How Can I Minimize My Probate Estate? – Annapolis and Towson Estate Planning

Having a properly prepared estate plan is especially important if you have minor children who would need a guardian, are part of a blended family, are unmarried in a committed relationship or have complicated family dynamics—especially those with drama. There are things you can do to protect yourself and your loved ones, as described in the article “Try these steps to minimize your probate estate” from the Indianapolis Business Journal.

Probate is the process through which debts are paid and assets are divided after a person passes away. There will be probate of an estate whether or not a will and estate plan was done, but with no careful planning, there will be added emotional strain, costs and challenges left to your family.

Dying with no will, known as “intestacy,” means the state’s laws will determine who inherits your possessions subject to probate. Depending on where you live, your spouse could inherit everything, or half of everything, with the rest equally divided among your children. If you have no children and no spouse, your parents may inherit everything. If you have no children, spouse or living parents, the next of kin might be your heir. An estate planning attorney can make sure your will directs the distribution of your property.

Probate is the process of giving someone you designate in your will—the executor—the authority to inventory your assets, pay debts and taxes and eventually transfer assets to heirs. In an estate, there are two types of assets—probate and non-probate. Only assets subject to the probate process need go through probate. All other assets pass directly to new owners, without involvement of the court or becoming part of the public record.

Many people embark on estate planning to avoid having their assets pass through probate. This may be because they don’t want anyone to know what they own, they don’t want creditors or estranged family members to know what they own, or they simply want to enhance their privacy. An estate plan is used to take assets out of the estate and place them under ownership to retain privacy.

Some of the ways to remove assets from the probate process are:

Living trusts. Assets are moved into the trust, which means the title of ownership must change. There are pros and cons to using a living trust, which your estate planning attorney can review with you.

Beneficiary designations. Retirement accounts, investment accounts and insurance policies are among the assets with a named beneficiary. These assets can go directly to beneficiaries upon your death. Make sure your named beneficiaries are current.

Payable on Death (POD) or Transferable on Death (TOD) accounts. It sounds like a simple solution to own many accounts and assets jointly. However, it has its own challenges. If you wished any of the assets in a POD or TOD account to go to anyone else but the co-owner, there’s no way to enforce your wishes.

Contact us to speak with one of our experienced estate planning attorneys.  An experienced, local estate planning attorney will be the best resource to prepare your estate for probate. If there is no estate plan, an administrator may be appointed by the court and the entire distribution of your assets will be done under court supervision. This takes longer and will include higher court costs.

Reference: Indianapolis Business Journal (Aug. 26,2022) “Try these steps to minimize your probate estate”

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

When Should I Hire an Estate Planning Attorney? – Annapolis and Towson Estate Planning

Kiplinger’s recent article entitled “Should I Hire an Estate Planning Attorney Now That I Am a Widow?” describes some situations where an experienced estate planning attorney is really required:

Estates with many types of complicated assets. Hiring an experienced estate planning attorney is a must for more complicated estates. These are estates with multiple investments, numerous assets, cryptocurrency, hedge funds, private equity, or a business. Some estates also include significant real estate, including vacation homes, commercial properties and timeshares. Managing, appraising and selling a business, real estate and complex investments are all jobs that require some expertise and experience. In addition, valuing private equity investments and certain hedge funds is also not straightforward and can require the services of an expert.

The estate might owe federal or state estate tax. In some estates, there are time-sensitive decisions that require somewhat immediate attention. Even if all assets were held jointly and court involvement is unnecessary, hiring a knowledgeable trust and estate lawyer may have real tax benefits. There are many planning strategies from which testators and their heirs can benefit. For example, the will or an estate tax return may need to be filed to transfer the deceased spouse’s unused Federal Estate Unified Tax Credit to the surviving spouse. The decision whether to transfer to an unused unified tax credit to the surviving spouse is not obvious and requires guidance from an experienced estate planning attorney.

Many states also impose their own estate taxes, and many of these states impose taxes on an estate valued at $1 million or more. Therefore, when you add the value of a home, investments and life insurance proceeds, many Americans will find themselves on the wrong side of the state exemption and owe estate taxes.

The family is fighting. Family disputes often emerge after the death of a parent. It is stressful, and emotions run high. No one is really operating at their best. If unhappy family members want to contest the will or are threatening a lawsuit, you will also need guidance from an experienced estate planning attorney. These fights can result in time-intensive and costly lawsuits. The sooner you get legal advice from a probate attorney, the better chance you have of avoiding this.

