Why Should I Check My Beneficiary Designations?

Investopedia’s recent article, “The Importance of Updating Retirement Account Beneficiaries,” shares some of the problems caused by outdated beneficiary designations.

It’s not uncommon for retirement account owners, who’ve been divorced and remarried, to forget to update their beneficiary designations. It is also troublesome, if some children are named as beneficiaries but the document isn’t updated to include those who were born after the initial designation. To avoid these issues, update your beneficiary designations right after you have a change in family status and review them periodically, so they never become outdated or incorrect.

You can also write in a customized beneficiary designation to address “what-if” situations, like what if your primary beneficiary predeceases you and you fail to update the designation?

An IRA plan’s documents also default the designation, if the designated beneficiary predeceases the IRA owner. These options vary among IRA custodians and trustees. This option may reduce the administrative responsibilities from account owners, but it may not reflect their preferences. That’s why account owners should check the plan document and be sure that they update their beneficiary designations regularly.

Spouses, expecting that one will predecease the other, frequently designate each other as their beneficiaries. However, the issue of simultaneous death is then addressed by state law. This will decide that one spouse died first, even though both deaths occurred at the same time.

This determination is important, if there are children from a previous marriage because it may determine if all the children must be included or children from a previous marriage will be excluded. For this reason, the proper documentation naming successor beneficiaries for normal and extenuating circumstances is needed.

You can also create a customized designation to choose how that portion would be distributed, instead of having it default to the surviving beneficiary. For instance, if one of your beneficiaries has children, you can designate them to receive the primary beneficiary’s share, if he or she passes before you do.

When drafting your customized beneficiary designations, you can look at various options with your estate planning attorney to find the one that meets your needs. The beneficiary designation you select may determine, if your elections are carried over to the next generation.

Making a proper beneficiary designation is a critical part of your estate planning.

Reference: Investopedia (May 8, 2018) “The Importance of Updating Retirement Account Beneficiaries”

How Do I Plan for End-of-Life Measures for a Loved One?

It’s not that uncommon for a senior to injure himself in the regular course of living at home as he ages. A broken hip will mean a stay at the hospital. In many cases, a senior recovering from a broken hip in the hospital will be released to a nursing home. Sometimes, things can take a downward turn. The elderly are susceptible to other illnesses, and often just being in a care facility, even the best ones, can expose an already vulnerable patient to other illnesses, like pneumonia or a staph infection.

When more than one family member shares power of attorney, says The Grand Forks Herald’s recent article, “Joint power of attorney complicated this couple’s wishes,” there can be emotional stresses that result from differing opinions about care.

In one situation, the wife alerted her adult stepchildren about her husband’s condition in a health crisis. He had been hospitalized for a broken hip, then released to a nursing home, where he developed pneumonia.

While she initially hoped that their arrival would be a comfort, the children had their own idea about what was best for their father. They basically took control of the situation and negated their father’s health care documents. They had him sent back to the hospital, thinking that would be best for his overall health.

Arriving at the hospital, the woman reported that her husband was weaker from the transfer and confused about why he was back in the hospital.

The children shared power of attorney, which was set up so that both the wife and the children could make decisions about the man’s medical care. The wife was troubled by the children’s insistence that he needed to return to the hospital. The children felt that his care at the nursing home was inadequate.

It’s hard to know what may motivate the stepchildren here, but an attorney who specializes in estate or elder law is the best resource for people when making decisions, while setting up powers of attorney. An attorney may not have advised that the wife and stepchildren share this decision-making power. Even when the intentions are good, sometimes its best when only one person is in charge.

Estates can be complex when there are adult children and a second marriage—even when the relationships are good.

It would have been better had the father spoken with his children beforehand to explain his overall wishes about his care, so that there would be less discord in the decision-making process. The treating physician might have been asked to speak with the children and explain the impact that a transfer would have on an already injured and ill person. In most cases nursing homes are just as able to treat pneumonia as a hospital, and it would have spared him the trauma of the move.

At this point, it may be better to forgive and move on for the wife, so that her relationship with the stepchildren is not difficult during what may be the last years of her husband’s life.

Reference: Grand Forks Herald (March 8, 2019) “Joint power of attorney complicated this couple’s wishes”

When Do I Need a Revocable Trust?

