Estate Planning Bits

10 common estate planning pitfalls

1. Not having a Will: Personal wishes, whether written or oral, will most likely not be followed in the absence of a will. Without a plan, your assets will pass to your heirs according to your state’s laws of intestacy.


2. Not funding your revocable living trust: A property drafted trust will prevent putting your loved ones through the expensive, lengthy and emotionally draining court probate process. 


3. Failing to understand the impact of life insurance proceeds: Many people do not realize that life insurance proceeds are normally included in the estate of the deceased, which can result in approximately 50% of the proceeds going to the IRS instead of your intended beneficiaries. Depending upon the situation, an Irrevocable Life Insurance Trust may be appropriate.


4. Failing to adequately plan for children with special needs: A child with special needs risks being disqualified from receiving SSI benefits and may have to use their inheritance to pay for their care. Depending upon the situation, a Special Needs Trust may be appropriate.


5. Not properly planning for incapacity: People are living longer, and therefore the risk of lacking capacity during your lifetime is increasing. Only with proper estate planning can you be sure that your health and financial affairs will be taken care of in the event of your inability to take care of them yourself.


6. Business planning: With a properly executed plan, you can choose who will own and control your business upon your death, which increases the likelihood of the business continuing as a viable operation.


7. Not preparing for minor children: If you have minor children, you should have a will nominating personal guardians for the children, in the event that both you and your spouse should die prior the children reaching the age of 18. Without a plan, the court will decide without your input where the kids will live and who will make important decisions about their money, education and life.


8. Improper beneficiary designations: Not updating the beneficiary designations on bank accounts, life insurance, IRAs and other assets can lead to unintended beneficiaries.


9. Not periodically updating an estate plan: Generally, people do not like to discuss dying, and therefore people often want to simply execute their estate plan documents and be done with it. However, economic, family, and health changes require revisions to your estate plan.


10. Doing it yourself: Even if a self-prepared will or trust is legally enforceable, estate planning is a complex legal process requiring knowledge in several areas of the law, including estate law, tax law and property law as starters.

by: Todd C. Ratner, Esq.

10 perils of joint tenancy

Joint tenancy is a form of co-ownership. Often, owning an asset such as a home or bank account under a joint tenancy relationship is advantageous. For example, when one of the co-owners dies, joint ownership typically provides the surviving co-owner instant access to the jointly held property, eliminating the need for probate. However, joint tenancy can have its perils.

1. Control Issues: By providing someone with co-ownership, you give them control of your asset. If you add another person as co-owner of your home, you cannot sell or mortgage the home unless that person agrees.


2. Creditor Issues: If creditors seek out your co-owner for outstanding debt owed, the creditors may be able to obtain part of your home or bank account that is held in joint tenancy.


3. Relationship Issues: If you and your co-owner experience a falling out, the co-owner may be able to take all of the money out of the bank account without your approval.


4. Substitute for Will Issues: Many times, parents of several children will place one child’s name on an account and assume that that child will divide assets equally among all siblings. However, this method provides no stipulations over control of the money. The surviving co-owner can do with it what he pleases, with no legal obligation.


5. Uncertainty Issues: Unplanned ownership of property often leads to unwanted results, especially for people unable to manage assets.


6. Tax Issues: Careful planning to eliminate or reduce estate taxes can be completely thwarted by an inadvertently created joint tenancy that passes property outright to a surviving joint owner.


7. Long-term Care Issues: Careful planning to reduce long-term care financing can also be thwarted by an inadvertently created joint tenancy that passes property outright to a surviving joint owner.


8. Marriage Issues: Individual property may become marital property once it is transferred into a joint tenancy.


9. Incompetency Issues: In the event that a co-owner becomes incompetent, part of the property may go into a conservatorship, making it burdensome if the other joint tenant wants to sell some or all of the jointly held property.


10. Distribution Issues: Joint tenancies deprive you of the flexibility of a will or trust in which you can stagger the distribution ages of the beneficiaries. In a joint tenancy arrangement, the joint tenant receives the asset all at once.

By: Todd C. Ratner, Esq.

The significance of Health Care Proxies and Durable Powers of Attorney for spouses and children over age 18

Often it is assumed and anticipated that a husband or wife can make decisions for their spouse. A physician may allow the spouse to make decisions for an incapacitated spouse, sometimes there is a dispute between the children and spouse, or possibly between children of a prior marriage and the spouse. If this happens, the matter will have to be decided by a guardianship or conservatorship hearing that will determine who has the authority to make the decision as well as what the end result of the decision will be.

