Contemplating your own mortality is not on anyone’s list of fun pastimes. However, having an estate plan is a gift to family members and is important whether you are wealthy or not, says a recent article from CNBC, “5 key things to know when you create a will and make other end-of-life plans.” Don’t be intimidated by the word “estate.” It simply means the sum of your possessions.

At its essence, your estate plan details whom you want to make decisions for you if you become incapacitated or when you die and who will inherit what you own.

Estate plans don’t need to be complicated. However, they do need to be done correctly, so working with an experienced estate planning attorney in your state of residence is essential.

Here are five key things to keep in mind as you start preparing your estate plan:

A will is never enough. The will is the foundation, identifying whom you want to receive certain property, naming an executor and naming a guardian for dependent children. However, some assets pass outside of the will, including retirement accounts, IRAs, life insurance policies and annuities. Any beneficiaries listed on these accounts supersede instructions in your will. Therefore, for example, if your ex-spouse is listed on the beneficiary designation and you never updated the document, they’ll inherit the account, regardless of how long you have been divorced.

Some 401(k) accounts require your current spouse to be the beneficiary, unless they legally agree otherwise. And regular bank accounts can have a beneficiary listed on a payable-on-death form. The same is true for brokerage and investment accounts.

If you don’t name a secondary beneficiary and the primary beneficiary has died, the assets will go into probate. Probate is the process by which the court distributes your estate. It can take months or years, depending on the state and the complexity of your estate.

When you create a will, you name an executor to carry out your wishes and administer your estate. This includes liquidating or closing accounts, distributing assets to heirs, paying debts and selling assets like your home. Make sure the person you name is willing to serve in this capacity.

Your estate plan should also include a Living Will, a document expressing your wishes for medical treatments you do and do not wish to have if you cannot communicate. In addition, a Power of Attorney is needed so someone you trust can handle your legal and financial affairs if you become incapacitated. A Health Care Power of Attorney lets someone of your choice make healthcare decisions.

Some assets get a “step-up in basis.” For example, it may be better to gift assets like stocks, bonds, or real estate to heirs after death. When these assets are sold, any increase from the so-called “cost basis” or value when the asset was acquired, and the sale price is subject to capital gains taxes. However, the heirs get a step-up in basis. The asset’s market value at your death becomes the cost basis for the heir. Any appreciation before that is untaxed. When the asset is sold, any gains (or losses) are based on the new cost basis. If you gifted these assets while living, they’d assume your original cost basis, which could lead to a big tax bill.

You may want to have a trust. For example, if you want your children to receive money eventually but not while they are too young to be responsible for a large sum, a trust can hold the asset. The trustee will make distributions according to the language of the trust. This lets you determine when your heirs will gain access to assets.

Don’t neglect to update your estate plan. Any time you have a significant life change, such as a birth, death, marriage, or divorce, you must review your estate plan. You’ll want to be sure your named executor is still the right choice and the guardian for your minor children is still the person you want to raise your children. If you move to a new state, you’ll want to consult with an estate planning attorney to be sure your estate plan is still valid, since estate laws are state-specific.

Reference: CNBC (March 19, 2023) “5 key things to know when you create a will and make other end-of-life plans”

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When creating an estate plan, there are details which seem minor but are actually very important, says a recent article from mondaq, “Four Provisions People Often Forget To Include In Their Estate Plan.”

Don’t forget to name alternative beneficiaries and executors. If the will names a beneficiary but they are unable to take possession of the property, or they are deceased, the asset will pass as though you didn’t have a will at all. In other words, the state will determine who receives the property, which may not be in accordance with your wishes. If there’s an alternate beneficiary, the property will go to someone of your choosing. A backup executor is also critical. If your primary executor cannot or does not want to serve, the court may appoint an administrator.

Personal possessions, including family heirlooms. Most families have items with great sentimental value, whether or not they have any financial value. Putting a list in your will makes it very difficult if you want to change your mind over time. It’s best to have a personal property memorandum. This is a separate document providing details about what items you want to give to family and friends. In some states, it is legally binding if the personal property memorandum is referenced in the will and signed and dated by the person making the will. A local estate planning attorney will know the law for your state.

