What You Need to Do after a Loved One Dies – Annapolis and Towson Estate Planning

The Dallas Morning News’ recent article entitled “Three things to do on the death of a loved one” explains the steps you should take, if you are responsible for a family member’s assets after they die.

Be sure the property is secured. A deceased person’s property becomes a risk in some instances. Friends and family will help themselves to what they think they should get, including the deceased’s personal property. Once it is gone, it is hard to get it back and into the hands of the individual who is legally entitled to receive it.

Criminals also look at the obituaries, and while everyone is at the funeral or otherwise unoccupied, burglars can break into the house and steal property. Assign security or ask someone to stay at the house to protect the property. You can also change the locks. Credit cards, debit cards, and checks need to be protected. The deceased’s mail must be collected, and cars should be locked up.

Make funeral plans. If you are lucky, the deceased left a written Appointment of Burial Agent with detailed instructions, which can make your job much easier.

For example, Texas law lets a person appoint an agent to be in charge of funeral arrangements and to describe the arrangements. An estate planning attorney can draft this document as part of an estate plan. You should see if this document was included. If you are listed as the agent, present the paper to the funeral home and follow the instructions. If there are no written instructions, the law will say who has the authority to make arrangements for the disposition of the body and to plan the funeral.

Talk to an experienced attorney. When a person dies, there is often a lapse in authority. The decedent’s power of attorney is no longer in effect, and the executor designated in the will does not have any authority to act, until the will is admitted to probate and the executor is appointed by the probate judge and qualifies by taking the oath of office and filing a bond, if required. Direction is needed earlier rather than later, on what you are permitted to do. The probate of a will takes time.

It is best to get started promptly, so that there is an executor in place with power to handle the affairs of the decedent.

Reference: Dallas Morning News (April 10, 2020) “Three things to do on the death of a loved one”

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

Tapping an Inherited IRA? – Annapolis and Towson Estate Planning

Many people are looking at their inherited IRAs this year, when COVID-19 has decimated the economy. The rules about when and how you can tap the money you inherited changed with the passage of the SECURE Act at the end of December 2019. It then changed again with the passage of the CARES Act in late March in response to the financial impact of the pandemic.

Things are different now, reports the article “Read This Before You Touch Your Inherited IRA Funds” from the News & Record, but one thing is the same: you need to know the rules.

First, if the owner had the account for fewer than five years, you may need to pay taxes on traditional IRA distributions and on Roth IRA earnings. This year, the federal government has waived mandatory distributions (required minimum distributions, or RMDs) for 2020. You may take out money if you wish, but you can also leave it in the account for a year.

Surviving spouses who do not need the money may consider doing a spousal transfer, rolling the spouse’s IRA funds into their own. The RMD does not occur until age 72. This is only available for surviving spouses, and only if the spouse is the decedent’s sole beneficiary.

The federal government has also waived the 10% early withdrawal penalty for taxpayers who are under 59½. If you are over 59½, then you can access your funds.

The five-year method of taking IRA funds from an inherited IRA is available to beneficiaries, if the owner died in 2019 or earlier. You can take as much as you wish, but by December 31 of the fifth year following the owner’s death, the entire account must be depleted. The ten-year method is similar, but only applies if the IRA’s owner died in 2020 or later. By December 31 of the tenth year following the owner’s death, the entire IRA must be depleted.

Heirs can take the entire amount in a lump sum immediately, but that may move their income into a higher tax bracket and could increase tax liability dramatically.

A big change to inherited IRAs has to do with the “life expectancy” method, which is now only available to the surviving spouse, minor children, disabled or chronically ill people and anyone not more than ten years younger than the deceased. Minor children may use the life expectancy method until they turn 18, and then they have ten years to withdraw all remaining funds.

There is no right or wrong answer, when it comes to taking distributions from inherited IRAs. However, it is best to do so, only when you fully understand how taking the withdrawals will impact your taxes and your long-term financial picture. Speak with an estate planning attorney to learn how the inherited IRA fits in with your overall estate plan.

