What are the Key Documents in Estate Planning? – Annapolis and Towson Estate Planning

A basic estate plan can be fairly straightforward to create with the help of an experienced estate planning attorney.

Here are the main items you need in an estate plan. However, ask your estate planning attorney about what else you may need in your specific circumstances.

Bankrate’s recent article entitled “Estate planning checklist: 3 key steps to making a successful plan” says there are three things you need in every good estate plan: Last Will and Testament, Power(s) of Attorney and an Advance Healthcare Directive – and each serves a different purpose. Let us look at these:

A Last Will and Testament. This is the cornerstone of your estate plan.  A Will instructs the way in which your assets should be distributed.

Everyone needs a Will, even if it is a very basic one. If you do nothing else in planning your estate, at least create a Will, so you do not die intestate and leave the decisions to the courts.

A Power of Attorney (POA). This document permits you to give a person the ability to take care of your affairs while you are still living. A financial POA can help, if you are incapacitated and unable to manage your finances or pay your bills. A medical POA can also help a loved one take care of healthcare decisions on your behalf.

With a financial POA, you can give as much or as little power over your financial affairs as you want. Note that when establishing this document, you should have a conversation with your POA Agent, so if called upon, he or she will have a good understanding of what they can and cannot do financially for you. A healthcare POA also allows a person to make healthcare decisions, if you are unable to do so.

An Advance Healthcare Directive. This document instructs medical staff how you want them to handle your health-related decisions, if you are unable to choose or communicate. It includes resuscitation, sustaining your quality of life, pain management and end-of-life care.

Reference: Bankrate (July 23, 2021) “Estate planning checklist: 3 key steps to making a successful plan”

 

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What are Biggest Mistakes in Estate Planning? – Annapolis and Towson Estate Planning

Bankrate’s recent article entitled “Estate planning checklist: 3 key steps to making a successful plan” talks about five things to watch out for with an estate plan. Therefore, as you are making your estate plan, carefully consider everything, and that means it may take some time to complete your plan.  Let us look at five things to watch out for in that process:

  1. Plan your estate now. Of course, it is not just the old and infirm who need an estate plan. Everyone needs a last will so that their last wishes are respected, knowing that the unexpected can happen at any time.
  2. Say who will take care of your minor children. While last wills may typically focus on what happens to your financial assets, you will also want to specify what happens to any minor children on your passing, namely who takes care of them. If you have underage children, you must state who would be a guardian for that child and where that child will live. Without a last will, a judge will decide who will take care of your children. That could be a family member or a state-appointed guardian.
  3. 3. Ask executors if they are willing and able to take on the task. An executor carries out the instructions in your last will. This may be a complicated and time-consuming task. It involves distributing money in accordance with the stipulations of the document and ensuring that the estate is moved properly through the legal system. Make sure you designate an executor who is up to the task. That means you will need to speak with them and make certain that he or she is willing and able to act.
  4. Consider if you want to leave it all to your children. Many young families simply give all their assets to their children when they die. However, if the parents pass away when the children are young, and they do not establish a trust, they have access to all of the money when they reach the age of majority. This could be a great sum of money for a young adult to inherit with no rules on how to use it.
  5. Keep your estate plan up to date. You should review your estate plan regularly, at least every five years to be sure that everything is still how you intend it and that tax laws have not changed in the interim. Your plan could be vastly out of date, depending on changes since you first drafted it.

Estate planning can be a process where you demonstrate to your friends and family how much you care about them and how you have remembered them with certain assets or property.

It is a way to ensure that your loved ones do not have months of work trying to handle your estate.

Reference: Bankrate (July 23, 2021) “Estate planning checklist: 3 key steps to making a successful plan”

 

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

Cryptocurrency is a digital currency that can be used to buy online goods and services, explains Forbes’ recent article entitled “Cryptocurrency And Estate Planning: What Digital Investors Should Know.” Part of cryptocurrency’s appeal is the technology that backs it. Blockchain is a decentralized system that records and manages transactions across many computers and is very secure.

