What Is the Best Way to Make Sure Children Can Handle an Inheritance? – Annapolis and Towson Estate Planning

One strategy to get your children prepared to handle the assets they will eventually inherit, is to have them meet with your professional advisors. They can explain what you have been doing.

FedWeek’s recent article entitled “Preparing Your Heirs for Their Inheritance” suggests that your children should meet with your accountant for an explanation of any tax planning tactics that you have been implementing. That way those tactics can be continued after your death. If you have a broker or a financial planner, your heirs should meet with this adviser for a review of your portfolio strategies.

Know that if you hold investment property, it might pose special problems.

While your investment portfolio can be split between your children, who can follow their individual inclinations, it is tough to divide physical property. Your kids might disagree on how the property should be managed.

With any assets—but especially rental property—you have to be realistic. Ask yourself if your children can work together to manage the real estate.

If they cannot, you may be better off leaving your investment property to the one child who really can manage real estate and leave your other children non-real estate assets instead. You might also provide that some of your children can buy out the others at a price set by an independent appraisal.

Another way you can help is by proper handling of appreciated assets, such as stocks.

If you purchased $20,000 worth of XYZ Corp. shares many years ago, those shares are worth $50,000. If you sell those shares to raise $50,000 in cash for retirement spending, you will have a $30,000 long-term capital gain.

You might raise retirement cash, by selling other securities where there has been little or no appreciation.

That will allow you to keep the shares and leave them to your children. At your death, your shares may be worth $50,000, and that value becomes the new basis (cost for tax purposes) in those shares. If your children sell them for $50,000, they will not owe capital gains tax.

All of the appreciation in those shares during your lifetime will not be taxed.

Reference: FedWeek (March 31, 2021) “Preparing Your Heirs for Their Inheritance”

 

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

Should I Discuss Estate Planning with My Children? – Annapolis and Towson Estate Planning

US News & World Report’s recent article entitled “Discuss Your Estate Plan With Your Children” says that staying up-to-date with your estate plan and sharing your plans with your children could make a big impact on your legacy and what you will pay in estate taxes. Let us look at why you should consider talking to your children about estate planning.

People frequently create an estate plan and name their child as the trustee or executor. However, they fail to discuss the role and what is involved with them. Ask your kids if they are comfortable acting as the executor, trustee, or power of attorney. Review what each of the roles involves and explain the responsibilities. The estate documents state some critical responsibilities but do not provide all the details. Having your children involved in the process and getting their buy-in will be a big benefit in the future.

Share information about valuables stored in a fireproof safe or add their name to the safety deposit box. Tell them about your accounts at financial institutions and the titling of the various accounts, so that these accounts are not forgotten, and bills get paid when you are not around.

Parents can get children involved with a meeting with their estate planning attorney to review the estate plan and pertinent duties of each child. If they have questions, an experienced estate planning attorney can answer them in the context of the overall estate plan.

If children are minors, invite the successor trustee to also be part of the meeting.

Explain what you own, what type of accounts you have and how they are treated from a tax perspective.

Discussing your estate plan with your children provides a valuable opportunity to connect with your loved ones, even after you are gone. An individual’s attitudes about money says much about his or her values.

Sharing with your children what your money means to you, and why you are speaking with them about it, will help guide them in honoring your memory.

There are many personal reasons to discuss your estate plans with your children. While it is a simple step, it is not easy to have this conversation. However, the pandemic emphasized the need to not procrastinate when it comes to estate planning. It has also provided an opportunity to discuss these estate plans with your children.

Reference: US News & World Report (Feb. 17, 2021) “Discuss Your Estate Plan With Your Children”

 

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

What Does ‘Per Stirpes’ in a Will Mean? – Annapolis and Towson Estate Planning

Let us say you had six brothers and sisters. All of your siblings were still living at the time your father made his will. However, three of your brothers died before your father passed away.

In that case, would the children of the deceased siblings be entitled to their fathers’ shares of their grandfather’s estate?

What if that was not what the father intended when he wrote the will. Instead, the money was to be divided equally between his remaining living children. Who is right?

Nj.com’s recent article entitled “My father died. Who will get the share meant for a dead beneficiary?” says that it really depends on how the will was written by the deceased, who is also known as the testator.

A will may state, “I give, devise, and bequeath my residuary estate to those of my children who survive me, in equal shares, and the descendants of a deceased child of mine, to take their parent’s share per stirpes.”