Reference: News & Record (May 25, 2020) “Read This Before You Touch Your Inherited IRA Funds”

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

Can You Place a Life Insurance Policy in a Trust? – Annapolis and Towson Estate Planning

Trusts are frequently used in the estate planning process. They help with in the distribution of assets, making certain that everything is distributed to the right people and entities. A trust can also reduce estate taxes, because it lets you remove assets from your estate, so more wealth can be passed to beneficiaries.

Many people do not know that you can even place a life insurance policy within a trust. Investopedia’s recent article entitled “Can You Trust Your Trustee?” explains that life insurance in a trust is called trust-owned life insurance (TOLI). A TOLI is like bank-owned and company-owned life insurance. Trustees often do a good job of completing basic tasks, but conflicts and problems can pop up when trustees do not understand where their loyalties should be and how to deal with complex financial issues.

A trustee has a fiduciary responsibility to the beneficiaries of a trust. The trustee is required to manage the trust assets pursuant to the instructions of the trust for the beneficiaries.

TOLI beneficiaries usually have a desire to maximize the amount of wealth they will receive, when the trust assets are distributed. The trustee must, therefore, actively manage the insurance policy, or policies, that are owned by the trust. This includes determining if the policy is performing up to the projections reflected in the original life insurance illustration. It also requires the trustee to try to identify alternative policies that may be more in line with the desires of the beneficiaries. New life insurance products have made some policies sold in the past obsolete. An old under-performing policy can often be replaced. However, some trustees do not possess the skills necessary to oversee trust-owned life insurance. A trustee should understand and be aware of:

  • The policy’s performance relative to expectations
  • The last time the life insurance policy was reviewed
  • If there are other policies that may do a better job of meeting wishes and stipulations expressed in the trust document
  • Whether the credit rating of the insurance company that issued the policy has decreased and
  • If the allocation of the sub-accounts is still aligned with the investment policy statement.

Trust-owned life insurance can have an important role in the estate plans of many people, but not all trustees have the bandwidth when it comes to insurance and estate planning to fulfill their fiduciary responsibilities. Ask an experienced estate planning attorney for assistance.

Reference: Investopedia (June 25, 2019) “Can You Trust Your Trustee?”

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

What’s the Difference between Revocable and Irrevocable Trusts? – Annapolis and Towson Estate Planning

A trust is an estate planning tool that you might discuss with an experienced estate planning attorney, beyond drafting a last will and testament.

KAKE.com’s recent article entitled “Revocable vs. Irrevocable Trusts” explains that a living trust can be revocable or irrevocable.

You can act as your own trustee or designate another person. The trustee has the fiduciary responsibility to act in the best interests of the trust beneficiaries. These are the people you name to benefit from the trust.

There are three main benefits to including a trust as part of an estate plan.

  1. Avoiding probate. Assets held in a trust can avoid probate. This can save your heirs both time and money.
  2. Creditor protection. Creditors can try to attach assets held outside an irrevocable trust to satisfy a debt. However, those assets titled in the name of the irrevocable trust may avoid being accessed to pay outstanding debts.
  3. Minimize estate taxes. Estate taxes can take a large portion from the wealth you may be planning to leave to others. Placing assets in a trust may help to lessen the effect of estate and inheritance taxes, preserving more of your wealth for future generations.

What’s the Difference Between Revocable and Irrevocable Trusts?

A revocable trust is a trust that can be changed or terminated at any time during the lifetime of the person making the trust. When the grantor dies, a revocable trust automatically becomes irrevocable, so no other changes can be made to its terms.

An irrevocable trust is essentially permanent. Therefore, if you create an irrevocable trust during your lifetime, any assets you place in the trust must stay in the trust. That is a big difference from a revocable trust: flexibility.

Whether a trust is right for your estate plan, depends on your situation. Discuss this with a qualified estate planning attorney. This has been a very simple introduction to a very complex subject.

Reference: KAKE.com (March 31, 2020) “Revocable vs. Irrevocable Trusts”

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

What Happens when Mom Refuses to Create an Estate Plan? – Annapolis and Towson Estate Planning

This is a tough scenario. It happens more often than you would think. Someone owns a home, investment accounts and an inheritance, but does not want to have an estate plan. They know they need to do something, but keep putting it off—until they die, and the family is left with an expensive and stressful mess. A recent article titled “How to Get a Loved One to Visit an Estate Planning Attorney Before It’s Too Late” from Kiplinger, explains how to help make things right.