A will is a legal document that states how your property should be distributed when you die.  It also names guardians for any minor children. Whatever the size of your estate, without a will, there’s no guarantee that your assets will be distributed, according to your wishes. For those with substantial assets, more complicated situations, or concerns of diminished capacity in later years, a revocable trust might also be considered, in addition to a will.

Forbes’ recent article, “Revocable Trusts And Why Should You Consider One,” explains that a revocable trust, also called a “living trust” or an inter vivos trust, is created during your lifetime. On the other hand, a “testamentary trust” is created at death through a will. A revocable trust, like a will, details dispositive provisions upon death, successor and co-trustees, and other instructions. Upon the grantor’s passing, the revocable trust functions in a similar manner to a will.

A revocable trust is a flexible vehicle with few restrictions during your lifetime.  you usually designate yourself as the trustee and maintain control over the trust’s assets. You can move assets into or out of the trust, by retitling them. This movement has no income or estate tax consequences, nor is it a problem to distribute income or assets from the trust to fund your current lifestyle.

A living trust has some advantages over having your entire estate flow through probate. The primary advantages of having the majority of your assets avoid probate, is the ease of asset transfer and the lower costs. Another advantage of a trust is privacy, because a probated will is a public document that anyone can view.

Even with a revocable trust, you still need a will. A “pour over will” controls the decedent’s assets that haven’t been titled to the revocable trust, intentionally or by oversight. These assets may include personal property. This pour-over will generally names the revocable trust—which at death becomes irrevocable—as the beneficiary.

Another reason for creating a revocable trust is the possibility of future diminished legal capacity, when it may be better for another person, like a spouse or child, to help with your financial affairs. A co-trustee can pay bills and otherwise control the trust’s assets. This can also give you financial protection, by obviating the need for a court-ordered guardianship.

Talk to an experienced estate planning attorney about the best options for your situation to protect your estate and provide the peace of mind that your family will receive what you intended for them to inherit, with the least possible costs and stress.

Reference: Forbes (March 11, 2019) “Revocable Trusts And Why Should You Consider One”

What Are the Biggest Threats to Estate Planning?

A recent survey conducted by TD Wealth at the 53rd Annual Heckerling Institute on Estate Planning found that nearly half (46%) of respondents said that family conflict was the biggest threat to estate planning in 2019, followed by market volatility (24%) and tax reform (14%).

Insurance News Net’s recent article, “Family Conflict Reigns As Greatest Threat To Estate Planning, Survey Finds,” reported that the survey also looked at the various causes of family conflict, when engaging in estate planning. They said that the designation of beneficiaries (30%) was the most common cause of conflict. Other leading factors included not communicating the plan with family members (25%) and working with blended families (21%).

Family dynamics have always played a crucial part in estate planning. With an increase in blended families, many experts think that these conversations will become even more frequent and challenging. Estate planning comes with the responsibility of motivating families to communicate through difficult times. This requires regular conversations and total transparency. To minimize risk, families should include everyone at the table to participate in an open and honest conversation about their shared goals and objectives.

Market volatility was also a big concern of the respondents for 2019. Almost 25% said that identifying volatile markets was the biggest threat to estate planning this year, up from 12% in 2018.

Market fluctuations are worth watching and can cause worry for potential gift givers. It’s best to maintain a long-term view when investing, and know that short-term market movements are no match for a robust estate plan and a well-balanced portfolio.

The Tax Cuts and Jobs Act continues to have a large-scale effect on estate planning. After the increase in the federal gift and estate tax exemption, there are some new strategies to allow people to take advantage of the exemption. About one third of respondents (31%) propose that their clients consider creating trusts to protect assets. About 26% say their clients plan to minimize future capital gains tax consequences and 21% agree to gift now, while the exemption is high.

Experts are stressing the importance of creating trusts for the benefit of family, so assets can be protected from future claims.

A total of 40% of estate planners think their clients will continue to give the same amount to charities as they did in 2018, with 21% expecting them to donate more.

Reference: Insurance News Net (March 13, 2019) “Family Conflict Reigns As Greatest Threat To Estate Planning, Survey Finds”

Did Luke Perry Plan His Estate?

Fifty-two-year-old Luke Perry suffered a serious stroke recently and was hospitalized under heavy sedation. A few days later, his family made the decision to remove life support, when it was apparent that he wouldn’t recover and after a reported second stroke.

Forbes reports in its article, “Luke Perry Protected His Family With Estate Planning,” that he was surrounded by his children, 21-year-old Jack and 18-year-old Sophie, his fiancé, ex-wife, mother and siblings, when he passed.