Per stirpes in a will means that the share of a deceased child will pass to the children of that deceased child in equal shares, if any. However, if nothing is stated in the will, then every state has law that interprets a lapse of a will provision. These are known as “anti-lapse” statutes.

For example, the Kansas anti-lapse statute (K.S.A. 59-615), is operative only when:

  • The testator bequeaths or devises property to a beneficiary who is a member of the class designated by the statute;
  • The specified beneficiary predeceases the testator and leaves issue who survive the testator; and
  • The testator does not revoke or change his or her will as to the predeceased beneficiary.

If you are a resident of Arizona, that state’s anti-lapse statute applies, if a beneficiary under your will predeceases you. The anti-lapse statute would apply if the predeceasing beneficiary were your grandparent, a descendant of your grandparent, or your stepchild, who have at least one child who survives you. Therefore, if the anti-lapse statute were to apply, the child who survives you would effectively take your beneficiary’s place, and inherit the gift instead of the beneficiary.

Talk to an experienced estate planning attorney if you have questions about wills and per stirpes designations.

Reference: nj.com (March 25, 2021) “My father died. Who will get the share meant for a dead beneficiary?”

 

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

Have Estate Planning Conversations with Aging Parents – Annapolis and Towson Estate Planning

Let us start with this idea: maybe your parents are going to leave you a generous bequest as part of their estate plan. Do you know this for a fact, or is it wishful thinking? The only way to know, advises a recent article from Yahoo! Finance titled “How To Talk to Your Parents About Their Estate (Without Making It Awkward),” is to have a conversation, or a series of conversations. It is not the first awkward conversation you will have with your parents, but it may be a bit stickier than you expect.

No matter how you approach it, this is a sensitive issue. How do you avoid appearing greedy or selfish? There is actually a lot more to know beyond the inheritance issue. You need to know how to ensure that your parents’ wishes are carried out, while they are living as well as after their deaths.

It will be helpful to be aware that the prospective inheritance amount may change over the course of your parents’ remaining lives. You also do not want your parents thinking that you consider yourself entitled in any way to the assets they have built over the course of their lives.

Instead, start the conversation by talking about their estate plan. Explain that you want to be able to follow their instructions. You might reference an article or blog post that you have read about the importance of estate planning. You can also talk about your own estate plan, explaining that you have created an estate plan to protect your children and family members and to be sure that your instructions are followed.

Do not be afraid to acknowledge how difficult this conversation is for you. Reassure them that you are not looking forward to their demise, but you have concerns about how things will work out when the time does come.

Depending upon your family dynamics, holidays may be a good time to address estate planning. This provides an opportunity for all family members to be included and for concerns and plans to be shared among involved siblings.

This does not mean discussing inheritances at the dinner table. Focus on what your parents’ wishes are and include a conversation about what values they would like to pass on to the next generation. If there are family histories or stories to share, this is also part of your inheritance.

Regardless of when or how you approach the topic, you do want to be sure your parents have a plan in place, so there is a path for whoever will be taking care of them and their assets. Ask if they have these key legal documents:

  • A Last Will, also known as a Last Will and Testament
  • A Power of Attorney to designate someone to make financial and legal decisions, if they are not able to do so for themselves.
  • A Living Will or health care directive that will designate someone who can make healthcare decisions and address end of life care for them.

Ask where your parents keep these documents, and how you can find them when the time comes. Are they in your father’s night table, or in a lockbox in the attic? If they have a financial advisor or estate planning attorney, who is that person? You’ll need to be able to access the documents and speak with their estate planning attorney.

A few awkward moments now will help all of you as your parents, and you, move through the coming stages of life.

Reference: Yahoo! Finance (March 25, 2021) “How To Talk to Your Parents About Their Estate (Without Making It Awkward)”

 

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

Estate Planning Meets Tax Planning – Annapolis and Towson Estate Planning

Not keeping a close eye on tax implications, often costs families tens of thousands of dollars or more, according to a recent article from Forbes, “Who Gets What—A Guide To Tax-Savvy Charitable Bequests.” The smartest solution for donations or inheritances is to consider your wishes, then use a laser-focus on the tax implications to each future recipient.

After the SECURE Act destroyed the stretch IRA strategy, heirs now have to pay income taxes on the IRA they receive within ten years of your passing. An inherited Roth IRA has an advantage in that it can continue to grow for ten more years after your death, and then be withdrawn tax free. After-tax dollars and life insurance proceeds are generally not subject to income taxes. However, all of these different inheritances will have tax consequences for your beneficiary.