Most people put off seeing an estate planning attorney, because they are afraid of death. They may also be overwhelmed by the thought of how much work is involved. They are also worried about what it all might cost. However, if there is no estate plan, the costs will be far higher for the family.

How do you get the person to understand that they need to move forward?

Talk with the financial professionals the person already uses and trusts, like a CPA or financial advisor. Ask them for a referral to an estate planning attorney they think would be a good fit with the person who does not have an estate plan. It may be easier to hear this message from a CPA, than from an adult child.

Work with that professional to promote the person, usually an older family member, to get comfortable with the idea to talk about their wishes and values with the estate planning attorney. Offer to attend the meeting, or to facilitate the video conference, to make the person feel more comfortable.

An experienced estate planning attorney will have worked with reluctant people before. They will know how to put the older person at ease and explore their concerns. When the conversation is pleasant and productive, the person may understand that the process will not be as challenging and that there will be a lot of help along the way.

If there is no trusted team of professionals, then offer to be a part of any conversations with the estate planning attorney to make the introductory discussion easier. Share your own experience in estate planning, and tread lightly.

Trying to force a person to engage in estate planning with a heavy hand, almost always ends up in a stubborn refusal. A gentle approach will always be more successful. Explain how part of the estate plan includes planning for medical decisions while the person is living and is not just about distributing their assets. You should be firm, consistent and kind.

Explaining what their family members will need to go through if there is no will, may or may not have an impact. Some people do not care, and may simply shrug and say, “It will be their problem, not mine.” Consider what or who matters to the person. What if they could leave assets for a favorite grandchild to go to college? That might be more motivating.

One other thing to consider: if the person has an estate plan and it is out of date, that may be just as bad as not having an estate plan at all, especially when the person has been divorced and remarried. Just as many people refuse to have an estate plan, many people fail to update important documents, when they remarry. More than a few spouses come to estate planning attorney’s offices, when a loved one’s life insurance policy is going to their prior spouse. It is too late to make any changes. A health care directive could also name a former brother-in-law to make important medical decisions. During a time of great duress, it is a bad time to learn that the formerly close in-law, who is now a sworn enemy, is the only one who can speak with doctors. Do not procrastinate, if any of these issues are present.

Reference: Kiplinger (May 11, 2020) “How to Get a Loved One to Visit an Estate Planning Attorney Before It’s Too Late”

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

Should I Give My Kid the House Now or Leave It to Him in My Will? – Annapolis and Towson Estate Planning

Transferring your house to your children while you are alive may avoid probate, the court process that otherwise follows death. However, gifting a home also can result in a big, unnecessary tax burden and put your house at risk, if your children are sued or file for bankruptcy.

Further, you also could be making a big mistake, if you hope it will help keep the house from being used for your nursing home bills.

MarketWatch’s recent article entitled “Why you shouldn’t give your house to your adult children” advises that there are better ways to transfer a house to your children, as well as a little-known potential fix that may help even if the giver has since passed away.

If you bequeath a house to your children so that they get it after your death, they get a “step-up in tax basis.” All the appreciation that occurred while the parent owned the house is never taxed. However, when a parent gives an adult child a house, it can be a tax nightmare for the recipient. For example, if the mother paid $16,000 for her home in 1976, and the current market value is $200,000, none of that gain would be taxable, if the son inherited the house.

Families who see this mistake in time can undo the damage, by gifting the house back to the parent.

Sometimes people transfer a home to try to qualify for Medicaid, the government program that pays health care and nursing home bills for the poor. However, any gifts or transfers made within five years of applying for the program can result in a penalty period, when seniors are disqualified from receiving benefits.

In addition, giving your home to someone else also can expose you to their financial problems. Their creditors could file liens on your home and, depending on state law, get some or most of its value. In a divorce, the house could become an asset that must be sold and divided in a property settlement.

However, Tax Code says that if the parent retains a “life interest” or “life estate” in the property, which includes the right to continue living there, the home would remain in her estate rather than be considered a completed gift.

There are specific rules for what qualifies as a life interest, including the power to determine what happens to the property and liability for its bills. To make certain, a child, as executor of his mother’s estate, could file a gift tax return on her behalf to show that he was given a “remainder interest,” or the right to inherit when his mother’s life interest expired at her death.