The fact that the hospital let Perry’s family end life support, means that he likely had executed the proper legal documents, so his family could make the decision. Those documents were most likely an advance directive or a power of attorney. Without these legal documents, Luke’s family may have needed to obtain an order from a probate court to terminate life support—a public and emotional process that would have prolonged his suffering and made it even more stressful for his family.

Perry reportedly created a will in 2015. He left everything to his two children. According to a family friend, Perry discovered he had precancerous growths following a colonoscopy. This motivated him to create a will to protect his children.

Luke Perry had a reported net worth of around $10 million, so he may have created a revocable living trust, in addition to a will. If he had only a will, then his estate will have to pass through probate court. However, if he had a trust, and if his trust was properly funded (he transferred his assets into his trust prior to death), then his assets can pass to his children without court involvement.

One question is whether Perry would have wanted something to go to his fiancé, therapist Wendy Madison Bauer. Since his will was drafted in 2015, he likely did not include Bauer at the time. If the couple had married prior to his death, then Bauer would typically have received rights as a “pretermitted spouse.” These rights wouldn’t have been automatic, but would have depended on the terms of his will and/or trust, as well as whether the couple signed a prenuptial agreement that addressed inheritance rights. However, if the documents failed to show an intent to exclude Bauer as a beneficiary, then she would’ve been entitled to one-third of his estate under California law, if they’d been married.

Because Perry died before he married Bauer, she’s not entitled to inherit anything through his will or trust, assuming his children are his only beneficiaries, and no later will, trust, or amendment is found that includes her. Perry may have left money for Bauer in other ways, like life insurance, a joint bank account, or an account with a TOD (Transfer on Death) or POD (Payable on Death) clause.

Luke Perry’s death provides an important lesson: don’t wait until you’re “old” to do your estate planning. Perry’s 2015 cancer scare made him take action, which simplified the process for his family to terminate life support and will likely make the process of dividing his estate easier.

Reference: Forbes (March 8, 2019) “Luke Perry Protected His Family With Estate Planning”

Why Should I Create a Trust If I’m Not Rich?

It’s probably not high on your list of fun things to do, considering the way in which your assets will be distributed, when you pass away. However, consider the alternative, which could be family battles, unnecessary taxes and an extended probate process. These issues and others can be avoided by creating a trust.

Barron’s recent article, “Why a Trust Is a Great Estate-Planning Tool — Even if You’re Not Rich,” explains that there are many types of trusts, but the most frequently used for these purposes is a revocable living trust. This trust allows you—the grantor—to specify exactly how your estate will be distributed to your beneficiaries when you die, and at the same time avoiding probate and stress for your loved ones.

When you speak with an estate planning attorney about setting up a trust, also ask about your will, healthcare derivatives, a living will and powers of attorney.

Your attorney will have retitle your probatable assets to the trust. This includes brokerage accounts, real estate, jewelry, artwork, and other valuables. Your attorney can add a pour-over will to include any additional assets in the trust. Retirement accounts and insurance policies aren’t involved with probate, because a beneficiary is named.

While you’re still alive, you have control over the trust and can alter it any way you want. You can even revoke it altogether.

A revocable trust doesn’t require an additional tax return or other processing, except for updating it for a major life event or change in your circumstances. The downside is because the trust is part of your estate, it doesn’t give much in terms of tax benefits or asset protection. If that was your focus, you’d use an irrevocable trust. However, once you set up such a trust it can be difficult to change or cancel. The other benefits of a revocable trust are clarity and control— you get to detail exactly how your assets should be distributed. This can help protect the long-term financial interests of your family and avoid unnecessary conflict.

If you have younger children, a trust can also instruct the trustee on the ages and conditions under which they receive all or part of their inheritance. In second marriages and blended families, a trust removes some of the confusion about which assets should go to a surviving spouse versus the children or grandchildren from a previous marriage.

Trusts can have long-term legal, tax and financial implications, so it’s a good idea to work with an experienced estate planning attorney.

Reference: Barron’s (February 23, 2019) “Why a Trust Is a Great Estate-Planning Tool — Even if You’re Not Rich”

Why Is a Revocable Trust So Valuable in Estate Planning?

There’s quite a bit that a trust can do to solve big estate planning and tax problems for many families.