Since every citizen of the United States has the right to make their own personal, health, and financial decisions, they should also select who they may wish to serve for them in the unfortunate event of their incapacity. All too frequently it happens that a person doesn’t have the necessary documents, and a court proceeding is necessary. This process can be emotionally draining, expensive, and time consuming. It makes a private matter very public regarding details of the medical situation, current assets, and the court’s requirement that a bond to be filed to guarantee that the fiduciary will not dissipate the assets improperly.

In most states, it is also necessary that an attorney represent the family in pursuing the involuntary guardianship proceeding. Although a spouse may have endorsed checks all through their spouse’s lifetime, upon incapacity, they will not have the authority to make any major decisions, such as withdrawing funds from an IRA, dealing with life insurance companies, attending to stock transfers or sales, or even signing income tax returns without the necessary authority.

Preparing a Durable Power of Attorney will allow a spouse or whoever is designated to make the decisions when incapacity sets in.

Therefore, not only is the set of documents for incapacity (Power of Attorney and Health Proxy) necessary for spouses, they should also be considered when children reach the age of eighteen, as they are in a position to make legal decisions for themselves. Unfortunately, when a legal-age child becomes incapacitated, a court proceeding is necessary to attend to their affairs if proper documentation is not in place.

by: Hyman G. Darling, Esq.

Estate Planning is a process

Many clients do their planning at year end, which is not necessarily the best timing. Planning should carry through the entire year. Now that tax day has passed, it’s as good a time as any to review and update your estate plan. Like your annual physical, it is wise to also have a legal checkup. The following are a few areas that should be considered, although they may not all be appropriate for everybody:

Update Your Estate Plan

Are your Health Care Proxy, Power of Attorney and Will up to date? Are the individuals named within the documents still appropriate to serve as well as receive your assets? Are they healthy? Are their marriages also healthy? If not, perhaps your documents need to be reviewed to provide for preservation of assets for the beneficiaries so they don’t become their liabilities.

Plan For Retirement

Is it time for you to consider when you should collect Social Security? Have economic changes made it necessary for you to work longer but possibly still take Social Security benefits sooner? Is your health insurance in order, or do you need to purchase some other plan, such as a Medigap policy, to ensure you have the coverage you need until you’re able to obtain Medicare benefits? Naturally, if you are in your 20s through 40s, these issues seem way too remote to consider, but other issues should be considered such as saving for retirement and to attending to a child’s education expenses. In fact, if you are relatively young, perhaps you are worried about paying off your own college expenses.

Consider Long-Term Care Insurance

Most seniors are concerned about having their assets spent on long-term care expenses in the event they need institutionalized care or require 24/7 home care. A long-term care policy can help if you’re qualified to obtain the coverage and can afford it. If you can’t afford it, an elder law attorney can present alternatives, like using a reverse mortgage or having children share the cost, etc. It is an option that should not be overlooked, but it must be reviewed to determine whether it is an option for the client or not.

As with all life plans, just because documents are signed, does not mean the plan is good forever. It should be reviewed and revised as laws, finances, and family dynamics change.

by: Hyman G. Darling, Esq.

Change your estate plan – the right way and the wrong way

It often happens that someone dies and a family member bring me their loved one’s will to probate in probate court. In reviewing the Will, we will often find that there are hand-written notes in the margins, “scratch outs,” and other attempted hand-written changes, sometimes with initials and dates, and other times none. 

In most states, those attempted changes to the original signed Will are not effective. In some situations, the probate court may also request or require that one of the witnesses to the Will, or the preparer, or original witnesses to the Will appear in court to testify as to whether these changes were made at the time the Will was signed or subsequent to the Will being executed. 

It’s not uncommon for people to believe that because they made hand-written notes on their Will or wrote an addendum, that will effectively change their Will. They do this to save time, or to prevent spending extra money on fees for professional services to revise what was previously a valid drafted will.

I have even received letters from clients who decide to make a change, but they never got around to getting into the office to formalize those changes. They think that this will suffice in case there is an accident, and they think that these letters of instructions will help. Although it is helpful to have something in writing that expresses a client’s desires, the Will itself may not be legally altered by these signed letters. 

These errors in judgment on the part of a client may cause the intended changes to be ineffective and also cost the estate a significant amount of money if and when the Will is probated and a contest to the Will is defended by the estate. Those changes, which are likely relatively minor, are not expensive, and in some cases, a simple codicil, (document that changes the Will,) may be all that is necessary, as opposed to re-drafting the entire Will. 

When a change in circumstances, assets structure, or a family situation occurs, it is best to contact your attorney so that your Will may be made promptly and correctly changed. At the same time, it may be advisable to review the individuals named within your Will as guardians, executors and trustees, as well as other documents, such as your Health Proxy and Power of Attorney, to ensure that the proper named are still appropriate to serve in their respective capacities.

