live more securely and with less stress as they age. Most parents will try to avoid these discussions with their children because they may not be adequately prepared for what can lie ahead. Conversations that focus on proper legal documents and gathering financial account information will give you the data you need to help protect your parents.
We would be happy to help you and your parents with critical planning documents. We are open and taking new clients, and we hope to talk with you soon about your particular needs. If you need assistance or would like to talk about your specific situation, contact our Cincinnati office at (513) 815-7006.
by Dan McCarthy | Jan 19, 2022 | Estate Planning, Trusts and Wills
During your lifetime, you spend the first part trying to attain financial security and the second part working to maintain it. This adage is why many people spend substantial time and effort maximizing their legacy goals in their estate plan, ensuring their wishes come to pass. Your life’s work and ability to provide for your family provide a gratifying feeling for you and your heirs. However, your careful planning can go awry when last-minute changes become part of the mix, often guided by advice from well-meaning family and friends but not a professional estate planning attorney.
Here are five common mistakes that people make that will upend your estate planning:
- Leaving money to someone while you are alive but not changing your will. Frequently people include cash gifts in their will. For instance, a favorite nephew may inherit $50,000, a childhood friend $100,000, even a housekeeper may receive $10,000 for loyal service. It is quite common when family members meet after a loved one has passed to hear that the deceased has already gifted these particular cash amounts. The mistake is that the gift is given, yet your will continues to reflect the named individual should be given what has already been received. In the absence of an updated will reflecting the gift, the probate process will still award the individual named the cash amount or, in essence, an additional gift. While some recipients will approach the gift during their lifetime as an advancement on inheritance, others may not agree, and the argument may wind up in court.
- Insufficient assets are funding your trust. You may have created your trust years ago, and its assets may have decreased in value and be insufficient to cover the costs of all the gifts associated with your trust. Your good intentions in creating the trust can evaporate, leaving some inheritors short-changed or receiving nothing at all without proper management and preservation of the trust’s assets. It is good to remember the rule that cash gifts get paid first. For example, if you leave your sister one million dollars and the rest in trust to your children, and you die with assets totaling $1,100,000, your sister will receive her cash outright while only $100,000 will remain in trust for your children. If there is no cash to fund the trust, the trust provisions are zero-sum, and the unlucky heir will have to learn of the unfortunate circumstances.
- All assets do not pass through your will. Your estate division is primarily likely to be probate and non-probate assets. Just because you believe your assets’ aggregate is enough to satisfy your gifting, not all assets will pass through the will. You must understand the difference between probate and non-probate assets. Non-probate assets often pass as a beneficiary designation or joint ownership outside of a will. Also, consider the need to deduct any outstanding debts, expenses, and taxes in the valuation of your assets.
- You are adding a joint owner of accounts or real estate. Joint ownership seems a simple solution bypassing excessive planning; however, adding a joint owner can create serious problems. Yes, the bank account or piece of real estate will quickly become wholly owned by the survivor, and yet if your will is reliant on that asset to pay other inheritors, debts, expenses, or taxes, there may be a cascade of problems after you die. Adding a joint owner will often lead to will contests and even prolonged court battles, so be sure your estate planning attorney agrees that the option of joint ownership is a sound one in your particular situation.
- Changes to your beneficiary designations. If you make changes to your beneficiaries without speaking to your estate planning attorney, you can create all sorts of unintended results. This situation is particularly true in the case of life insurance. For instance, the policy can pay your trust in order to meet bequests, shelter money from estate taxes, or pay those taxes. However, if you change the beneficiary, you will have to designate the money elsewhere to cover the existing bequests and estate taxes. In another case, if you have a retirement account payable to an individual inheritor but you change the beneficiary to your trust, you may create adverse income tax consequences.
These are just five of the more commonplace mistakes that can occur in your estate plan. Sadly, there are many others, and so caution and professional legal advice are crucial. While it is essential to review your estate planning documents regularly and perhaps make changes, it is imperative to do so under the advice of your attorney. What may seem like a harmless amendment or change may create unintended tax consequences, cut someone out of receiving an inheritance, or worse yet, set into motion a lengthy court battle that harms family relationships.
Reviewing your estate planning documents with your attorney will ensure that your desired changes will address your new need without negatively impacting your overall intentions. If you need assistance or would like to talk about your specific situation, contact our Cincinnati office at (513) 815-7006.
by Dan McCarthy | Jan 5, 2022 | Estate Planning, Trusts and Wills
You might think that leaving your property to your heirs would be easy. You make a will or a trust, you do a transfer-on-death deed for your real estate, you put your kids on your bank account, you designate beneficiaries for your life insurance and retirement accounts, and you’re done.
If only things were that simple. The result you wanted can be seriously foiled, if all the above elements are not carefully coordinated.