As Forbes explains in its recent article, “Revocable Trusts: The Swiss Army Knife Of Financial Planning,” trusts are a critical component of a proper estate plan. There are three parties to a trust: the owner of some property (settler or grantor) turns it over to a trusted person or organization (trustee) under a trust arrangement to hold and manage for the benefit of someone (the beneficiary). A written trust document will spell out the terms of the arrangement.

One of the most useful trusts is a revocable trust (inter vivos) where the grantor creates a trust, funds it, manages it by herself, and has unrestricted rights to the trust assets (corpus). The grantor has the right at any point to revoke the trust, by simply tearing up the document and reclaiming the assets, or perhaps modifying the trust to accomplish other estate planning goals.

After discussing trusts with your attorney, he or she will draft the trust document and re-title property to the trust. The assets transferred to a revocable trust can be reclaimed at any time. The grantor has unrestricted rights to the property. During the life of the grantor, the trust provides protection and management, if and when it’s needed.

Let’s examine the potential lifetime and estate planning benefits that can be incorporated into the trust:

  • Lifetime Benefits. If the grantor is unable or uninterested in managing the trust, the grantor can hire an investment advisor to manage the account in one of the major discount brokerages, or he can appoint a trust company to act for him.
  • Incapacity. A trusted spouse, child, or friend can be named to care for and represent the needs of the grantor/beneficiary. She will manage the assets during incapacity, without having to declare the grantor incompetent and petitioning for a guardianship. After the grantor has recovered, she can resume the duties as trustee.
  • This can be a stressful legal proceeding that makes the grantor a ward of the state. This proceeding can be expensive, public, humiliating, restrictive and burdensome. However, a well-drafted trust (along with powers of attorney) avoids this.

The revocable trust is a great tool for estate planning because it bypasses probate, which can mean considerably less expense, stress and time.

In addition to a trust, ask your attorney about the rest of your estate plan: a will, powers of attorney, medical directives and other considerations.

Any trust should be created by a very competent trust attorney, after a discussion about what you want to accomplish.

Reference: Forbes (February 20, 2019) “Revocable Trusts: The Swiss Army Knife Of Financial Planning”

How Do I Plan for a Blended Family?

A blended family (or stepfamily) can be thought of as the result of two or more people forming a life together (married or not) that includes children from one or both of their previous relationships, says The Pittsburgh Post-Gazette in a recent article, “You’re in love again, but consider the legal and financial issues before it’s too late.”

Research from the Pew Research Center study reveals a high remarriage rate for those 55 and older—67% between the ages 55 and 64 remarry. Some of the high remarriage percentage may be due to increasing life expectancies or the death of a spouse. In addition, divorces are increasing for older people who may have decided that, with the children grown, they want to go their separate ways.

It’s important to note that although 50% of first marriages end in divorce, that number jumps to 67% of second marriages and 80% of third marriages end in divorce.

So if you’re remarrying, you should think about starting out with a prenuptial agreement. This type of agreement is made between two people prior to marriage. It sets out rights to property and support, in case there’s a divorce or death. Both parties must reveal their finances. This is really helpful, when each may have different income sources, assets and expenses.

You should discuss whose name will be on the deed to your home, which is often the asset with the most value, as well as the beneficiary designations of your life insurance policies, 401(k)s and individual retirement accounts.

It is also important to review the agents under your health care directives and financial powers of attorney. Ask yourself if you truly want your stepchildren in any of these agent roles, which may include “pulling the plug” or ending life support.

Talk to an experienced estate planning attorney about these important documents that you’ll need, when you say “I do” for the second (or third) time.

Reference: Pittsburgh Post-Gazette (February 24, 2019) “You’re in love again, but consider the legal and financial issues before it’s too late”

What Do Parents Need to Know About Writing a Will?

Who wants to think about their own mortality? No one. However, it’s a fact of life. Failing to plan for your eventual death by preparing a will—especially as a parent—can result in issues for your loved ones. If you die without a will, it can mean conflict among your survivors, as they attempt to see how best to divide up your assets.

Fatherly’s recent article, “How to Write a Will: 8 Tips Every Parent Needs to Know” says that families can battle over big assets like cars to small assets like a collection of supposedly rare books. They can fight over anything and everything. Therefore, remember to prepare and sign a last will and testament to dispose of your property the way you want.

Dying without a will means your estate will be disposed of according to the intestacy laws. That could leave your loved ones in the lurch. For instance, in some states, your spouse may only get half your estate, with the remainder going to your parents.