Complicated beneficiary plans. Some wills have tricky beneficiary designations that leave assets to one child but nothing to another. Others could include charitable bequests or leave assets to many beneficiaries.

Talk to an experienced attorney, whose primary focus is estate and trust law.

Reference: Kiplinger (July 5, 2022) “Should I Hire an Estate Planning Attorney Now That I Am a Widow?”

 

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

What Happens Financially when a Spouse Dies? – Annapolis and Towson Estate Planning

Losing a beloved spouse is one of the most stressful events in life, so it is one we tend not to talk about. However, planning for life after the passing of a spouse needs to be done, as it is an eventuality. According to a recent article from AARP Magazine, “The Financial Penalty of Losing Your Spouse,” the best time to plan for this is before your spouse dies.

You will have the most options while your spouse is still living. Estate plans, wills, trusts, and beneficiary designations can still be updated, as long as your spouse has legal capacity. You can make sure you will still have access to savings, retirement, and investment accounts. Create a list of assets, including information needed to access digital accounts.

Make sure that your credit cards will be available. Many surviving spouses only learn after a death whether credit cards are in the spouse’s name or their own name.

Get help from professionals. Review your new status with your estate planning attorney, CPA and financial advisor. This includes which accounts need to be moved and which need to be renamed. Can you afford to maintain your home? An experienced professional who works regularly with widows or widowers can provide help, if you are open to asking.

A warning note: Be careful about new “friends.” Widows are key targets of scammers, and thieves are very good at scamming vulnerable people.

Be strategic about Social Security. If both partners were drawing benefits, the surviving spouse may elect the higher benefit going forward. If you have not claimed yet, you have options. You can take either a survivor’s benefit based on your spouse’s work history, or the retirement benefit based on your own work history. You will be able to switch to the higher benefit, if it ends up being higher, later on.

Be careful about your spouse’s 401(k) and IRA. If you are in your 50s, you are allowed to roll your spouse’s 401(k) or IRA into your own account. However, do not rush to move the 401(k). You can make a withdrawal from a late spouse’s 401(k) without penalty. However, it will be taxable as ordinary income. If you move the 401(k) to a rollover IRA, you will have to pay taxes plus a 10% penalty on any withdrawals taken from the IRA before you reach 59 ½. Your estate planning attorney can help with these accounts.

Use any advantages available to you. The IRS will still let you file jointly in the year of your spouse’s death. Tax rates are better for married filers than for singles. Any taxable withdrawals you’ll need to take from 401(k)s or IRAs may be taxed at a lower rate during this year. You may decide to use the money to create a rollover Roth IRA or to put some funds into a non-tax deferred account.

Do not rush to do anything you do not have to do. Selling your home, writing large checks to children, or moving are all things you should not do right now. Decisions made in the fog of grief are often regretted later on. Take your time to mourn, adjust to your admittedly unwanted new life and give yourself time for this major adjustment.

Reference: AARP Magazine (May 13, 2022) “The Financial Penalty of Losing Your Spouse”

 

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

Can I Plan My Estate to Avoid Leaving Residual Assets? – Annapolis and Towson Estate Planning

When looking into your estate plan, you see the term “residuary estate.” This is any part of your estate that has not been distributed to your heirs through a will. It is also called estate residue or residual estate. However, it simply means assets that are left over once your will has been read, the assets have been distributed to your heirs and any final expenses have been paid.

Proper estate planning can help you avoid leaving residual assets behind, says Yahoo Finance’s recent article entitled “Residuary Estate Definition and Example.” An experienced estate planning attorney can help you select a structure for your estate that accomplishes your objectives.

A will lets you state how you want your assets to be divided among your heirs when you pass away. However, it is possible that not all of your assets will make it into your will for some reason. Any assets that are not included in your will or distributed through a trust automatically becomes part of your residuary estate when you pass away.

Residual estates can be created without advance planning. For example, your heirs may be left to deal with a residuary estate if:

  • You neglected to include certain assets in your will;
  • You acquired new assets after drafting your will and failed to amend the document for the distribution of these assets; or
  • Someone you named in your will dies before you or is unable to receive their inheritance for some other reason.

Assets that are designed to have a named beneficiary but do not have one, can also be included in the residuary estate.