After you consider the following, we hope you’ll agree that it’s best to consult a qualified attorney. That’s the person you need to help you construct an estate plan that will do what you want it to do.
A pitfall: Conflict between deeds and wills or trusts
If your will or trust conflicts with a deed for real property, the law will resolve the conflict for you by following the deed, not the will or trust. This can produce unintended results.
Suppose Mary wanted to divide her property equally between her two children, John and Jane. She recorded a beneficiary deed for John so he could inherit the house. She wrote a will leaving money to her daughter Jane that was roughly the same value as the house.
Subsequently, however, Mary forgot about John’s deed. She made another will that split everything equally between John and Jane.
On Mary’s death, John ended up getting significantly more than Jane. The portion of the second will including the house would be invalidated because the earlier deed would supplant the will. So John got the house through the deed, plus half the money through the will. Jane got half the money only. That was not what Mary intended and the unfairness damaged John’s and Jane’s relationship.
A similar pitfall: Conflict between beneficiary designations and wills or trusts
Financial accounts can transfer automatically to people of your choice, avoiding probate, if you designate beneficiaries by means of “transfer on death” (TOD) through your broker. But you must not depend on your will to change TOD designations. The beneficiary designations establish a contract between the holder of the account and you. When you pass, the holder is legally obligated to transfer your account to the beneficiaries you designate, regardless of what your will says. The designations, like deeds, supplant wills.
So if you have named your spouse as a beneficiary of, say, a retirement account, and then you get divorced and forget to change the beneficiary designation, your ex-spouse – and neither your new spouse nor your children nor anybody else – will receive the account proceeds when you die, regardless what your will says.
Underage beneficiaries and guardianship proceedings
Suppose your financial advisor calls to alert you that you have not designated beneficiaries on your accounts and that if you don’t do so, your estate will have to go through probate when you pass. By making TOD designations, your beneficiary would simply present a death certificate and the assets would transfer to him or her without the need to go to court. That sounds good. So you follow your advisor’s suggestion and designate your beneficiaries.
In the meantime, your lawyer drafts a good will for you. This will, as good wills should, contain a subtrust providing for underage beneficiaries. Your lawyer, echoing your financial advisor, explains that the subtrust is intended to avoid the necessity of court proceedings.
Your efforts to avoid court will be defeated, however, if you choose an underage beneficiary to receive your financial account through TOD. Guardianship proceedings would still be necessary to administer the money until the beneficiary came of age.
It would have been better to route the gift to the underage beneficiary through a will or trust and not through TOD designation. If wills or trusts are properly drafted, they contain provisions to administer the underage beneficiary’s inheritance privately and thereby avoid the court guardianship proceedings.
Another pitfall: Disabled beneficiaries and government benefits
The pitfall here is similar to the one above. If your beneficiary is disabled and gets a TOD (or any other kind of) inheritance, the inherited money could jeopardize the beneficiary’s entitlement to government benefits. Most benefits programs are “means-tested.” To be eligible, recipients must own practically nothing. If your beneficiary were suddenly to inherit, he or she would lose benefits and end up having to pay for care until the inheritance was spent. That could involve a lot of money!
Rather, like for underage beneficiaries, the disabled beneficiary’s inheritance should be routed through a will or “supplemental needs trust” (SNT) that imposes restrictions on spending. With those restrictions in place, the benefits would keep coming, and the inheritance assets could be used to pay for “extras” that benefits don’t cover. These extras might include payment of real estate taxes, upkeep of a residence, or vacations, or a flat-screen television. The inherited money would be managed by a trusted person and the disabled beneficiary would still continue to receive the crucially important benefits.
Bank accounts and disabled or underage beneficiaries
The pitfall is the same as above. If you have designated underage or disabled beneficiaries by making your accounts “payable on death” (POD), court proceedings will be necessary in the case of the underage beneficiary, or the inheritance could jeopardize or eliminate the disabled beneficiary’s government benefits.
“Spendthrift” beneficiaries
The problem is likewise similar here. If your beneficiary has a gambling habit or drug addiction, or if he or she needs bankruptcy protection from creditors, and if he or she inherits without trust protections, the inheritance could be lost to the beneficiary’s detriment.
Joint tenancy of real property
It may be tempting to avoid probate by putting real estate in your beneficiaries’ names as joint tenants. But if multiple people own real estate jointly, all must agree on what is to be done with the land and all should contribute equally to property maintenance expenses. This can create disputes. A better solution might be to subject the property to probate, to dispose of it in orderly court proceedings.
Joint bank accounts
The intent to avoid probate here is similar to a joint tenancy of land, but putting your bank account in your and your children’s names exposes the funds to risk that should be avoided. Once a person is named as a co-owner of a bank account, that person has immediate and unfettered access to the funds. The funds are thus exposed to misappropriation by the joint-tenant child, or they can go instead to the child’s creditors in bankruptcy, or to ex-spouses in divorce proceedings.
