Due Diligence Needed, If Retirement Depends on Inheritance, Selling Business

The first sentence in this article from Hometown Life, “Playing off charge card debt a major priority,” tells the entire story: “I…have never taken an active interest in my finances.” The person never had his business evaluated by a professional and learned at age 60 that his business had no resale value. In addition, he learned that his parents were supporting a sister and any inheritance he was anticipating would not be enough to live on.

Making matters worse, he has more than $80,000 in credit card debt on various cards, at interest rates between 18% and 21%. With next to no equity in his home and a home equity loan and a mortgage, this person has only one asset: an IRA worth around $100,000.

At some point in their lives, most people realize that they must be active participants in their financial lives. They need a budget to contain spending and a savings plan, so they can enjoy their retirement and control of their credit card debt. It sounds like this man just got a wake-up call.

He wonders how to resolve his credit card debt, but it seems there are a number of other issues that need to be addressed.

First, he should pay off his credit card debt. At 18% to 21%, there is no investment he could make that would come near that rate. One way to do this, is to increase his monthly payments. It may take many years to knock down such a large debt, so another option is to use his IRA to pay off the money immediately.

Equally important is for him to commit to use the money he would have otherwise used to pay off credit card debt and invest that into a retirement fund. It doesn’t matter if he uses an IRA, a SEP or a Roth, but he needs to be disciplined and start putting money away for his retirement.

Potential inheritances are troublesome for people who count their chickens before they hatch. Until the inheritance is safely in your own bank account, you cannot count on it. In a time where living expenses are high and people are living longer, fewer and fewer people are expecting to receive inheritances. Basing a lifestyle around an expected inheritance, can only lead to financial disaster.

Preparing for retirement and taking an active role in managing your finances, is a life-long task and part of our responsibility as adults. Another responsibility is to have an estate plan in place, so even people who die in debt, can be assured that what assets they do have will go to their heirs.

Reference: Hometown Life (March 3, 2019) “Playing off charge card debt a major priority”

What is the Best Way to Leave an Inheritance to a Grandchild?

Leaving money or real estate to a child under the age of 18 requires careful handling, usually under the guidance of an estate planning attorney. The same is true for money awarded by a court, when a child has received property for other reasons, like a settlement for a personal injury matter.

According to the article “Gifts from Grandma, and other problems with children owning property” from the Cherokee-Tribune & Ledger News, if a child under age 18 receives money as an inheritance through a trust, or if the trust states that the asset will be “held in trust” until the child reaches age 18, then the trustee named in the will or trust is responsible for managing the money.

Until the child reaches age 18, the trustee is to use the money only for the child’s benefit. The terms of the trust will detail what the trustee can or cannot do with the money. In any situation, the trustee may not benefit from the money in any way.

The child does not have free access to the money. Children may not legally hold assets in their own names. However, what happens if there is no will, and no trust?

A child could be entitled to receive property under the laws of intestacy, which defines what happens to a person’s assets, if there is no will. Another way a child might receive assets, would be from the proceeds of a life insurance policy, or another asset where the child has been named a beneficiary and the asset is not part of the probate estate. However, children may not legally own assets. What happens next?

The answer depends upon the value of the asset. State laws vary but generally speaking, if the assets are below a certain threshold, the child’s parents may receive and hold the funds in a custodial account. The custodian has a duty to manage the child’s money, but there isn’t any court oversight.

In Georgia, the threshold is $15,000. Check with a local estate planning attorney to determine your state’s limitations.

If the asset is valued at more than $15,000, or whatever the threshold is for the state, the probate court will exercise its oversight. If no trust has been set up, then an adult will need to become a conservator, a person responsible for managing a child’s property. This person needs to apply to the court to be named conservator, and while it is frequently the child’s parent, this is not always the case.

The conservator is required to report to the probate court on the child’s assets and how they are being used. If monies are used improperly, then the conservator will be liable for repayment. The same situation occurs, if the child receives money through a court settlement.

Making parents go through a conservatorship appointment and report to the probate court is a bit of a burden for most people. A properly created estate plan can avoid this issue and prepare a trust, if necessary, and name a trustee to be in charge of the asset.

Another point to consider: turning 18 and receiving a large amount of money is rarely a good thing for any young adult, no matter how mature they are. An estate planning attorney can discuss how the inheritance can be structured, so the assets are used for college expenses or other important expenses for a young person. The goal is to not distribute the funds all at once to a young person, who may not be prepared to manage a large inheritance.