There are smarter ways to transfer a house. There are other ways around probate. Many states and DC permit “transfer on death” deeds that let people leave their homes to beneficiaries without having to go through probate. Another option is a living trust.

Reference: MarketWatch (April 16, 2020) “Why you shouldn’t give your house to your adult children”

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

Do Beneficiaries of a Will Get Notified? – Annapolis and Towson Estate Planning

In most instances, a will is required to go through probate to prove its validity.

Investopedia’s recent article entitled “When the Beneficiaries of a Will Are Notified” explains that there are exceptions to the requirement for probate, if the assets of the diseased are below a set dollar amount. This dollar amount depends on state law.

For example, in Alabama, the threshold is $3,000, and in California, the cut-off is an estate with assets valued at less than $150,000. If the assets are valued below those limits, the family can divide any property as they want with court approval.

The beneficiaries of a will must be notified after the will is filed in the probate court, and in addition, probated wills are placed in the public record. As a result, anyone who wants to look, can find out the details. When the will is proved to be valid, anyone can look at the will at the courthouse where it was filed, including anyone who expects to be a beneficiary.

However, if the will is structured to avoid probate, there are no specific notification requirements.  This is pretty uncommon.

As a reminder, probate is a legal process that establishes the validity of a will. After examining the will, the probate judge collects the decedent’s assets with the help of the executor. When all of the assets and property are inventoried, they are then distributed to the heirs, as instructed in the will.

Once the probate court declares the will to be valid, all beneficiaries are required to be notified within a certain period established by state probate law.

There are devices to avoid probate, such as setting up joint tenancy or making an asset payable upon death. In these circumstances, there are no formal notification requirements, unless specifically stated in the terms of the will.

In addition, some types of assets are not required to go through probate. These assets include accounts, such as pension assets, life insurance proceeds and individual retirement accounts (IRAs).

The county courthouse will file its probated wills in a department, often called the Register of Wills.

A will is a wise plan for everyone. Ask a qualified estate planning attorney to help you draft yours today.

Reference: Investopedia (Nov. 21, 2019) “When the Beneficiaries of a Will Are Notified”

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

How Can I Add Charitable Giving to My Estate Planning? – Annapolis and Towson Estate Planning

One way many people decide to give to charity, is to donate when they pass away. Adding charitable giving into an estate plan is great way to support a favorite cause.

When researching this approach, you can easily become overwhelmed by all of the tax laws and pitfalls that can make including charitable gifts in your estate plan seem more complex than it needs to be. Talk to an experienced estate planning attorney to help you do it correctly and in the best way for your specific situation.

West Virginia’s News explains in “Estate planning and charitable giving,” that there are several ways to incorporate charitable giving into an estate plan.

One way to give is to dictate giving in your will. When reading about charitable giving and estate planning, many people might begin to feel intimidated by estate taxes, feeling their heirs will not get as much of their money as they hoped. Including a charitable contribution in your estate plan will decrease your estate taxes. This helps to maximize the final value of your estate for your heirs. Speak with your estate planning attorney and make certain that your donation is properly detailed in your will.

Another way to leverage your estate plan to donate to charity, is to name the charity of your choice as the beneficiary on your retirement account. Charities are exempt from both income and estate taxes, so going with this option guarantees the charity will receive all of the account’s value, once it has been liquidated after your death.

You can also ask your estate planning attorney about a charitable trust. This type of trust is another vehicle by which you can give back through estate planning. For instance, a split-interest trust allows you to donate your assets to a charity but keep some of the benefits of holding those assets. A split-interest trust funds a trust in the charity’s name. You receive a tax deduction any time money is transferred into the trust.

However, note that the donors will continue to control the assets in the trust, which is passed onto the charity at the time of your death. You have several options for charitable trusts, so speak to an experienced estate planning attorney to select the best one for you.

Charitable giving is an important component of many people’s estate plans. Talk to your probate attorney about your options and go with the one that is most beneficial to you, your heirs and the charities you want to remember.