What if your beneficiary is a tax-exempt charity?

Charities recognized by the IRS as being tax exempt do not care what form your donation takes. They do not have to pay taxes on any donations. Bequests of traditional IRAs, Roth IRAs, after-tax dollars, or life insurance are all equally welcome.

However, your heirs will face different tax implications, depending upon the type of assets they receive.

Let’s say you want to leave $100,000 to charity after you and your spouse die. You both have traditional IRAs and some after-tax dollars. For this example, let’s say your child is in the 24% tax bracket. Most estate plans instruct charitable bequests be made from after-tax funds, which are usually in the will or given through a revocable trust. Remember, your will cannot control the disposition of the IRAs or retirement plans, unless it is the designated beneficiary.

By naming a charity as a beneficiary in a will or trust, the money will be after-tax. The charity gets $100,000.

If you leave $100,000 to the charity through a traditional IRA and/or your retirement plan beneficiary designation, the charity still gets $100,000.

If your heirs received that amount, they would have to pay taxes on it—in this example, $24,000. If they live in a state that taxes inherited IRAs or if they are in a higher tax bracket, their share of the $100,000 is even less. However, you have options.

Here is one way to accomplish this. Let’s say you leave $100,000 to charity through your IRA beneficiary designations and $100,000 to your heirs through a will or revocable trust. The charity receives $100,000 and pays no tax. Your heirs also receive $100,000 and pay no federal tax.

A simple switch of who gets what saves your heirs $24,000 in taxes. That is a welcome savings for your heirs, while the charity receives the same amount you wanted.

When considering who gets what in your estate plan, consider how the bequests are being given and what the tax implications will be. Talk with your estate planning attorney about structuring your estate plan with an eye to tax planning.

Reference: Forbes (Jan. 26, 2021) “Who Gets What—A Guide To Tax-Savvy Charitable Bequests”

 

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

Does Living Trust Help with Probate and Inheritance Taxes? – Annapolis and Towson Estate Planning

A living trust is a trust that is created during a person’s lifetime, explains nj.com’s recent article entitled “Will a living trust help with probate and inheritance taxes?”

For example, New Jersey’s Uniform Trust Code governs the creation and validity of trusts. A real benefit of a trust is that its assets are not subject to the probate process. However, the New Jersey probate process is simple, so most people in the Garden State don’t have a need for a living trust.

In Kansas, a living trust can be created if the “settlor” or creator of the trust:

  • Resides in Kansas
  • The trustee lives or works in Kansas; or
  • The trust property is located in the state.

Under Florida law, a revocable living trust is governed by Florida Statute § 736.0402. To create a valid revocable trust in Florida, these elements are required:

  • The settlor must have capacity to create the trust
  • The settlor must indicate an intent to create a trust
  • The trust must have a definite beneficiary
  • The trustee must have duties to perform; and
  • The same person cannot be the sole trustee and sole beneficiary.

Ask an experienced estate planning attorney and he or she will tell you that no matter where you are residing, the element that most estate planning attorneys concentrate on is the first—the capacity to create the trust. In most states, the capacity to create a revocable trust is the same capacity required to create a last will and testament.

Ask an experienced estate planning attorney about the mental capacity required to make a will in your state. Some state laws say that it is a significantly lower threshold than the legal standards for other capacity requirements, like making a contract.

However, if a person lacks capacity when making a will, then the validity of the will can be questioned. The person contesting the will has the burden to prove that the testator’s mental capacity impacted the creation of the will.

Note that the assets in a trust may be subject to income tax and may be includable in the grantor’s estate for purposes of determining whether estate or inheritance taxes are owed. State laws differ on this. There are many different types of living trusts that have different tax consequences, so you should talk to an experienced estate planning attorney to see if a living trust is right for your specific situation.

Reference: nj.com (Jan. 11, 2021) “Will a living trust help with probate and inheritance taxes?”

 

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

Get Estate Plan in Order, If Spouse Is Dying from a Terminal Illness – Annapolis and Towson Estate Planning

Thousands of people are still dying from COVID-19 complications every day, and others are dealing with life-threatening illnesses like cancer, heart attack and stroke. If your spouse is ill, the pain is intensified by the anticipated loss of your life partner.

Wealth Advisor’s recent article entitled “Your Spouse Is Dying: 5 Ways To Get Your Estate In Order Now,” says that it is frequently the attending physician who suggests that your spouse get his affairs in order.