There may also be changes in the total assets you own, which may require that a trust to be created. Or, if assets have significantly diminished, then it is possible that the need for a trust has diminished and reciprocal Wills may suffice.



By: Hyman G. Darling, Esq.

Demystifying terms used by estate planning attorneys

Agent: The person given legal authority to make financial decisions for a person through a durable power of attorney document or the legal authority to make health and medical decisions for a person through a health care proxy document.

Artificial Life Support: Medical equipment and other technology used to prolong the life of a person who is seriously ill by sustaining essential body functions, like breathing.

Assets: Personal possessions of value, including cash, bank accounts, real estate, vehicles and investments.

Beneficiaries: The people named in the will to receive the estate of the person upon his or her death.

Conservator: The person appointed by the courts to make financial decisions on behalf of a person.

Custody: Legal responsibility of a person.

DNR:  Stands for “Do not resuscitate” and refers to a person’s instructions that, if his or her heart or breathing stops, the doctor should not try to restart it.

Durable: When a power of attorney document is durable, it is valid even after the person with dementia can no longer make his or her own decisions.

Execute: To legally sign or “carry out” a legal document.

Executor: The person named in a will to manage the estate of the person upon his or her death.

Grantor: The person for whom a living trust is created.

Guardian: The person appointed by the courts to make health care decisions on behalf of a person (sometimes also includes financial decisions.)

Health care agent: The person given legal authority to make health care decisions for a person through a health care proxy document.

Legal capacity: The level of judgment and decision-making ability needed to sign official documents.

Probate:   The process used by the court to distribute the property of a person who has died.

Trustee: The individual or bank chosen to manage the property (assets) in the trust document of a person.



by: Todd C. Ratner, Esc.

Fallen estate property value? Consider alternate valuation.

As an executor, are you settling a large estate comprised of property that has depreciated in value? If so, you could produce a savings for the estate by using the alternate valuation date for purposes of filing a federal estate tax-return. Generally, the value of the decedent’s estate is the value of the property at the time of death; however, the alternate valuation date rule is designed to be a relief provision in cases where the value of a decedent's estate declines in the six-month period following his or her death.

An executor of an estate can make an election regarding the time at which the estate’s property will be valued: (1) the date of death (the usual valuation date) or (2) six months after the date of death (the alternate valuation date.) Such election should be influenced by whether the value of the estate property has subsequently declined after the testator’s death. If the estate’s property is worth much less six months after the decedent’s death than it was on the date of death, it may be worthwhile to use the later date.

Once made, the selection of the valuation date generally applies to all property in the estate for purposes of determining estate tax liability; however, the alternate valuation date does not apply to estate property that is sold or otherwise disposed of within the six-month period between the date of the testator’s death and the alternate valuation date. Property sold or disposed of during the six-month period is valued as of the date on which it was sold or disposed.

Before choosing to use the alternate valuation date for estate assets, the executor should consider whether the heirs intend to later sell the property they have received. The lower alternate valuation amount also becomes the basis of the estate assets. If the heirs inherit an asset at a lower basis, they may face higher capital gains tax when they later sell the asset.

By: Gina M. Barry, Esq.

A Widow’s Plan for Independence

Women age 65 and above are more than twice as likely as men to be unmarried - widowed, divorced, separated, or never married—and live alone. Since women live an average of 8 years longer than men, and they characteristically have significantly less financial assets, this creates many hardships at a time when life should be easier.

A widow who has not exposed herself to financial issues and who must suddenly assume responsibility for her household's finances will be understandably overwhelmed. On the other hand, a widow who is familiar with her assets and liabilities will make a more comfortable transition. Women should know the location of pertinent financial paperwork, including insurance policies, real estate deeds, mortgages, stock certificates, bonds, and brokerage account and annuity statements. Women should also take the steps necessary to understand the documents.

It is also important for a woman to establish her own finances to the extent possible. The earlier a woman starts putting money away for her retirement years, the better chance she will have of living comfortably at that time. Whenever available, women should take full advantage of any company sponsored retirement plans, and if this is not possible, IRAs and other options must be considered and implemented. The goal is to start this planning as early in life as possible, but even older women can make contributions that will pay off when income is needed later in life. Further, a woman should ensure that she establishes credit in her own name so that she will be able to obtain any needed credit in her own name.

Women are often at a disadvantage with respect to financial security throughout their lifetimes. If they balk at making financial decisions, hard times will likely befall them if they must face life alone. Without proper planning in place, the death of a spouse can financially devastate a woman. Women must understand their assets and liabilities and have a strategy in place that will maintain their style of living if they are widowed. Planning can make the difference between the loss of a husband being emotionally devastating, or both emotionally and financially devastating.