Reference: West Virginia’s News (Feb. 27, 2020) “Estate planning and charitable giving”

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

Do I Need an Estate Plan with a New Child in the Family? – Annapolis and Towson Estate Planning

When a child is born or adopted, the parents are excited to think about what lies ahead. However, in addition to all the other new-parent tasks on the list, parents must also address a more depressing task: making an estate plan.

When a child comes into the picture, it is important for new parents to take the responsible step of making a plan, says Motley Fool’s recent article entitled “As a New Parent, I Took These 3 Estate Planning Steps.”

Life insurance. To be certain that there is money available for your child’s care and to fund a college education, parents can buy life insurance. You can purchase a term life insurance policy that is less expensive than a whole-life policy and you will only need the coverage until the child is grown.

Create a will. A will does more than just let you direct who should inherit if you die. It gives you control over what happens to the money you leave to your child. If you were to pass and he was not yet an adult, someone would need to manage the money left to him or her. If you do not have a will, the court may name a guardian for the funds, and the child might inherit with no strings attached at 18. How many 18-year-olds are capable of managing money that is designed to help them in the future?

Speak to an experienced lawyer to get help making sure your will is valid and that you are taking a smart approach to protecting your child’s inheritance.

Designate a guardian. If you do not name an individual to serve as your child’s guardian, a custody fight could happen. As a result, a judge may decide who will raise your children. Be sure that you name someone, so your child is cared for by people you have selected, not someone a judge assigns. Have your attorney make provisions in your will to name a guardian, in case something should happen. This is one step as a new parent that is critical. Be sure to speak with whomever you are asking to be your child’s guardian and make sure he or she is okay with raising your children if you cannot.

Estate planning may not be exciting, but it is essential for parents.

Contact a qualified estate planning attorney to create a complete estate plan to help your new family.

Reference: Motley Fool (Feb. 23, 2020) “As a New Parent, I Took These 3 Estate Planning Steps”

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

Which Takes Priority in a Conflict: a Will or a Trust? – Annapolis and Towson Estate Planning

A will and a trust are separate legal documents that usually have a common goal of coordinating a comprehensive estate plan. The two documents ideally work in tandem, but because they are separate and distinct documents, they sometimes can conflict with one another. This conflict can be accidental or on purpose.

A revocable trust is a living trust established during the life of the grantor. It can be changed at any time, while the grantor is still alive. Since revocable trusts become operative before the will takes effect at death, the trust takes precedence over the will, in the event that there are issues between the two.

An Investopedia article from 2019, “What Happens When a Will and a Revocable Trust Conflict?” reminds us that a will has no power to decide who receives a living trust’s assets, such as cash, equities, bonds, real estate and jewelry because a trust is a separate entity. It is a separate entity from an individual. When the grantor dies, the assets in the trust do not go into the probate process with a decedent’s personal assets. They remain trust property.

When a person dies, their will must be probated, and the deceased individual’s property is distributed according to the terms in the will. However, probate does not apply to property held in a living trust, because those assets are not legally owned by the deceased. As such, the will has no authority over a trust’s assets, which may include cash, real estate, cars, jewelry, collectibles and other tangible items.

Let us say that the family patriarch named Christopher Robin has two children named Pooh and Roo. Let us also assume that Chris places his home into a living trust, which states that Pooh and Roo are to inherit the home. Several years later, Chris remarries and just before he dies, he executes a new will that purports to leave his house to his new wife, Kanga. In such an illustration, Chris would have needed to amend the trust to make the transfer to Kanga effective, because the house is trust property, and Chris no longer owns it to give away. That home becomes the property of the children, Pooh and Roo.

This can be a complex and confusing area, so work with an experienced estate planning attorney to be sure you do not end up like Kanga with nowhere to live.

Remember a revocable trust is a separate entity and does not follow the provisions of a person’s will upon his or her death.  It is wise to seek the advice of a trust and estate planning attorney to make sure proceedings go as you intend.

While a revocable trust supersedes a will, the trust only controls those assets that have been placed into it. Therefore, if a revocable trust is formed, but assets are not moved into it, the trust provisions have no effect on those assets, at the time of the grantor’s death. If Christopher Robin created the trust but he failed to retitle the home as a trust asset, Kanga would have been able to take possession under the will. Oh bother!

Reference: Investopedia (August 5, 2019) “What Happens When a Will and a Revocable Trust Conflict?”

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