As of June 24, the total value of all cryptocurrencies was $1.35 trillion, according to CoinMarketCap. There are many available cryptocurrencies. However, the most popular ones include Bitcoin, Ethereum, Binance Coin and Dogecoin. Many believe cryptocurrency will be a main currency in the future, and they are opting to buy it now. They also like the fact that central banks are not involved in the process, so they cannot interfere with its value.

In addition, NFTs or non-fungible tokens, are also gaining in popularity. Each token is one of a kind and they are also supported by blockchain technology. They can be anything digital, such as artwork or music files. NFTs are currently being used primarily as a way to buy and sell digital art. An artist could sell their original digital artwork to a buyer. The buyer is the owner of the exclusive original, but the artist might retain proprietary rights to feature the artwork or make copies of it. The popularity of NFTs is centered around the social value of fine art collecting in the digital space.

Here are three reasons to have an estate plan, if you buy bitcoin:

  1. No probate. Even if your loved ones knew you had cryptocurrency, and even if they knew where you stored your password, that would not be enough for them to get access to it. Without a proper estate plan, your digital assets may be put through a lengthy and expensive probate process.
  2. Blockchain technology. You must have a private key to access each of your assets. It is usually a long passcode. A comprehensive estate plan that includes this can help you have peace of mind knowing that your investments can be passed on to loved ones’ if anything were to happen to you unexpectedly.
  3. Again, central banks do not play any part in the process, and it is secure because its processing and recording are spread across many different computers. However, there is no governing body overseeing the affairs of cryptocurrency.

Reference: Forbes (July 21, 2021) “Cryptocurrency And Estate Planning: What Digital Investors Should Know”

 

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What’s an Enhanced Life Estate? – Annapolis and Towson Estate Planning

First Coast News’ recent article entitled “Deed named for former first lady could be key to planning your estate” explains that a strategy that is available in Florida and a few other states is called an enhanced life estate or a “Lady Bird” deed, named after former First Lady, Lady Bird Johnson.

This deed states that when I die, you get the property, but until then, I reserve all rights to do whatever I want with it. That contrasts with a traditional life estate where a property owner can plan for one or more others to inherit their house.

Typically, the person with a life estate has a lot less control over what happens in the future, including potentially being thwarted by the very person you are tapping to receive your property at your death, in case you decide you no longer want the house while you are still alive.

The problem is, now you want to sell the property, but since they are a co-owner, they can refuse. And there is nothing you can do about it.

Enhanced life estates are also about protecting property and its eventual recipient from creditors after the death of the owner. That is the benefit of avoiding probate. Medicaid or any other creditor may become a creditor in probate.

A Lady Bird deed supersedes a will.

But there are downsides to the Lady Bird deed. A big drawback is if you change your mind. You have to now record another deed in the public record to remove that, and every deed that you record creates one thing that could go wrong.

However, this can be true of any change made in hope of overriding an earlier estate decision, and Lady Bird deeds are fairly straightforward.

Ask an experienced estate planning attorney if this type of arrangement is available in your state.

Reference: First Coast News (July 19, 2021) “Deed named for former first lady could be key to planning your estate”

 

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No Kids? What Happens to My Estate? – Annapolis and Towson Estate Planning

Just because you do not have children or heirs does not mean you should not write a will. If you decide to have children later on, a will can help protect their financial future. However, even if you die with no children, a will can help you ensure that your assets will go to the people, institutions, or organizations of your own choosing. As a result, estate planning is necessary for everyone.

Claremont Portside’s recent article entitled “What Happens to Your Estate If You Die With No Children” says that your estate will go to your spouse or common-law partner, unless stated otherwise in your will. If you do not have any children or a spouse or common-law partner, your estate will go to your living parents. Typically, your estate will be divided equally between them. If you do not have children, a spouse, or living parents, your estate will go to your siblings. If there are any deceased siblings, their share will go to their children.

The best way to make certain your estate goes to the right people, and that your loved ones can divide your assets as easily as possible, is to write a will. Ask an experienced estate planning attorney to help you. As part of this process, you must name an executor. This is a person you appoint who will have the responsibility of administering your estate after you die.