It would be better to create a power of attorney that allows a trusted agent access to bank-account funds for your benefit while you are alive. Then, for when you pass, you could name beneficiaries via a POD designation with the bank – but remember the warnings above regarding underage or disabled or spendthrift beneficiaries. Those beneficiaries’ access to funds should be protected by a trust.
A lot of moving parts
Each of the estate-planning strategies above could work well in and of themselves, but, taken together, may have an adverse impact. Crafting a plan that combines and coordinates the various strategies requires expertise and care. That care is worth taking, to safeguard the wealth you have built up over the years. Don’t risk a result you don’t want. Call on us to design a plan that harmonizes all the moving parts, so the gears will work together and you will leave the legacy you intended. If you need assistance or would like to talk about your specific situation, contact our Cincinnati office at (513) 815-7006.
by Dan McCarthy | Dec 22, 2021 | Elder Law, Estate Planning
A new tax law proposal greatly impacting estate planning may soon be enacted into law. While it is too early to know what will become law, the House Ways & Means Committee tax plan draft indicates that change is coming soon. While new details emerge and changes are made to the proposals over the coming weeks, it is critical to understand how these possible tax changes may affect your estate planning.
What are the Major Proposed Changes that Impact Estate Planning?
One of the most significant changes to affect estate planning is that as of January 1, 2022, the federal estate and gift tax exemption is facing a reduction from $11.7 million to approximately $6 million. Ambitious budget and spending proposals require additional sources of revenue. While technically not yet a law, there is little doubt, per the Congressional Budget Office, that this particular estate and gift exemptions will become law. This near certainty provides a small window for individuals to make full use of their 2021 permissible exemption.
Other major change proposals include grantor trusts which may not have until December 31, 2021, to take full advantage of existing planning opportunities. For decades grantor trusts permitted the grantor to be individually liable for income taxes on earned income, yet the grantor trust remained excluded from the grantor’s taxable estate. If the proposed changes take effect, there will be an elimination of grantor’s trusts in estate gift planning.
Under the current rules, existing grantor trusts are exempt from the law change proposal (grandfathered) with one significant limitation. A gift pre-existing proposed grantor trust law change will be exempt; however, the portion attributable post-act contribution is under the new rules. Therefore that new rule portion is included in the grantor’s taxable estate. Grantor trusts include life insurance trusts. Therefore, pre-funding this trust type with enough cash to pay premiums for several years to ensure its exemption status is required to remain outside the taxable estate. Execution and funding must happen before enacting the proposal to take full advantage of existing grantor trust laws.
Finally, the proposal regulations upend rules regarding the sale of appreciated assets by a grantor to their grantor trust. Today, this action is not an income tax recognition event. The proposal act, however, would deem such a sale as being between unrelated parties. This change means the sale to a grantor trust becomes an income tax recognition event to the grantor. Typically, assets sold to grantor trusts have substantial gains already built-in. Therefore the strategy to sell to a grantor trust largely disappears with the change proposal enactment, and not even losses could have recognition upon such a sale.
Valuation rules such as discounts on ownership interests in passive assets face elimination. Any individual wishing to claim a valuation discount on a gift of interest of an entity must complete the gift before enacting the proposed legislation. Again, the window of opportunity for claiming these types of valuation discounts may close, even long before December 31, 2021.
Understanding Proposed Changes to Tax income Rules
Tax income rules are also under scrutiny and ripe for change. A new surcharge proposal of three percent of a trust’s modified adjusted gross income or an estate above $100,000 is likely to enact into law. Realizing income gains in 2021 rather than 2022 can help to preserve your wealth.
Also, expect individual and capital gains and dividends tax rate increases. Individual tax rates may increase from 37 to 39.6 percent, and the income level threshold for these higher rates will decrease. The current level for higher-income taxpayers’ capital gains will change from 23.8 percent to as high as 31.8 percent. Part of these taxes includes a three percent surtax applying to high-income individuals, estates, and trusts.
The current draft legislation does not propose eliminating the step-up in basis at death or implementing a carryover basis at death, nor transfers of lifetime gifts (other than sales to a grantor trust, see above) or upon the death of an income tax realization event. The legislation does not propose setting a minimum term for grantor retained annuity trusts or eliminating zeroed out grantor retained annuity trusts. Nor does the draft legislation increase the estate tax rate from forty percent or create a progressive estate tax rate structure, limit the annual exclusion to trusts or gifts, and finally will not create new limitations on the use of dynasty trusts.
The recently unveiled Build Back Better Act has the possibility of implementing wide-sweeping changes to the US tax code and has drastic impacts on commonly used estate planning techniques. Whether you have an existing estate plan or need to create one, speak with an attorney today to understand how these proposed changes may affect your existing or future estate plans. If you need assistance or would like to talk about your specific situation, contact our Cincinnati office at (513) 815-7006.