Even if this document is not legally binding, it gives your heirs clear instructions for what you want and may avoid family arguments. Please don’t use it to make any financial bequests or real estate gifts. Those belong in the will.

Digital assets. Much of our lives is now online. However, many people have slowly incorporated digital assets into their estate plans. You’ll want to list all online accounts, including email, financial, social media, gaming, shopping, etc. In addition, your executor may need access to your cell phone, tablet and desktop computer. The agent named by your Power of Attorney needs to be given authority to handle online accounts with a specific provision in these documents. Ensure the list, including the accounts, account number, username, password and other access information, is kept safe, and tell your executor where it can be found.

Companion animals. Today’s pet is a family member but is often left unprotected when its owners die or become incapacitated. Pets cannot inherit property, but you can name a caretaker and set aside funds for maintenance. Many states now permit pet owners to have a pet trust, a legally enforceable trust so the trustee may pay the pet’s caregiver for your pet’s needs, including veterinarian care, training, boarding, food and whatever the pet needs. Creating a document providing details to the caretaker concerning the pet’s needs, health conditions, habits and quirks is advised. Make sure the person you are naming as a caretaker is able and willing to serve in this capacity, and as always, when naming a person for any role, have at least one backup person named.

Reference: mondaq (March 16, 2023) “Four Provisions People Often Forget To Include In Their Estate Plan”

Contact us to review your estate plan with one of our experienced estate planning attorneys!

Sims & Campbell, LLC– Annapolis and Towson Estate Planning Attorneys

Unless they’ve experienced it themselves, most people don’t know what happens after the funeral is over and mourners return to their lives. A recent article from San Francisco Bay Times, “Probate in a Nutshell,” explains how the probate process works.

Probate is the legal process of administering the estate of a deceased person. It includes transferring assets of the decedent to their heirs, beneficiaries, or creditors. Probate is court-supervised and can be a lengthy, complex and often stressful experience, depending in part on the complexity of the estate and the jurisdiction.

Probate starts with filing the last will and testament in the court and appointment of an executor. If there is no will, then the court appoints an administrator to handle the estate. The executor or administrator gathers the assets, pays debts, and taxes and distributes the remaining assets according to the terms of the will. If there is no will, the laws of the state determine, usually by kinship, how the assets are distributed.

The probate process can take months or years to complete. During this time, the executor or administrator must keep careful records of all transactions. They must also file tax returns for the last year of the person’s life and diligently track all expenses and income of the estate.

Once the probate process is completed, the executor or administrator must file a final report with the court. This report must include all financial transactions. The probate court then reviews the report and determines whether or not it approves all transactions. Only then can assets be distributed to beneficiaries.

Why is probate so complex and time-consuming? First, it takes time to complete an inventory of someone’s property, including real estate, bank accounts, investment accounts, artwork, vehicles, jewelry and tangible assets. The asset list also includes life insurance policies, pensions, annuities, and other assets the person owned.

A professional appraiser may be needed to determine the value of assets. The executor must also gather proof of ownership for all these assets, such as deeds or titles.

Any debts or liabilities must also be identified, including credit cards, loans, mortgages, liens, and outstanding debts. Finally, taxes must be reviewed: income tax, property tax, estate tax, or gift tax.

Finally, a complete list of all estate beneficiaries must be prepared, including family members, friends, or others who may be named in the will. Contact information will be required for all.

Many complications can arise during probate. This is why many people take the time to have an experienced estate planning attorney create an estate plan to remove assets from the probate estate through trusts, gifts and other estate planning strategies. Of course, estate administration still needs to take place after someone dies. However, having an estate plan can minimize the court’s involvement, cut down on delays and avoid unnecessary expenses.