It is not uncommon for people to appoint one of their children as the executor of their will. But if you do not have children, you can appoint another family member or a friend. Select someone who is trustworthy, responsible, impartial and has the mental and emotional resources to take on this responsibility while mourning your death.

You should also be sure to update your will after every major event in your life, like a marriage, the death of one of your intended beneficiaries and divorce. In addition, specifically designating beneficiaries and indicating what they will receive from your estate will help prevent any disputes or contests after your death. If you have no children, you might leave a part (or your entire) estate to friends, and you can also name charities and other organizations as beneficiaries.

It is important to name who should receive items of sentimental value, such as family heirlooms, and it is a good idea to discuss this with your loved ones, in case there are any disputes in the future.

Even without children, estate planning can be complicated, so plan your estate well in advance. That way, when something happens to you, your assets will pass to the right people and your last wishes will be carried out. Ask an experienced estate planning attorney for assistance in creating a comprehensive estate plan.

Reference: Claremont Portside “What Happens to Your Estate If You Die with No Children”

 

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What Should I Know about Powers of Attorney? – Annapolis and Towson Estate Planning

Forbes’ recent article entitled “5 Power Of Attorney Clauses You Need to Focus On” explains that there are two types of powers of attorney. A durable power of attorney is valid when you sign it and stays valid, if you later become incapacitated. A springing power of attorney “springs” into effect, if you become incapacitated. No matter the type of power of attorney, here are some things to consider before signing.

  1. Designating multiple agents. Selecting the person you want as your attorney-in-fact or agent can be a difficult decision because he or she will have control of your financial assets. You can name more than one person as your agent, but if you name two, specify if they will be required to act together or if either one can act independently.
  2. Defining gifting parameters. Make certain that your agent will be authorized to make gifts, as this may be important if you want to reduce estate taxes or if you will need to apply for government benefits in the future.
  3. Changing beneficiary designations. See if the document lets your agent change beneficiary designations. You should have already named beneficiaries of important assets, like life insurance and retirement accounts, but verify whether you want your agent to be able to change those designations. Most people do not want their agent to be able to change these designations.
  4. Amending a trust. If you have created a revocable trust during your lifetime, you may want to give your agent the ability to change important provisions of the trust, like the beneficiaries or the amounts that they receive. However, this could ruin your estate planning goals and disinherit family that you intended to provide for. Most people do not want to give their agent the ability to change a trust.
  5. Designating a guardian. The power of attorney often names a guardian, in case one is required. The guardian would be appointed by a court and is often the same person as the agent. If you trust someone enough to be your attorney-in-fact, you will probably also trust them as your guardian.

The power of attorney contains powerful authorizations, so make sure you read the document carefully before you sign it. It may be wise to sign a new power of attorney every few years. Otherwise, the power of attorney might become “stale” and your named agent may have trouble using it if it is ever needed.

Reference: Forbes (July 19, 2021) “5 Power of Attorney Clauses You Need to Focus On”

 

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

Should I Try Do-It-Yourself Estate Planning? – Annapolis and Towson Estate Planning

US News & World Report’s recent article entitled “6 Common Myths About Estate Planning explains that the coronavirus pandemic has made many people face decisions about estate planning. Many will use a do-it-yourself solution. Internet DIY websites make it easy to download forms. However, there are mistakes people make when they try do-it-yourself estate planning.

Here are some issues with do-it-yourself that estate planning attorneys regularly see:

You need to know what to ask. If you are trying to complete a specific form, you may be able to do it on your own. However, the challenge is sometimes not knowing what to ask. If you want a more comprehensive end-of-life plan and are not sure about what you need in addition to a will, work with an experienced estate planning attorney. If you want to cover everything, and are not sure what everything is, that is why you see them.

