Are You Considering the Impact of Your Estate Plan on your Heirs?
Consider How Heirs Will Handle Inheritances

Are You Considering the Impact of Your Estate Plan on your Heirs?

When thinking about an estate plan, the top priority is usually devising strategies on how to transfer assets to heirs. It’s rare that a person really considers the consequences for the beneficiaries.

Kiplinger’s recent article asks, “Are You Forcing Unintended Consequences on Your Heirs?” An estate plan should bring about a positive outcome. However, you may be surprised to learn how easy it is to impose an unintended negative outcome on your family.

Some retirees have an estate plan that says, in essence, “What I’ve put together is enough. It’s my children’s problem to address it, when they get it. Regardless, they’ll be better off, so I’m not gonna worry.” Although that may be true, a better approach is to create intentional outcomes that advance the mental and emotional value of their wealth. This requires you to do something that can be uncomfortable—that’s talking about your wealth with your family. Many issues arise from a lack of communication and a lack of understanding of your heirs’ financial situations. Here are some examples of how you may be forcing unintended consequences on your family, when your assets transition with your estate.

Passing Unequal IRA Tax Liability to Your Heirs. When you pass on assets in a traditional IRA, you also pass the taxes and Required Minimum Distributions (RMDs) of that account. Unless your children all pay tax at the exact same rate because they are all in roughly the same income tax bracket, each of their inheritances will have a different tax liability. As a result, the amount they actually receive, after-tax, will also be different. Be sure to look into the effects of an equal split of the assets in your estate plan.

Inheriting a Vacation Home. If you own a vacation home, it’s likely you hope that your children will be able to enjoy it as a part of your legacy. Parents may directly pass a property to their children or set up a Qualified Personal Residence Trust (QPRT). However, talk to your children to see if they share the same intent for their future. A vacation home can become a burden for your children, if none of them or only one wants it.

Selling Illiquid Asset at Bargain Prices. These are assets that are hard to value and hard to sell, like real estate, collectibles and other alternative investments. If they decide to sell the illiquid asset, know that it may be at an auction or at a fire sale price, leaving your family with less money. Instead, think about selling these assets, while you can make sure that the fair market value is attained.

Life Insurance Proceeds Set in a Trust. You may have a life insurance policy in an Irrevocable Life Insurance Trust (ILIT), which was set up to retain the proceeds of the policy out of your estate to avoid estate taxes. Many people did this long ago, when the federal estate tax exemption was $600,000 and have failed to look over the terms of the trust since then. However, now in 2019, the federal exemption is $11.4 million per person. For many, this means the need to own the insurance policy in the trust may be unnecessary.

Protecting Wealth in Trusts That Don’t Fit with Plans. Many people use revocable trusts as a method to protect their family from probate. However, when you die, the trust becomes irrevocable, and the distribution of the funds is dependent upon the terms of the trust, which may create unnecessary restrictions on accessing the funds. Therefore, it’s crucial to make certain that your need for the trust is supported by its terms to address your family’s circumstances.

An effective estate plan transfers your assets to your heirs, and it also aligns the personal, emotional, and financial situations of all those involved. Remember to think about what the heirs receive.

When meeting with a qualified estate planning attorney, be certain to talk about any restrictions that you’re intentionally or unintentionally imparting on your heirs.

Find out how heirs can mismanage an inheritance.

Reference: Kiplinger (June 13, 2019) “Are You Forcing Unintended Consequences on Your Heirs?”

Do You Need a Power of Attorney When Diagnosed with a Serious Illness?
Power of Attorney is Necessary With Chronic Diseases

Do You Need a Power of Attorney When Diagnosed with a Serious Illness?

Having a power of attorney is critical for the more than 130 million Americans living with chronic illness. Forbes’ recent article, “Estate Planning Musts When You Or A Or A Loved One Has A Chronic Illness,” says that if you (or a loved one) are living with a chronic illness, you’ll likely need a good power of attorney and other important estate planning documents.