Reference: San Francisco Bay Times (April 4, 2023) “Probate in a Nutshell”

Contact us to review your estate plan with one of our experienced estate planning attorneys!

Sims & Campbell, LLC- Annapolis and Towson Estate Planning Attorneys

Yahoo Finance’s recent article entitled “This Is How Much Estate Taxes Will Cost You in Florida” explains that Florida abolished its estate tax in 2004. Before that, federal law allowed a credit for death taxes at the state level but on the federal tax return. When you filed your state taxes, the federal government changed the credit to a deduction. In Florida, the estate tax was based solely on the federal credit, so the state no longer needed the tax.

Estate taxes are imposed by the government on the estate of a recently deceased person.

These taxes only apply to estates worth a certain amount, which varies based on where the tax is levied. You may have heard the term “death tax.” However, it’s really an estate tax. This tax differs from the inheritance tax, which is levied on money after it has been passed on to the deceased’s heirs.

Florida has no inheritance tax. However, other states’ inheritance taxes may apply to you. In Pennsylvania, for example, the inheritance tax may apply to you, even if you live out of state and the deceased lived in the state.

Florida has a no gift tax. The federal gift tax exemption is $17,000 in 2023. Gifting more than that to one person in a year counts against your lifetime exemption of $12.92 million.

Even though Florida doesn’t have an estate tax, you might still owe the federal estate tax. This is triggered for estates worth more than $12.92 million in 2023. As a result, estates worth less than $12.92 million won’t pay any federal estate taxes at all. However, if your estate is more than that, any money above that mark will be taxed.

The federal estate tax exemption is “portable” for married couples. What does that mean? If a married couple plans appropriately, they can have an exemption of up to $25.84 million after both spouses have died. The highest tax rate is 40% if an estate exceeds that amount.

The state sales tax is 6%. However, considering local sales taxes, the average is 7.01%. Property taxes in Florida are right in the middle of the pack nationwide, with an average effective rate of 0.80%.

There’s been no estate tax in the state of Florida since 2005. However, even if you live in Florida, your estate may still owe a federal estate tax when you pass away. No matter how much you have in your estate, it’s essential to make proper plans so your estate is taken care of and your descendants are now stuck with a large tax bill. Ask an experienced estate planning attorney for help.

Reference: Yahoo Finance (March 27, 2023) “This Is How Much Estate Taxes Will Cost You in Florida”

Contact us to review your estate plan with one of our experienced estate planning attorneys

Sims & Campbell, LLC- Annapolis and Towson Estate Planning Attorneys

When do you plan to retire? When will you take Social Security? When must you start withdrawing money from your retirement savings? In retirement, “when” is everything, says Kiplinger’s recent article entitled, “In Retirement, Many Crucial Questions Start With the Word ‘When’.” That’s because so many financial decisions related to retirement are much more dependent on timing than on the long-term performance of an investment.

Too many people approaching retirement — or are already there — don’t adjust how they think about investing to account for timing’s critical role. “When” plays a major role in the new strategy. Let’s look at a few reasons why:

Required Minimum Distributions (RMDs). Many people use traditional IRAs or 401(k) accounts to save for retirement. These are tax-deferred accounts, meaning you don’t pay taxes on the income you put into the accounts each year. However, you’ll pay income tax when you begin withdrawing money in retirement. When you reach age 73, the federal government requires you to withdraw a certain percentage each year, whether you need the money or not. A way to avoid RMDs is to start converting your tax-deferred accounts to a Roth account way before you reach 73. You pay taxes when you make the conversion. However, your money then grows tax-free, and there is no requirement about how much you withdraw or when.

Using Different Types of Assets. In retirement, your focus needs to be on how to best use your assets, not just how they’re invested. For example, one option might be to save the Roth for last, so that it has more time to grow tax-free money for you. However, in determining what order you should tap your retirement funds, much of your decision depends on your situation.