More complex issues require professional help. Take a more holistic look at your estate plan and look at estate planning, tax planning and financial planning together, since they are all interrelated. If you only look at one of these areas at a time, you may create complications in another. This could unintentionally increase your expenses or taxes. Your situation might also include special issues or circumstances. A do-it-yourself website might not be able to tell you how to account for your specific situation in the best possible way. It will just give you a blanket list, and it will all be cookie cutter. You will not have the individual attention to your goals and priorities you get by sitting down and talking to an experienced estate planning attorney.

Estate laws vary from state to state. Every state may have different rules for estate planning, such as for powers of attorney or a health care proxy. There are also 17 states and the District of Columbia that tax your estate, inheritance, or both. These tax laws can impact your estate planning. Eleven states and DC only have an estate tax (CT, HI, IL, ME, MA, MN, NY, OR, RI, VT and WA). Iowa, Kentucky, Nebraska, New Jersey and Pennsylvania have only an inheritance tax. Maryland has both an inheritance tax and an estate tax.

Setting up health care directives and making end-of-life decisions can be very involved. It is too important to try to do it yourself. If you make a mistake, it could impact the ability of your family to take care of financial expenses or manage health care issues. Do not do it yourself.

Reference: US News & World Report (July 5, 2021) “6 Common Myths About Estate Planning”

 

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What Exactly Is a Trust? – Annapolis and Towson Estate Planning

MSN Money’s recent article entitled “What is a trust?” explains that many people create trusts to minimize issues and costs for their families or to create a legacy of charitable giving. Trusts can be used in conjunction with a last will to instruct where your assets should go after you die. However, trusts offer several great estate planning benefits that you do not get in a last will, like letting your heirs to see a relatively speedy conclusion to settling your estate.

Working with an experienced estate planning attorney, you can create a trust to minimize taxes, protect assets and spare your family from going through the lengthy probate process to divide up your assets after you pass away. A trust can also let you control to whom your assets will be disbursed, as well as how the money will be paid out. That is a major point if the beneficiary is a child or a family member who does not have the ability to handle money wisely. You can name a trustee to execute your wishes stated in the trust document. When you draft a trust, you can:

  • Say where your assets go and when your beneficiaries have access to them
  • Save your beneficiaries from paying estate taxes and court fees
  • Shield your assets from your beneficiaries’ creditors or from loss through divorce settlements
  • Instruct where your remaining assets should go if a beneficiary dies, which can be helpful in a family that includes second marriages and stepchildren; and
  • Avoid a long probate court process.

One of the most common trusts is called a living or revocable trust, which lets you put assets in a trust while you are alive. The control of the trust is transferred after you die to beneficiaries that you named. You might want to ask an experienced estate planning attorney about creating a living trust for several reasons, such as:

  • If you would like someone else to take on the management responsibilities for some or all of your property
  • If you have a business and want to be certain that it operates smoothly with no interruption of income flow, if you die or become disabled
  • If you want to shield assets from the incompetency or incapacity of yourself or your beneficiaries; or
  • If you want to decrease the chances that your will may be contested.

A living trust can be a smart move for those with even relatively modest estates. The downside is that while a revocable trust will usually keep your assets out of probate if you were to die, there still will be estate taxes if you hit the threshold.

By contrast, an irrevocable trust cannot be changed once it has been created. You also relinquish control of the assets you put into the trust. However, an irrevocable trust has a key advantage in that it can protect beneficiaries from probate and estate taxes.

In addition, there are many types of specialty trusts you can create. Each is structured to accomplish different goals. Ask an experienced estate planning attorney about these.

Reference: MSN Money (July 9, 2021) “What is a trust?

 

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What Paperwork Is Required to Transfer the Ownership of Home to Children? – Annapolis and Towson Estate Planning

Some seniors may ask if they would need to draft a new deed with their name on it and attach an affidavit and have it notarized. Or should the home be fully gifted to the children in life?

And for a partial gift to the children in life, were they co-owners, would the parent be required to complete the same paperwork as a full gift? Is there a way to change the owner of a property without having to pay taxes?

The reason for considering the transfer of a full or partial ownership in your home makes a difference in how you should proceed, says nj.com’s recent article entitled “What taxes are owed if I add my children to my deed?”