 

 

By: Gina M. Barry, Esq.

 

 

Why women need an estate plan

Women experience unique economic realities. They tend to live longer and move in and out of the workforce due to career interruptions for child birth and elder parent care. This means that women often qualify for much lower pension benefits and receive lower Social Security benefits due to their years employed and salaries attained, which cannot be increased by the husband’s pension or social security if he experiences an untimely death.

Fewer years in the workforce, fewer years with a single employer, and lower pay are all factors that may contribute to a lower average pension for females, and Social Security benefits are calculated based on a person’s highest 35 years of earnings. If a benefit recipient does not have 35 years in the workforce, the Social Security Administration will add zero-earnings years to his or her record to equal 35 years.

Moreover, women often have diminished retirement savings due to the health care costs for the spouse who dies first, (usually the male.) Women most often become the caretaker for their husbands, which reaps immeasurable financial benefits by delaying the significant expense of nursing home care. But, who is there when the widowed wife needs assistance, as the average nursing home cost in Massachusetts is approximately $7,500.00?

Women must work with their husbands to implement a plan to ensure that the total health care and estate planning needs of their family is addressed. They should be guarded against the incapacity and the death of their spouse.

There are certain documents that are regarded as necessities for life in today’s active, uncertain society to protect loved ones:

• Durable Power of Attorney: This document that establishes who will attend to your financial decisions in the unfortunately event of your incapacity.
• Health Care Proxy: This document that ensures that medical decisions are carried out in accordance with your intentions in the event that you become mentally or physically disabled to the extent that you cannot make informed decisions on your own behalf.
• Will: This document provides for an orderly distribution of your assets.

However, the above documents are just the tip of the estate planning spectrum. It is also important that to consider Medicare and Medicaid (MassHealth in Massachusetts) planning, interplay between long-term care and financial planning, use of long-term care insurance and housing options and alternatives to nursing homes, to name a few.

By: Todd C. Ratner, Esquire

Sharing critical estate planning and financial information with your children, and how to do this if you want to keep the details private

A few years ago I presented an Estate Planning Program to employees of the Wall Street Journal. Most of these people were rapidly approaching retirement, and by now, they probably are retired.

They were all very interested in planning for their future, but there was one special attendee who was a writer for the Journal. A couple weeks after the presentation, I read his article in the Wall Street Journal about the importance of planning to save taxes, avoid probate, protect assets for long-term care situations, and generally to do estate planning for the right reason, that is to ensure that funds and assets will pass to the appropriate parties at the appropriate times. The article went on to explain the need for all of the important documents, planning and obtaining good counsel for the plan. However, toward the end of the article, the author talked about the importance of discussing the plan with his parents, but since he could not discuss this issue with them personally, he merely stated that he hoped they were reading the article.

My recommendation to many of my clients is to not discuss all of the details of their plan with their children, but to make sure that the kids have a complete and accurate picture of their assets all in one place. This includes copies of bank statements, financial records, life insurance policies, tax returns, etc.

Many people don’t want to make this information available to their children now, but they should at least tell their kids where their important papers are and who is in charge, such as their financial advisor, insurance agent, lawyer, accountant, banker, trust officer, etc. If they don’t do this, their kids will spend a significant portion of their time when their parents either become incapacitated or die, searching for all of the information. Your children will also need access passwords to get information that may be stored on your computer.

In your case, you may have an open family relationship and be willing to discuss planning issues with your children. This includes not only end of life decisions such as life support, organ donation and funeral arrangements, but also discussion about who may be in charge of making financial, medical, and other decisions in the event of your incapacity or death. Although this may lead to the opening of Pandora’s Box and causing family disharmony when children who think they should be in charge find out that they are not, at least all parties within the family will be educated about what you want and what plan has been prepared.

If you are not interested in sharing all of this private information, you may provide a list of items and where the documents are kept, where safe deposit boxes are and located, where the keys are maintained, where passports, veteran’s administration documentation, medical insurance cards, and other important information is maintained. At least then, if there is an emergency, someone will have access to this information, whether it be your child, a trusted advisor, your lawyer or another family member.

Frequently, after a plan is completed in our office, the parents wish a full disclosure to be made (possibly not about all assets,) but about the plan itself, and they want to share the plan with their children. We may consider having an open family discussion with some children being present in the office and some available by conference call or video conferencing in order to allow the entire family to be informed as to the client’s intentions. This serves the purpose of educating all parties so that they will know the intent, goals and objectives of their parents, while at the same time “clearing the air” of any misinformation that may have been implied or presented to any party in the past. If a child asks a question that a parent is not willing to answer, the issue is delicately averted if that is my client’s desired result.

By: Hyman G. Darling, Esq.