Claiming Social Security. On average, Social Security makes up 30% of a retiree’s income. When you claim your Social Security affects how big those monthly checks are. You can start drawing Social Security as early as age 62. However, your rate is reduced for the rest of your life. If you delay until your full retirement age, there’s no limit to how much you can make. If you wait to claim your benefit past your full retirement age, your benefit will continue to grow until you hit 70.

Wealth Transfer. If you plan to leave something to your heirs and want to limit their taxes on that inheritance as much as possible, then “when” can come into play again. For instance, using the annual gift tax exclusion, you could give your beneficiaries some of their inheritance before you die. In 2023, you can give up to $17,000 to each individual without the gift being taxable. A married couple can give $17,000 each.

Reference: Kiplinger (March 15, 2023) “In Retirement, Many Crucial Questions Start With the Word ‘When’”

Questions? Contact us to schedule a complimentary initial call with one of our experienced estate planning attorneys!

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If you fail to create an estate plan, your state’s laws will determine who will inherit your assets and if you have minor children, the court will appoint a guardian to raise your children. The state’s laws may not be what you had in mind for your legacy. However, this happens if you fail to have an estate plan, as described in the article “AVOID THESE (estate planning) MISTAKES!” from Westchester & Fairfield County Business Journals.

Failing to have a plan or review your estate plan regularly. Failing to have a plan is the most common mistake Americans make. Unfortunately, less than half of all U.S. adults have estate planning documents in place, and only 36 percent of parents with minor children have end-of-life plans. You may feel estate planning is optional. However, everyone over 18 should have a plan.

It doesn’t have to be complicated. However, a simple will prepared by an experienced estate planning attorney indicating who should receive your assets upon death and advance directives indicating who will handle medical (health care proxy) decisions and financial power of attorney decisions in case of incapacity is a good start. Once your plan is in place, reviewing it every three to five years is a good idea.

Thinking that a trust will make things too complicated or neglecting to fund a trust. Revocable and/or irrevocable trusts are excellent ways to avoid probate, the surrogate court’s process to validate a will and executor and specify how funds will be distributed to beneficiaries. Using a revocable trust and properly funding can eliminate the need for some or all of your estate to pass through probate, depending on how the trust is structured.

Relying too heavily on beneficiary designations. Far too many people think they can avoid having an estate plan by depending on beneficiary designations on all assets. For example, let’s say you have an investment account in your name alone, with your spouse and children as beneficiaries. From a tax planning perspective, you may lose tax planning opportunities if funds are passed directly to a beneficiary spouse. If a beneficiary is a minor and receives the assets, the court must appoint a guardian. Those funds would then be held in control of the court until the minor beneficiary reaches the age of majority. A trust for a minor child is one way to solve this problem.

If a named beneficiary dies before you without a secondary or surviving beneficiary, the account will become part of the probate estate. If you have received Medicaid benefits, whether home care or nursing home care, the asset will be subject to any claims made by Medicaid or creditors.

Using online templates and forms. Estate planning attorneys devote a fair amount of time to fixing the mistakes made by people downloading online forms. They may be inexpensive initially. However, mistakes and/or omissions can’t be corrected if an individual becomes incapacitated or deceased. In addition, when the forms don’t comply with state-specific laws, they may become invalid.

Keeping estate plans and wishes a secret. If family members or trusted friends don’t know you have an estate plan or don’t know where documents are located, it makes their tasks very difficult. The person you name as your health care power of attorney, for instance, needs to know where all of your advance directives are located and be able to access them in the event you become incapacitated. Similarly, your executor needs to know where wills and trust documents can be found. Equally important is discussing your wishes for burial, funeral and other arrangements.

Having a plan for incapacity and death is a gift to those you love, ensuring they know what to do, sparing them from a frantic search for time-sensitive documents and alleviating them from guessing what you would have wanted.

Reference: Westchester & Fairfield County Business Journals (March 16, 2023) “AVOID THESE (estate planning) MISTAKES!”

Contact us to review your estate plan with one of our experienced estate planning attorneys!

Sims & Campbell, LLC– Annapolis and Towson Estate Planning Attorneys