If the objective is to avoid probate when you pass away, adding children as joint tenants with rights of survivorship will accomplish this. However, there may also be some drawbacks that should be considered.

If the home has unrealized capital gains when you die, only your ownership share receives a step-up in basis. With a step-up in basis, the cost of the home is increased to its fair market value on the date of death. This eliminates any capital gains that accrued from the purchase date.

There is the home-sale tax exclusion. If you sell the home during your lifetime, you are eligible to exclude up to $500,000 of capital gains if you are married, or $250,000 for taxpayers filing single, if the home was your primary residence for two of the last five years. However, if you add your children as owners, and they own other primary residences, they will not be eligible for this tax exclusion when they sell your home.

In addition, your co-owner(s) could file for bankruptcy or become subject to a creditor or divorce claim. Depending on state law, a creditor may be able to attach a lien on the co-owner’s share of the property.

Finally, if you transfer your entire interest, the new owners will be given total control over the home, allowing them to sell, rent, or use the home as collateral against which to borrow money. If you transfer a partial interest, you may need the co-owner’s consent to take certain actions, like refinancing the mortgage.

If you decide to transfer ownership, talk to an experienced estate planning attorney to prepare the legal documents and to discuss your goals and the implications of the transfer. The attorney would draft the new deed and record the deed with the county office where the property resides.

A gift tax return, Form 709, should be filed, but there should not be any federal gift tax on the transfer, unless the cumulative lifetime gifts exceed the threshold of $11.7 million or $23.4 million for a married couple.

Reference: nj.com (June 15, 2021) “What taxes are owed if I add my children to my deed?”

 

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Can I Be Certain My Estate Plan Is Successful? – Annapolis and Towson Estate Planning

Forbes’ recent article entitled“7 Steps to Ensure a Successful Estate Plan” listed seven actions to take for a good estate plan:

  1. Educate and communicate. A big reason estate plans are not successful, is that the next generation is not ready and they waste or mismanage the assets. You can reduce those risks and put your estate in a trust to allows children limited access. In addition, you can ensure that the children have a basic knowledge of and are comfortable with wealth. Children also benefit from understanding their parents’ philosophy about managing, accumulating, spending and giving money.
  2. Anticipate family conflicts. Family conflicts can come to a head when one or both parents pass, and frequently the details of the estate plan itself cause or exacerbate family conflicts or resentments. Many people just think that “the kids will work it out,” or they create conflicts by committing classic mistakes, like having siblings with different personalities or philosophies jointly inherit property or a business.
  3. Plan before making gifts. In many cases, gift giving is a primary component of an estate plan, and gifts can be a good way for the next generation to become comfortable handling wealth. Rather than just automatically writing checks, the older generation should develop a strategy that will maximize the impact of their gifts. Cash gifts can be spent quickly, but property gifts are more apt to be kept and held for the future.
  4. Understand the basics of the plan. Few people understand the basics of their estate plans, so ask questions and get comfortable with what your estate planning attorney is saying and recommending.
  5. Organize, simplify, and prepare. A major reason it takes a lot of time and expense in settling an estate, is that the owner did not make it easy for the executor. The owner may have failed to make information easy to locate. An executor must understand the details of the estate.
  6. Have a business succession plan. Most business owners do not have a real succession plan. This is the primary reason why few businesses survive the second generation of owners. The value of a small business rapidly declines, when the owner leaves with no succession plan in place. A succession plan designates the individual who will run the business and who will own it, as well as when the transitions will happen. If no one in your family wants to run the business, the succession plan should provide that the company is to be sold when you retire or die. A business must be managed and structured, so it is ready for a sale or inheritance, which frequently entails improving accounting and other information systems.
  7. Fund living trusts. A frequent estate planning error is the failure to fund a revocable living trust. The trust is created to avoid probate and establish a process under which trust assets will be managed. However, a living trust has no impact, unless it is given legal title to assets. Be sure to transfer legal ownership of assets to the trust.

Reference: Forbes (May 21, 2021) “7 Steps to Ensure a Successful Estate Plan”

 

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