Your spouse’s current prognosis and whether he or she is at home or in a hospital will determine whether updates can be made to your estate plan. If it has been some time since the two of you last updated your estate plan, you should review the planning with your elder law attorney or estate planning attorney to be certain that you understand it and to see if there are any changes that can and should be made. There are five issues on which to focus your attention:

A Fiduciary Review. See who is named in your estate planning documents to serve as executor and trustee of your spouse’s estate. They will have important roles after your spouse dies. Be sure you are comfortable with the selected fiduciaries, and they are still a good fit. If your spouse has been sick, you have likely reviewed his or her health care proxy and power of attorney. If not, see who is named in those documents as well.

An Asset Analysis. Determine the effect on your assets when your partner dies. Get an updated list of all your assets and see if there are assets that are held jointly which will automatically pass to you on your spouse’s death or if there are assets in your spouse’s name alone with no transfer on death beneficiary provided. See if any assets have been transferred to a trust. These answers will determine how easily you can access the assets after your spouse’s passing.

A Trust Assessment. Any assets that are currently in a trust or will pass into a trust at death will be controlled by the trust document. See who the beneficiaries are, how distributions are made and who will control the assets.

Probate Prep. If there is property solely in your spouse’s name with no transfer on death beneficiary, those assets will pass according to his or her will. Review the will to make sure you understand it and whether probate will be needed to settle the estate.

Beneficiary Designation Check. Make certain that beneficiaries of your retirement accounts and life insurance policies are current.

If changes need to be made, an experienced elder law or estate planning attorney can counsel you on how to best do this.

Reference: Wealth Advisor (Jan. 26, 2021) “Your Spouse Is Dying: 5 Ways To Get Your Estate In Order Now”

 

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

Can You Be Forced to Inherit a Timeshare? – Annapolis and Towson Estate Planning

Ask anyone who ever purchased a timeshare and changed their mind about it. Getting rid of a timeshare can be problematic. However, imagine if your parents purchased a timeshare and left it to you, with all the financial obligations? Some timeshare companies are now trying to make people continue to pay after they have died, warns a cautionary article “How to Avoid Inheriting a TImeshare You Don’t Want” from KSL-TV

One woman’s parents loved their timeshare. They travelled to one for skiing, another to relax in the sun, and others according to availability and their travel plans. The entire family went on trips and all enjoyed the flexibility. However, when both parents passed away just a few months apart, the timeshare company started sending letters demanding payment. The siblings did not want any part of it.

There had not been any discussions with their parents about what would happen to the timeshare. One of the daughters decided to put the monthly fee onto her credit card to be paid automatically, thinking this would be a short-term issue. When the timeshare company did not respond to the children’s attempt to contact the company to shut down the account, she had the automatic payments stopped. A collection notice showed up and demanded payment immediately.

However, is the family legally obligated to pay for the parental timeshare?

If you die owning a timeshare, it does become part of your estate and obligations are indeed passed onto the next-of-kin or the estate’s beneficiaries. However, they do not have to accept it, in the same way that anyone has the right to refuse any part of an inheritance. No one is legally obligated to accept something just because it was bequeathed to them. This is known as the right to disclaim, but it is not automatic.

A local estate planning attorney will know how your state governs the right to disclaim. Generally speaking, a disclaimer of interest must be filed with the probate court, stating that you reject the timeshare. There are time limits–in some states, you have only nine months after the death of a loved one to file.

When the next-of-kin rejects the timeshare, it may go to the next heir, and the next, and the next, etc. Every family member must file their own disclaimer. If the timeshare is disclaimed by all heirs, it is likely that the timeshare company will foreclose on the timeshare. There may be leftover debts for unpaid fees, and the estate may have to fork over those payments.

A few tips: if you are planning on refusing a timeshare, you cannot use it. Do not try it out, let a friend use it or go one last time. If you wish to disclaim something, you cannot receive any benefit of the thing you are disclaiming. Once you receive a benefit, the opportunity to disclaim it is gone.

Unwanted timeshares usually sell for far less than the original purchase price. Selling a timeshare involves a market loaded with scammers who promise a quick sale, while charging thousands of dollars upfront.

If possible, speak with your parents and their estate planning attorney to head the problem off in advance.

