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”

How Do I Include Retirement Accounts in Estate Planning?

You probably made beneficiary designations for your retirement accounts, when you opened them. Remember: who you designated can affect your overall estate planning objectives. Because of this, when including your retirement assets in your estate, ask yourself if anything has changed in your life since then that would affect their status as your beneficiaries, as well as how they’d receive the retirement assets.

Investopedia’s recent article, “Include Your Retirement Accounts in Your Estate,” gives us some things to consider in the New Year.

Beneficiary Designations. Review your beneficiary designations after major life changes. If you fail to make these designations, the funds will most likely go into your estate—a horrible outcome from a tax and planning perspective. If your estate is named a beneficiary, your heirs must wait until probate is finished to access your retirement accounts. It is usually better to name an individual or a trust as your beneficiary.

Protecting Retirement Funds With a Trust. Another option is to include a trust in your estate planning, instead of giving your retirement funds directly to named individuals. This allows you more control over the distribution, while protecting your heirs from additional paperwork and taxes. Trust distributions keep a beneficiary from accessing and spending their inheritance all at once. It’s also a good idea if your beneficiaries include minor children who shouldn’t have direct access to the money until they are adults. Be sure to consult with an estate planning attorney, because there are tax and other complexities associated with designating a trust as beneficiary.

Required Minimum Distributions (RMDs). Your retirement plans have rules about when you are required to start taking distributions. For 401(k) accounts, you are required to start taking RMDs at age 70½. However, if you die and leave retirement plans and accounts to your heirs, these rules apply to them instead. A spousal beneficiary can roll over your retirement funds tax-free into their retirement plan and make their own distribution choices. However, other beneficiaries don’t have the same option. Tax treatment and distribution options vary, depending on who is receiving your retirement assets.

Tax Considerations. The biggest worry you need to address when designating retirement accounts as part of your estate plan, is how they’ll be taxed. Consider how to withdraw from these accounts while you’re alive and how to minimize tax consequences after you’ve passed.

Work with an estate planning attorney who has a strong understanding of retirement accounts and the tax and legal requirements of estate planning. That way you can be certain your retirement assets are distributed to the proper beneficiaries with the least tax liability.

Reference: Investopedia (August 27, 2018) “Include Your Retirement Accounts in Your Estate”

Who Will Cover My Debt When I Die?

Did you know that we’re dying in this country with an average of $62,000 in debt? What happens to that debt?

Fox Business recently published an article that asks “What Happens to Your Debt When You Die?” As the article explains, the answer depends on a few different factors, including the type of debt, whether there was a cosigner and the value of the deceased person’s estate. Let’s look at some possible outcomes:

In many cases, any debt you owe during your lifetime will have to be paid by your estate when you pass away. Creditors can make claims against your estate during the probate process. If you died with a will and named an executor, he or she will usually use the assets you left behind to pay off your debt. If you don’t have enough assets, creditors are typically without recourse, if you had unsecured debt without a cosigner. However, if you had a secured loan, like a mortgage or a car loan, the debt would need to be paid for your family to keep the asset. For instance, if you leave your home to your family, they’d have to pay your mortgage to keep the house.

Creditor claims take precedence over your instructions as to what happens to your assets. If you stated in your will that your bank account is to pass to your children, but you owed money to a creditor, the money in the bank would first be used to pay the creditor, before your children could inherit.

If your estate doesn’t have enough assets to satisfy your debts, creditors may seek the payment from any cosigners on the loans. Cosigners share legal responsibility for debt and will be held 100% responsible for paying the remaining balance.

One potential exception to this general rule, is for certain types of student loans. For example, a Parent PLUS loan can be dischargeable due to a student’s death, and some private student loans offer a death discharge. However, it is rare. If the primary borrower on student loan debt dies, the surviving cosigner should read the loan terms to determine if he’ll still be held responsible for paying it. Federal student loan debt is typically forgiven, when the borrower dies.

Creditors can also attempt to collect from co-borrowers, if you had a joint account. Therefore, if you and your spouse had a mortgage together or shared a credit card, your spouse would be expected to continue paying the bills after your death.

However, if there’s no cosigner and not enough assets in the estate to pay the bills, creditors will charge off the debt because there’s no way to collect. Beware that creditors may attempt to guilt family members into paying after their deceased loved one’s death. However, generally there’s no requirement that you pay debt that belonged to a loved one. An exception is in states with community property laws that require spouses to pay off debt belonging to a deceased spouse using community property.

If your loved one has already passed away and you’re worried about what will happen to their debts, speak to an experienced estate planning attorney.

Reference: Fox Business (December 27, 2018) “What Happens to Your Debt When You Die?”