Reference: Cherokee-Tribune & Ledger News (March 1, 2019) “Gifts from Grandma, and other problems with children owning property”

What is a Life Estate?

The question of a life estate may arise, when adult children are discussing the possibility of moving a parent into an assisted-living facility and selling the family home.

The Spokesman-Review’s recent article asks: “Does a life estate have cash value?”

The article explains that a life estate is a form of co-ownership. A person’s interest in property is limited to his life, with the property passing to other recipients at his death. The person who holds the life estate is called a life tenant, and those who receive the property at the death of the life tenant are called remaindermen.

The life tenant and the remaindermen both have real interests in the property, but unlike other partnerships or other forms of co-ownership, the life tenant and remaindermen don’t have rights in the property at the same time. Only the life tenant has a current right to possession. The remaindermen’s interest doesn’t become activated, until the death of the life tenant.

A life estate is an actual form of ownership, rather than a right to use. The life tenant—in many cases the parent—“owns” the house until her death. The parent will need to pay the taxes and keep the property in reasonable condition. The life tenant could sell the property, but the buyer would only have rights until she dies. There would be few people who would ever buy the property. No lender would loan mom money against the property because their interest would go away when the life tenant died.

But there is a value to a life estate, and upon sale, the life tenant must be compensated for the sale of their interest. Life estates are valued using the age of the life tenant and the present fair market value of the property.

Although life estates typically end when the life tenant (or another specified person) dies, some specify conditions that can trigger termination. These would cause the life estate to be terminated, even though the life tenant is still alive and well. For example, a life estate may terminate, if the life tenant leaves the home for more than six months. The actual life estate document details any conditional limits that define when the life estate terminates.

Talk with an experienced estate planning attorney about whether a life estate makes sense for your situation, or if there are alternative strategies that would be better suited.

Reference: The Spokesman-Review (March 17, 2019) “Does a life estate have cash value?”

Aging in Place: Reality or Dream?

Seniors crave their independence and a sense of place. Almost all wish to remain in their own homes and to “age in place.” Being independent in your senior years benefits everyone. However, if aging brings illness, professional home caregiving may be unaffordable, says The Winston-Salem Journal in the article “Who will help me to age in place?”

Even though they want to remain independent, family member participation may be necessary for this to happen. Family caregivers may live with aging parents, serving as guardians, trustees or power of attorney agents on their parent’s behalf. They may perform many tasks, including cooking, cleaning and monitoring their medical or home care. They may take care of the home and take aging parents on outings.

Loyalty to aging parents runs the gamut, from daily contacts and living together, to children who vanish as soon as they are financially independent. While our biology may dictate that close family members are genetically predisposed to care for us most, it’s not everyone’s experience.

If your goal is to have parents, children and grandchildren all spend time together as the generations move through their lives, the time to start is while you are parenting. The most important thing you can do to increase the likelihood of having family members who value each other and care for each other, is to raise children with love and kindness.

You should limit the amount of time that children spend with electronic devices. Making family connections and teaching caregiving skills within the family, requires time and attention. Teach your children empathy and caregiving through gardening, caring for plants and pets and letting them see how you take care of siblings, parents, grandparents, friends and the less fortunate through volunteer work.

Our children learn more from what they see, than what we say. By teaching your children to respect and care for those they love, you will be creating a family legacy based on your values. This will be as much a part of them, as any inheritance you can leave them.

Part of caregiving is taking care of the legal and financial side of your life. Ensure that your family members have an estate plan in place, including a will, financial power of attorney and health care power of attorney. Caregiving for others involves preparing for the ups and downs of life. This shows your children that there are things we do for ourselves and for others that make life easier for those we leave behind. It is an important life lesson for each generation.

Reference: The Winston-Salem Journal (March 5, 2019) “Who will help me to age in place?”

Smart Women Protect Themselves with Estate Planning

The reason to have an estate plan is two-fold: to protect yourself, while you are living and to protect those you love, after you have passed. If you have an estate plan, says the Boca Newspaper in the article titled “Smart Tips for Women: Estate Planning,” your wishes for the distribution of your assets are more likely to be carried out, tax liabilities can be minimized and your loved ones will not be faced with an extended and expensive process of settling your estate.

Here are some action items to consider, when putting your estate plan in place:

If you have an estate plan but aren’t really sure what’s in it, it’s time to get those questions answered. Make sure that you understand everything. Don’t be intimidated by the legal language: ask questions and keep asking until you fully understand the documents.