When a residuary estate exists, it can complicate the probate process for your family. Any unclaimed or otherwise overlooked assets would be distributed according to the state’s inheritance laws, after any estate taxes, outstanding debts or final expenses have been paid.

You should also know that it is possible to have a residuary beneficiary of a living trust. This person would receive any property or assets transferred to the trust that were not designated for specific beneficiaries. If you create a trust properly, there should be a provision for each beneficiary you want to be included and which assets they should receive. However, you could still run into issues if a named beneficiary dies, and you haven’t named anyone as a residuary beneficiary.

A residuary estate is something you may need to plan for when creating a will or trust. Fortunately, it is pretty easy to do so by including the proper wording in your will and trust documents. Ask an estate planning attorney to eliminate confusion and to plan your estate properly.

Reference: Yahoo Finance (Dec. 30, 2021) “Residuary Estate Definition and Example”

 

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

What Should I Know about Charitable Gifts? – Annapolis and Towson Estate Planning

Sometimes as individuals and families increase in wealth, they want to give more to charities.

Some charitable donations may be tax deductible or be able to reduce tax liabilities. Let’s look at some suggestions if you decide you want to make charitable donations, according to WMUR’s recent article entitled “Money Matters: Considerations when making charitable gifts.”

First, it might be the time to establish a giving plan. The first step is to decide how much your family wants to give. When researching a charity, look at how the contributions will be used. Charity Navigator, a charity assessment organization, has a site to help you get started at charitynavigator.org. Each charity has a rating with additional information.

Besides annual giving, charitable giving can play a role in estate planning. Your estate planning documents can state these wishes, and sometimes, giving can reduce estate taxes. The federal government taxes wealth transfers during life and at death. Currently, these types of taxes are imposed on lifetime transfers exceeding $12.06 million per spouse at a top rate of 40%. States may also impose these types of taxes. Ask an experienced estate planning attorney about it.

To give to charity, you could include a bequest in your will or trust. Another option is to name a charity as a beneficiary on life insurance policies. Retirement plans such as IRAs, 401(k)s, and 403(b)s may also have a charity listed as beneficiary. If these plans are tax-deferred, then an advantage to using them to make charitable gifts is that a charity can get money tax-free that would otherwise be taxed.

You might also ask an estate planning attorney about a charitable lead or a charitable remainder trust.

Another option for giving is to use donor-advised funds, which gives the donor the tax benefit for making the gift all in one year but the option to make the actual gift later on.

A donor-advised fund is particularly useful for taxpayers who itemize deductions. This is an agreement between the donor and a host organization, which then becomes the legal owner of the assets.

You can tell the fund how to invest the contribution and how the money is disbursed. The fund controls the assets but usually will honor the donor’s requests.

Finally, you could set up a private family foundation. These are more complex but give you and your family control over the investment and distribution of the money. They work best when a significant amount of money is involved.

Reference: WMUR (Dec. 30, 2021) “Money Matters: Considerations when making charitable gifts”

 

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

Is Life insurance a Good Idea? – Annapolis and Towson Estate Planning

Nasdaq’s recent article entitled “Having a Child? Now Is the Time to Get Life Insurance” explains that parents usually want to make certain that their children are provided for — even in a worst-case scenario where that parent does not survive until the child’s adulthood. That is the big reason why it is so important to get life insurance when a child is born, if the parent does not have it already.

Parents must make sure they are as financially prepared as possible if they die suddenly, and purchasing term life insurance is frequently the best way to do that. A term life insurance policy is one in effect for a limited period of time, like 20 years or so. Parents can buy a policy that will cover their life for as long as they expect their child to be dependent on them for financial support.

Parents who get term life insurance can be sure there is money available to provide for a child into adulthood, as well as to cover that child’s education.

Term life insurance can be a cheaper way to obtain this type of protection than whole life insurance and is usually all that is necessary. This is because children eventually become financially independent after several decades. However, parents whose children are disabled and who will require lifelong care may wish to buy a whole life policy, so a death benefit will always be paid out.

When purchasing term life insurance to protect a child, parents should consider who to name as the beneficiary. Typically, naming the child directly can create some legal complications because children under the age of 18 cannot legally manage the life insurance proceeds — and giving a large lump sum of money to a child who is just 18 could create problems with wise money management.