Writing a will is essential, and you should not try to do it yourself. Instead, hire an experienced estate planning lawyer. Along with this, keep these items in mind.

Plan for Every Scenario. When doing your estate planning, consider the various scenarios and contingencies that can happen after you’re gone. A well prepared will includes when and where you want your assets to go. Be wise in how to distribute your assets, to whom they will be going and the timing.

Family Dynamics. You must be very specific when drafting up a will, especially if family circumstances are unique, such when there are children from previous marriages who aren’t legally adopted by a spouse. They could be disinherited. Work with an attorney to make sure they receive what you intend with specific details. If you and your partner aren’t legally married, your significant other could find himself or herself disinherited from your assets after you’re dead.

Designating Your Children’s Guardian. If you don’t name a guardian for your children (in cases of either single parenthood or where both parents pass away), the state will determine who gets your children.

Specificity. Your will is a chance to say who gets what. If you want your brother to get the baseball card collection, you should write it down in your will or it’s not enforceable. In some states, you can attach a written list of these personal items to your will.

Health Care. Begin planning your will when you’re healthy so that, in the event of disaster, you will have a financial power of attorney and a health care agent in place. If you become too ill to make decisions yourself, you’ll need to appoint someone to make those decisions for you.

Rules for Minors. Minors can own property, but they’ll have no control over it until they turn 18. If parents leave their home to their minor child, the surviving spouse will have issues if they want to sell it. Likewise, if a child is named the beneficiary of a life insurance policy, IRA, or 401(k), those assets will go into a protected account.

Don’t Do It Yourself. This cannot be emphasized enough. It’s tempting to create a will from a generic form online. But this may be a recipe for disaster. If your will is drafted poorly, your family will suffer the consequences. Generic forms found online are just that—generic. Families are not generic. Work with an experienced estate planning attorney to help you with what can be a complex process.

Reference: Fatherly (February 6, 2019) “How to Write a Will: 8 Tips Every Parent Needs to Know”

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Should I Put My Firearms in a “Gun Trust”?

If you’re a gun collector, while you likely have heard the term “gun trust,” you may not know what it is, how it works or how it can be of use in an estate plan.

Kiplinger’s recent article, “Own a Gun? Careful: You Might Need a Gun Trust,” explains that a gun trust is the common name for a revocable or irrevocable management trust, that’s created to take title to firearms.

Revocable trusts are used more often, because they can be changed during the lifetime of the grantor.

While it’s true that any legally owned weapon can be placed into a gun trust, these trusts are specifically used for weapons that are classified under the National Firearms Act (NFA) Title II of the Gun Control Act of 1968. These include Title II weapons, such as a fully automatic machine gun, a short-barreled shotgun and a suppressor (“silencer”).

What is an important reason why a gun trust may be a component of an estate plan? When the grantor owns Title II weapons, the transport and transfer of ownership of such heavily regulated firearms can easily be a felony, without the owner or heir even realizing he or she is breaking the law.

A gun trust provides for an orderly transfer of the weapon upon the death of the grantor to a family member or other heir. However, that transferee is required to submit to a background check and identification process, before taking possession of the firearm.

An NFA Title II weapon, like a suppressor, can only be used by the person to whom it’s registered. Therefore, allowing a friend or family member to fire a few rounds with a Title II weapon at the local range is a felony! A gun trust can be used to allow for the use of the Title II weapon by multiple parties. Each party who will have access to and use of the weapon, should be a co-trustee of the gun trust and must go through the same required background check and identification requirements.

An owner of a large collection of firearms may find it easier to transfer ownership of his or her weapons to a gun trust, even if the person doesn’t own any Title II weapons. There are several benefits to doing this, such as protecting your privacy, allowing for the disposition of your collection and addressing the possibility of incapacitation. A gun trust can also ease the process for your heirs. You don’t want to run afoul of the complex laws regarding the use and ownership of firearms, especially Title II firearms. Leaving a large collection of Title I weapons—or even a single Title II weapon—in an estate to be dealt with by an executor or trustee, can be extremely troublesome. Fortunately, it’s avoidable with the use of a gun trust.

Speak to an estate planning attorney who has experience and understands the federal and state laws on the ownership and transfer requirements of all firearms.

Reference: Kiplinger (February 6, 2019) “Own a Gun? Careful: You Might Need a Gun Trust”