If you have not reviewed your estate plan in three or four years, it’s time for a review. There have been new tax laws that may have changed the outcomes from your estate plan. Anytime there is a big change in the law or in your life, it’s time for a review. Triggering events include births, deaths, marriages, and divorces, purchases of a home or a business or a major change in financial status, good or bad.

If you don’t have an estate plan, stop postponing and make an appointment with an estate planning attorney, as soon as possible.

Your estate plan should include advance directives, including a Durable Power of Attorney, Health Care Surrogate, and a Living Will. You may not be capable of executing these documents during a health emergency and having them in place will make it possible for those you name to make decisions on your behalf.

Anyone who is over the age of 18, needs to have these same documents in place. Parents do not have a legal right to make any decisions or obtain medical information about their children, once they celebrate their 18th birthday.

Make a list of your trusted professionals: your estate planning attorney, CPA, financial advisor, your insurance agent and anyone else your executor will need to contact.

Tell your family where this list is located. Don’t ask them to go on a scavenger hunt, while they are grieving your loss.

List all your assets. You should include where they are located, account numbers, contact phone numbers, etc. Tell your family that this list exists and where to find it.

If you have assets with primary beneficiaries, make sure that they also have contingent beneficiaries.

If you have assets from a first marriage and remarry, be smart and have a prenuptial agreement drafted that aligns with a new estate plan.

If you have children and assets from a first marriage and want to make sure that they continue to be your heirs, work with an estate planning attorney to determine the best way to make this happen. You may need a will, or you may simply need to have your children become the primary beneficiaries on certain accounts. A trust may be needed. Your estate planning attorney will know the best strategy for your situation.

If you own a business, make sure you have a plan for what will happen to that business, if you become incapacitated or die unexpectedly. Who will run the business, who will own it and should it be sold? Consider what you’d like to happen for long-standing employees and clients.

Smart women make plans for themselves and their loved ones. An estate planning attorney will be able to help you navigate through an estate plan. Remember that an estate plan needs upkeep on a regular basis.

Reference: Boca Newspaper (March 4, 2019) “Smart Tips for Women: Estate Planning”

Are You Retiring in 2019? Here’s What You Need to Know

There are more than few steps you’ll need to complete, before packing up your desk, cubicle or locker and saying good bye to your work family. Even if your 401(k) and IRA is in order, there are things you need to during the last few months of working, says Next Avenue in the article “Tips to Prepare for Retiring This Spring or Summer.”

There’s detailed planning, organization of documents, and additional financial details that need attending. You may also want to start creating your “bucket list” — a list of things you’ve always wanted to do, but never had the time to do while you were working. Getting all of this in order, will speed your waiting time and prepare you better, when the last day of your working life does finally arrive.

Whether you are three months or six months from retirement, here are some tips for your to-do list:

Social Security. Figure out when the best time for you to take Social Security benefits will be. Can you delay it until age 70? That’s when you’ll get the biggest payout. The earlier you start collecting benefits, the smaller your monthly check will be. Take it early, and you are locked in to this lower rate.

Health Care. Figuring out how to manage health care costs, is the single biggest worry of retirement for most Americans. An injury that puts you in a nursing care facility can make a huge dent in your retirement funds, even if it’s just for a short while. This is the time of your life, when focusing on your health is most important, even if you’ve been careless in earlier decades. Evaluate your health status and get check ups with your regular physician and your dentist.

Investments. Check with your HR department about when you’ll need to roll over your 401(k) plan. If you transfer the funds into a low-cost IRA, you may save in fees. Work with your financial advisor to determine what your withdrawal rate will be. You may need to reevaluate some of your retirement goals or consider working part time during retirement for a few years.

Medicare. If you’re almost 65, you can start enrolling in Medicare now. The government lets you start the process within three months of your 65th birthday. Start this process, so you are covered, once you are not on the company’s health care plan.

Expectations. The first six months to a year of retirement can be both wonderful and terrible. While enjoying freedom, many people find it hard to withdraw money from the same accounts they spent so many years building. What if they don’t have enough for a long life? Take a realistic look at your lifestyle, budget, and spending habits, before you retire to make sure you are financially ready to do so. If you think you might work part time, look into the positions that are available in your area and what they pay.

Lifestyle. Often, we are so busy planning for the financial side of retirement, that we forget to plan for the “soft” side: what will you do in retirement? Will you volunteer with an organization that has meaning for you? Write the novel you’ve started on a dozen times? Spend more time with your grandchildren? Travel? What will make you feel like your time is being well-spent, and what will make you fulfilled?

Don’t forget the legal plan. Retired or not, you need to have a will, power of attorney, and health care power of attorney to protect your family, whether you are preparing for retirement or in the middle of your career. Speak with an estate planning attorney to ensure that these important documents are in place.