The article discusses these key estate planning documents, along with some suggestions that might help you customize them to your unique challenges because of chronic illness. These documents might need to be altered to better serve your needs or address your challenges. It’s best to get your estate planning documents in place, soon after your diagnosis.

HIPAA Release. The Health Insurance Portability and Accountability Act of 1996 governs the requirements for maintaining the confidentiality of protected or personal health information (PHI). A HIPAA Release lets someone you trust access your protected health information.

Living Will. This is a statement of your health care wishes and can address end of life decisions, as well as many other matters. If you’re living with a chronic illness, there are special considerations you might want to make in having a living will prepared. You might alter the general language to explain your specific disease. The fact that you’re living with disease doesn’t mean you might not face another health issue. Therefore, if you make modifications, set them out as examples of specific changes but retain the broad language that might be more typically used. You can address the disease you have, at what stage and with what anticipated disease course, and how if at all these matters should be reflected. You might wish to also speak to experimental treatments.

Health Care Proxy. This is also known as a medical power of attorney. It is a legal document in which you designate a trusted person to make medical decisions for you, if you’re unable to do so. If your health challenges might result in your becoming incapacitated, you can say that the agent appointed under your health proxy is also to be named as your guardian of the person, should a guardianship proceeding ever happen. Although this may not be binding on the court, it may be persuasive.

Physician Order for Life-Sustaining Treatment (POLST). This is a document that may be included as part of your medical records. A POLST is meant for the end of life medical decisions and may not be as broad as what you might accomplish with a health proxy or living will.

Financial Power of Attorney. This legal document lets you designate a trusted person to handle your legal, tax, and financial matters, if you can’t. There are some unique considerations for those living with chronic illnesses to consider. One is the amount of control that should be given up now or at what stage. Relinquish enough control, so you can be assisted to the degree necessary, but not more than you need at any point in time. Another characteristic for your powers of attorney, is if you should sign a special power that restricts the agent’s authority to certain specified items or sign a general power that provides broad and almost unlimited powers to the agent.

A Revocable Trust. A frequent goal of a revocable trust is to avoid the publicity, costs and difficulties of probate. However, if you or a family member has a chronic illness, using a revocable trust may be a good way to provide for succession of management for your finances.

Learn when you need a power of attorney.

Reference: Forbes (July 5, 2019) “Estate Planning Musts When You Or A Or A Loved One Has A Chronic Illness”

How Much Money Should I Put into a Special Needs Trust for my Child?
Special Needs Trust Planning

How Much Money Should I Put into a Special Needs Trust for my Child?

One of the toughest things about planning for a child with special needs is trying to calculate the amount of money it’s going to take to provide both while the parents are alive and after the parents pass away. A special needs trust is a great way to set aside money for a special needs loved one to provide for them while at the same time preserving their ability to receive government benefits.

Kiplinger’s recent article asks “How Much Should Go into Your Special Needs Trust?” The article explains that it’s not uncommon for folks to have done some estate planning but not necessarily special needs estate planning. And they haven’t thought about how much money they should earmark to fund that trust someday and which assets would be the best to use.

Special needs estate planning involves creating a special needs trust that allows a person with a disability continue to receive certain public benefits. Typically, ownership of assets more than $2,000 would make the individual ineligible for certain public benefits. Assets held in a special needs trust don’t count toward this amount.

A child with special needs can generate multiple expenses. The precise amount will be based on the needs and lifestyle of the family and the child’s capabilities.

When the parents die, this budget must be increased because the things the parents did must be monetized.

A special needs trust usually isn’t funded until the parents’ death. Then, the trust would need to file a tax return each year and pay taxes.

There are also legal and trust administration expenses to think about. Public program benefits can in many cases offset many of the above-mentioned costs.

It’s vital to conduct a complete analysis of the future costs to provide for a child with special needs so that parents can start saving and making adjustments in their planning.

Speak with an elder law or estate planning attorney about special needs trusts.

Learn more about special needs trusts.

Reference: Kiplinger (June 10, 2019) “How Much Should Go into Your Special Needs Trust?”