Reference: KSL-TV (Jan. 25, 2021) “How to Avoid Inheriting a TImeshare You Don’t Want”

 

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The Difference between Power of Attorney and Guardianship for Elderly Parents – Annapolis and Towson Estate Planning

The primary difference between guardianship and power of attorney is in the level of decision-making power, although there are many intricacies specific to each appointment, explains Presswire’s recent article entitled “Power of Attorney and Guardianship of an Elderly Parent.”

The interactions with adult protective services, the probate court, elder law attorneys and healthcare providers can create a huge task for an agent under a power of attorney or court-appointed guardian. Children acting as agents or guardians are surprised about the degree of interference by family members who disagree with decisions.

Doctors and healthcare providers do not always recognize the decision-making power of an agent or guardian. Guardians or agents may find themselves fighting the healthcare system because of the difference between legal capacity and medical or clinical capacity.

A family caregiver accepts a legal appointment to provide or oversee care. An agent under power of attorney is not appointed to do what he or she wishes. The agent must fulfill the wishes of the principal. In addition, court-appointed guardians are required to deliver regular reports to the court detailing the activities they have completed for elderly parents. Both roles must work in the best interest of the parent.

Some popular misperceptions about power of attorney and guardianship of a parent include:

  • An agent under power of attorney can make decisions that go against the wishes of the principal
  • An agent cannot be removed or fired by the principal for abuse
  • Adult protective services assumes control of family matters and gives power to the government; and
  • Guardians have a responsibility to save money for care, so family members can receive an inheritance.

Those who have a financial interest in inheritance can be upset when an agent under a power of attorney or a court-appointed guardian is appointed. Agents and guardians must make sure of the proper care for an elderly parent. A potential inheritance may be totally spent over time on care.

In truth, the objective is not to conserve money for family inheritances, if saving money means that a parent’s care will be in jeopardy.

Adult protective services workers will also look into cases to make certain that vulnerable elderly persons are protected—including being protected from irresponsible family members. In addition, a family member serving as an agent or family court-appointed guardian can be removed, if actions are harmful.

Agents under a medical power of attorney and court-appointed guardians have a duty to go beyond normal efforts in caring for an elderly parent or adult. They must understand the aspects of the health conditions and daily needs of the parent, as well as learning advocacy and other skills to ensure that the care provided is appropriate.

Ask an experienced elder law attorney about your family’s situation and your need for power of attorney documents with a provision for guardianship.

Reference: Presswire (Jan. 14, 2021) “Power of Attorney and Guardianship of an Elderly Parent”

 

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Does a Trust Have to Be Funded to Be Valid? – Annapolis and Towson Estate Planning

Thinking you have divided assets equally between children by creating a trust that names all as equal heirs, while placing only one child’s name on other assets is not an equally divided estate plan. Instead, as described in the article “Estate Planning: Fund the trust” from nwi.com, this arrangement is likely to lead to an estate battle.

One father did just that. He set up a trust with explicit instructions to divide everything equally among his heirs. However, only one brother was made a joint owner on his savings and checking accounts and the title of the family home.

Upon his death, ownership of the savings and checking accounts and the home would go directly to the brother. Assets in the trust, if there are any, will be divided equally between the children. That is probably not what the father had in mind, but legally the other siblings will have no right to the non-trust assets.

This is an example of why creating a trust is only one part of an estate plan. If it is not funded, that is if assets are not retitled, it will not work.

Many estate plans include what is called a “pour-over will” usually executed just after the trust is executed. It is a safety net that “catches” any assets not funded into the trust and transfers them into it. However, this transfer requires probate, and since probate avoidance is a goal of having a trust, it is not the best solution.

The situation as described above is confusing. Why would one brother be a joint owner of assets, if the father means for all of the children to share equally in the inheritance? When the father passes, the brother will own the assets. If the matter went to court, the court would very likely decide that the father’s intention was for the brother to inherit them. Whatever language is in the trust will be immaterial.

If the father’s intention is for the siblings to share the estate equally, the changes need to be made while he is living. The brother’s name needs to come off the accounts and the title to the home, and they all need to be re-titled in the name of the trust. The brother will need to sign off on removing his name. If he does not wish to do so, it’s going to be a legal challenge.

The family needs to address the situation as soon as possible with an experienced estate planning attorney. Even if the brother will not sign off on changing the names of the assets, as long as the father is living there are options. Once he has passed, the family’s options will be limited. Estate battles can consume a fair amount of the estate’s value and destroy the family’s relationships.

Reference: nwi.com (Jan. 17, 2021) “Estate Planning: Fund the trust”

 

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