Reference: Next Avenue (March 6, 2019) “Tips to Prepare for Retiring This Spring or Summer”

Have You Prepared Your Family for Your Death?

Napoleon Bonaparte said that most battles are won or lost in the preparation stage, long before the first shot is fired.

MarketWatch’s recent article, “Breaking the taboo: How to prepare your heirs for your death” says that when it comes to retirement, 60s are the new 50s!

This is a critical lesson, when planning for your own death and the related issue of transitioning assets to your family. The majority of estates lose assets—as well as peace within the family—after a transition. That’s because the heirs were unprepared, they didn’t trust each other and communications fell apart.

This preparation should involve making heirs aware of the location of all important estate planning documents and financial assets. They should also have the contact info of your financial professionals and attorney. They should understand how the parents want to deal with end of life and incapacity issues. These are some important questions that will help you see, if your heirs are prepared:

  • Do your children (and their spouses, if any) know your estate plan?
  • Is there a plan to provide certain information sooner and other information at a later time?
  • Has your family read your will and other estate planning documents?
  • Does your family know the family’s net worth?
  • Are your heirs in communication with your attorney, accountant, insurance advisers and investment advisor?

Family battles can easily happen when members don’t believe they’ve been given their fair share and weren’t part of the process. Although it’s important to treat family wealth as a private matter, it should not be private within the family. Good communication between parents and heirs can prevent many issues.

Attaining the optimal degree of knowledge-sharing and family involvement requires its own planning. Family values, as well as current and future goals, should be a part of the entire financial planning process. When done well, financial planning is about much more than investment management. The success of a family wealth transition plan depends on preparing the family for the transition of the family’s wealth and its values.

Reference: MarketWatch (March 7, 2019) “Breaking the taboo: How to prepare your heirs for your death”

Plan Before a Health Crisis Strikes

A woman wakes up to hear her husband gasping for breath, unresponsive and in full cardiac arrest. He was only 55, he biked 25 to 50 miles every day, he ate right and was one of the healthiest people she knew. Yet, he was having a heart attack. He did not have a health care directive in place, and she did not know what his wishes were in the case of a health emergency.

The story, as related in “START WITH A PLAN (not a heart attack)” from OakPark.com, is not as unusual as one would think. What does make it unusual, was that both of these individuals are attorneys. They had never had an estate plan created or drafted documents.

As the woman sat by his hospital bed in the critical care unit after his surgery, she started thinking about the practical realities. If he remained unconscious for some time, how would she access his individual finances, his paycheck or pay the monthly bills? She would need to hire an attorney and seek guardianship from the court to handle his financial affairs. If he died, she’d have to hire an attorney and open a probate case.

Without a will in place, her husband’s estate would be deemed intestate, and the laws of the state, in her case, Illinois, would be applied to distribute his property. Half of his property would be distributed to his children and the other half to her.

That might mean she would have to borrow money from her own children to pay bills and cover their college tuition.

Her husband responded well to the surgery, but at one point he needed to be transferred to another hospital. As they travelled by ambulance to another hospital, a terrible thought occurred to her: what if the ambulance were in an accident and they were both killed? Who would rear their children? How long would it take to settle the estate, with no will?

Thankfully, the ambulance arrived safely at the hospital, her husband recovered from his heart attack and the first thing they attended to when he recovered was their estate plan.

It’s a dramatic story, but a telling one: everyone, no matter how healthy, needs to have an estate plan in place. That means a will, power of attorney, healthcare proxy, HIPAA release form and any other planning tools that each family’s situation may need.

Make an appointment to meet with an estate planning attorney to put your plan in place. Don’t wait until you have time, because you never know when you may run out of time.

Reference: Oak Park.com (Feb. 27, 2019) “START WITH A PLAN (not a heart attack)”

Do I Need a Living Trust or a Will? Or Both?

This is just one of the reasons people think they want a trust: to ensure that the value of their overall estate will not decrease, because of the cost of probate. The most common way to do that is with a trust, says The Houston Chronicle in the article “Elder Law: Which should I have—A Living trust or a will?”

In some states, probate is not an expensive or overly time-consuming issue. Texas, for example, has what is called an independent administration. Executors handle the tasks involved in settling an estate and distributing assets to beneficiaries. As a result, there’s very little court involvement. However, that’s not the case everywhere. An estate planning attorney in your area will be able to explain the details of your state’s procedures and discuss whether a trust is right for your estate. They’ll also explain the difference between different types of trusts.