It may be wise for the parent purchasing coverage to name the other parent of the child as the beneficiary of the death benefit. That parent can use the money to provide financial support. However, in instances where the person purchasing coverage does not necessarily trust the other parent to use it wisely, there are other approaches such as creating a trust, appointing a trustee to manage the funds on behalf of the child and naming the trust as the beneficiary.

Parents should speak with an experienced estate planning attorney, if they have a more complex situation.

Reference: Nasdaq (Dec. 12, 2021) “Having a Child? Now Is the Time to Get Life Insurance”

 

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

What’s the Difference between Probate Assets and Non-Probate Assets? – Annapolis and Towson Estate Planning

Updating estate plans and reviewing beneficiary designations are both important estate planning tasks, more important than most people think. They are easy to fix while you are alive, but the problems created by ignoring these tasks occur after you have passed, when they cannot be easily fixed or, cannot be fixed at all. The article “Who gets the brokerage account?” from Glen Rose Reporter shares one family’s story.

The father of three children had an estate plan done when the children were in their twenties. His Last Will and Testament directed all assets in a substantial brokerage account to be equally divided between the three children.

His Last Will and Testament was never updated.

Thirty years later, his two sons are successful, affluent physicians with high incomes. His daughter is a retired educator who had raised two children as a single mom and struggled financially for many years.

When her father met with his investment advisor, he signed a beneficiary designation leaving the substantial brokerage account, including the substantial growth occurring over the years, to his daughter.

When he dies, the two brothers claim his Last Will and Testament, dividing all assets equally, must be the final word. They insist the brokerage account is to be divided equally among the three children.

Any assets held in an account with a beneficiary designation are considered non-probate assets. They do not pass through the probate process. Their disposition is not controlled by the Last Will and Testament. The contract between the institution and the individual is paramount.

Insurance policies, retirement accounts, bank and brokerage accounts usually have these designations. They often include a pay-on-death provision, and the person who is to receive the assets upon death of the owner is clearly named.

If the owner of the account fails to sign a right of survivorship, pay-on-death or to name a beneficiary designation before they die, then the assets are paid by the financial institution to the probate estate. This is to be avoided, however, since it complicates what could be a simple transaction.

The two sons were correctly advised by an estate planning attorney of their sister’s full and protected right to receive the investment account, despite their wishes. When the provisions in the Last Will and Testament conflict with a contract made between an owner and a financial institution, the contract prevails.

In this case, a less financially secure daughter and her family benefited from the wishes and foresight of her father.

Last Wills and Testament and beneficiary designations need to be reviewed and revised to ensure that they reflect the wishes of the parent as time goes by.

Reference: Glen Rose Reporter (Jan. 13, 2022) “Who gets the brokerage account?”

 

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

What’s the Best Way to Mess Up Estate Plan? – Annapolis and Towson Estate Planning

Forbes’ recent article entitled “5 Ways People Mess Up Their Estate Plan” describes the most common mistakes people make that wreak havoc with their estate plans.

Giving money to an individual during life, but not changing their will. Cash gifts in a will are common. However, the will often is not changed. When the will gets probated, the individual named still gets the gift (or an additional gift). No one—including the probate court knows the gift was satisfied during life. As a result, a person may get double.

Not enough assets to fund their trust. If you created a trust years ago, and your overall assets have decreased in value, you should be certain there are sufficient assets going into your trust to pay all the gifts. Some people create elaborate estate plans to give cash gifts to friends and family and create trusts for others. However, if you do not have enough money in your trust to pay for all of these gifts, some people will get short changed, or get nothing at all.

Assuming all assets pass under the will. Some people think they have enough money to satisfy all the gifts in their will because they total up all their assets and arrive at a large enough amount. However, not all the assets will come into the will. Probate assets pass from the deceased person’s name to their estate and get distributed according to the will. However, non-probate assets pass outside the will to someone else, often by beneficiary designation or joint ownership. Understand the difference so you know how much money will actually be in the estate to be distributed in accordance with the will.  Do not forget to deduct debts, expenses and taxes.

Adding a joint owner. If you want someone to have an asset when you die, like real estate, you can add them as a joint owner. However, if your will is dependent on that asset coming into your estate to pay other people (or to pay debts, expenses or taxes), there could be an issue after you die. Adding joint owners often leads to will contests and prolonged court battles. Talk to an experienced estate planning attorney.