The trust most frequently used to avoid probate, is known as a revocable management trust, living trust or an “inter vivos” trust.

Selecting the best type of trust for each situation is different. Here are some advantages of living trusts:

Avoiding probate. The cost of probate alone is not reason enough to use a trust. However, if your assets are in trusts, you may not need to file an inventory listing your assets with the court. That’s not always required in every jurisdiction, but if it is required where you live, a trust can help keep your asset list private, by ensuring that it is only seen by beneficiaries.

Asset management for incapacity. A living trust goes into effect, while you are alive. If you become incapacitated, an alternate trustee can step in to manage assets, pay bills and ensure that finances are taken care of.

Avoiding probate in another state. If you own out-of-state property, your estate may need to be probated in your home state and in the other state. If you have a living trust, out-of-state parcels of land can be deeded into the trust during your lifetime, thus avoiding the need for probate in another state. After your passing, your trustee can handle the out-of-state property in the living trust.

Administrative ease. There are, unfortunately, instances when Power of Attorney can be challenged by financial institutions. The authority of a trustee is more likely to be recognized, by banks, investment companies, etc.

There are some questions about whether it’s better to have a living trust or a will. The most complex part of having a living trust, is the process of funding the trust. It is imperative for the trust to work, that every asset you own is either transferred into the trust or retitled into the name of the trust. If assets are left out or incorrectly funded, then probate will probably be necessary. This can occur, even if only one single asset is left out.

If an asset is controlled by beneficiary designation, then the trust may not need to be named a beneficiary, should you want it to pass directly to one or more beneficiaries.

Funding the trust becomes complicated, when retirement accounts are involved. Consult with an experienced estate planning attorney, if you want to make the trust a designated beneficiary of a retirement account. This is because very specific and complex rules may limit the ability to “stretch” the distributions form the account.

Using a trust instead of a will-based plan is growing in popularity, but it should never be an automatic decision. An estate planning attorney will be able to explain the pros and cons of each strategy and help you and your family decide which is better for you.

Reference: The Houston Chronicle (Feb. 15, 2019) “Elder Law: Which should I have—A Living trust or a will?”

Digital Assets in Estate Planning: The Brave New World of Estate Planning

Cryptocurrency is almost mainstream, despite its complexity, says Insurance News Net in the article “Westchester County Elder Law Attorney… Sheds Light on Cryptocurrency in Estate Planning.” The IRS has made it clear that as far as federal taxation is concerned, Bitcoin and other cryptocurrencies are to be treated as property. However, since cryptocurrency is not tangible property, how is it incorporated into an estate plan?

For starters, recordkeeping is extremely important for any cryptocurrency owner. Records need to be kept that are current and income taxes need to be paid on the transactions every single year. When the owner dies, the beneficiaries will receive the cryptocurrency at its current fair market value. The cost basis is stepped up to the date of death value and it is includable in the decedent’s taxable estate.

Here’s where it gets tricky. The name of the Bitcoin or cryptocurrency owner is not publicly recorded. Instead, ownership is tied to a specific Bitcoin address that can only be accessed by the person who holds two “digital keys.” These are not physical keys, but codes. One “key” is public, and the other key is private. The private key is the secret number that allows the spending of the cryptocurrency.

Both of these digital keys are stored in a “digital wallet,” which, just like the keys, is not an actual wallet but a system used to secure payment information and passwords.

One of the dangers of cryptocurrency is that unlike other financial assets, if that private key is somehow lost, there is no way that anyone can access the digital currency.

It should also be noted that cryptocurrency can be included as an asset in a last will and testament as well as a revocable or irrevocable trust. However, cryptocurrency is highly volatile, and its value may swing wildly.

The executor or trustee of an estate or trust must take steps to ensure that the estate or the trust is in compliance with the Prudent Investor Act. The holdings in the trust or the estate will need to be diversified with other types of investments. If this is not followed, even ownership of a small amount of cryptocurrency may lead to many issues with how the estate or trust was being managed.

Digital currency and digital assets are two relatively new areas for estate planning, although both have been in common usage for many years. As more boomers are dying, planning for these intangible assets has become more commonplace. Failing to have a plan or providing incorrect directions for how to handle digital assets, is becoming problematic for many individuals.

Speak with an estate planning attorney who has experience in digital and non-traditional assets to learn how to protect your heirs and your estate from losses associated with these new types of assets.

Reference: Insurance News Net (Feb. 25, 2019) “Westchester County Elder Law Attorney… Sheds Light on Cryptocurrency in Estate Planning”