Changing beneficiary designations. Changing your beneficiary on a life insurance policy could present another issue. The policy may have been payable to your trust to pay bequests, shelter monies from estate taxes, or pay estate taxes. If it is paid to someone else, your planning could be down the drain. Likewise, if you have a retirement account that was supposed to be payable to an individual and you change the beneficiary to your trust, there could be adverse income tax consequences.

Talk to your estate planning attorney and review your estate plan, your assets and your beneficiary designations. Do not make these common mistakes!

Reference: Forbes (Oct. 26, 2021) “5 Ways People Mess Up Their Estate Plan”

 

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

Do Grandchildren Get Some of the Estate If Their Dad Dies before Me? – Annapolis and Towson Estate Planning

It is not that uncommon that a child dies before a parent. The question then arises about who gets that share. Is it the children of the decedent child (the will maker’s grandchildren), or do the will maker’s other children split the share of the decedent child?

Nj.com’s recent article entitled “Who gets this inheritance if a beneficiary dies?” explains that the language of the will itself governs what happens with each beneficiary’s share in the event one of the adult children dies before his or her parents.

Some wills divide the remainder among the will maker’s children who are still living. With this, the surviving siblings would receive the entire estate.

This is called “per capita,” which is a Latin phrase that translates literally to “by head.” In a per capita distribution, each designated beneficiary receives an inheritance only if they’re living when the inheritance vests (at the will maker’s death).

If a beneficiary dies before this, that beneficiary’s share is divided among the surviving named beneficiaries. As a result, the children of the decedent beneficiary get nothing, unless they are specifically designated as beneficiaries.

However, the more common approach is for a will to state: “I give, devise and bequeath my residuary estate to my descendants, per stirpes.”

Per stirpes is a Latin phrase that translates literally to “by roots” or “by branch.” A per stirpes distribution means that a beneficiary’s share passes to their lineal descendants if the beneficiary dies before the inheritance vests. Per stirpes effectively designates a class of beneficiaries to receive estate property, rather than designating only specific individuals to inherit property.

Therefore, providing this language in the will means that if a child predeceases the testator and the predeceased child has surviving descendants, that predeceased child’s share will go to that predeceased child’s descendants … that would be the will maker’s grandchildren.

Ask an experienced estate planning attorney about how each of these designations would work in your specific situation, when you draft or update your will.

Reference: nj.com (Oct. 28, 2021) “Who gets this inheritance if a beneficiary dies?”

 

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

Can I Change My Estate Plan During Divorce? – Annapolis and Towson Estate Planning

Divorce is never easy. Adding the complexities of estate planning can make it harder. However, it still needs to be included during the divorce process, says a recent article entitled “How to Change Your Estate Plan During Divorce from the Waco Tribune-Herald.

Some of the key things to bear in mind during a divorce include:

Is your Last Will and Testament aligned with your pending divorce? The unexpected occurs, whether planning a relaxing vacation or a contentious divorce. If you were to die in the process, which usually takes a few years, who would inherit your worldly goods? Your ex? A trust created to take care of your children, with a trusted sibling as a trustee?

Are your beneficiary designations up to date? For the same reason, make sure that life insurance policies, retirement accounts and any financial accounts allowing you to name a beneficiary are current to reflect your pending or new marital status.

Certain changes may not be made until the divorce is finalized. For instance, there are laws concerning spouses and pension distribution. You might not be able to make a change until the divorce is finalized.  If your divorce agreement includes maintaining life insurance for the support of minor children, you must keep your spouse (or whoever is the agreed-upon guardian) as the policy beneficiary.

Once the divorce decree is accepted by the court, the best path forward is to have a completely new will prepared. Making a patchwork estate plan of amendments can be more expensive and leave your estate more vulnerable after you have passed. A new will revokes the original document, including naming an executor and a guardian for minor children.

The will is far from the only document to be changed. Other documents to be created include health care directives and medical and financial powers of attorney. All of these are used to name people who will act on your behalf, in the event of incapacity.

It is a good idea to update these documents during the divorce process. If you are in the middle of an ugly, emotionally charged divorce, the last person you want making life or death decisions as your health care proxy or being in charge of your finances is your soon-to-be ex.

Talk with your estate planning attorney so your attorney knows you are going through the divorce process. They will be able to make further recommendations to protect you, your children and your estate during and after the divorce.

Reference: Waco Tribune-Herald (Oct. 18, 2021) “How to Change Your Estate Plan During Divorce”

 

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