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Elder Law Estate Planning Probate

Forgot to Update Your Beneficiary Designations? Your Ex Will be Delighted

Your will does not control who inherits all your assets when you die. This is something that many people do not know. Instead, many of your assets will pass by beneficiary designations, says Kiplinger in the article “Beneficiary Designations: 5 Critical Mistakes to Avoid.”

The beneficiary designation is the form that you fill out, when opening many different types of financial accounts. You select a primary beneficiary and, in most cases, a contingency beneficiary, who will inherit the asset when you die.

Typical accounts with beneficiary designations are retirement accounts, including 401(k)s, 403(b)s, IRAs, SEPs, life insurance, annuities and investment accounts. Many financial institutions allow beneficiaries to be named on non-retirement accounts, which are most commonly set up as Transfer on Death (TOD) or Pay on Death (POD) accounts.

It’s easy to name a beneficiary and be confident that your loved one will receive the asset, without having to wait for probate or estate administration to be completed. However, there are some problems that occur and mistakes get expensive.

Forgot to Update Your Beneficiary Designations? Your Ex Will be Delighted. Here are mistakes you don’t want to make:

Failing to name a beneficiary. It’s hard to say whether people just forget to fill out the forms or they don’t know that they have the option to name a beneficiary. However, either way, not naming a beneficiary becomes a problem for your survivors. Each company will have its own rules about what happens to the assets when you die. Life insurance proceeds are typically paid to your probate estate, if there is no named beneficiary. Your family will need to go to court and probate your estate.

When it comes to retirement benefits, your spouse will most likely receive the assets. However, if you are not married, the retirement account will be paid to your probate estate. Not only does that mean your family will need to go to court to probate your estate, but taxes will be levied on the asset. When an estate is the beneficiary of a retirement account, all the assets must be paid out of the account within five years from the date of death. This acceleration of what would otherwise be a deferred income tax, must be paid much sooner.

Neglecting special family considerations. There may be members of your family who are not well-equipped to receive or manage an inheritance. A family member with special needs who receives an inheritance, is likely to lose government benefits. Therefore, your planning needs to include a SNT — Special Needs Trust. Minors may not legally claim an inheritance, so a court-appointed person will claim and manage their money until they turn 18. This is known as a conservatorship. Conservatorships are costly to set up. They must also make an annual accounting to the court. Conservators may need to file a bond with the court, which is usually bought from an insurance company. This is another expensive cost.

If you follow this course of action, at age 18 your heir may have access to a large sum of money. That may not be a good idea, regardless of how responsible they might be. A better way to prepare for this situation is to have a trust created. The trustee would be in charge of the money for a period of time that is determined by the personality and situation of your heirs.

Using an incorrect beneficiary name. This happens quite frequently. There may be several people in a family with the same name. However, one is Senior and another is Junior. The person might also change their name through marriage, divorce, etc. Not only can using the wrong name cause delays, but it could lead to litigation, especially if both people believe they were the intended recipient.

Failing to update beneficiaries. Just as your will must change when life changes occur, so must your beneficiaries. It’s that simple, unless you really wanted to give your ex a windfall.

Failing to review beneficiaries with your estate planning attorney. Beneficiary designations are part of your overall estate plan and financial plan. For instance, if you are leaving a large insurance policy to one family member, it may impact how the rest of your assets are distributed.

Forgot to Update Your Beneficiary Designations? Take the time to review your beneficiary designations, just as you review your estate plan. You have the power to determine how your assets are distributed, so don’t leave that to someone else.

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Elder Law Estate Planning Probate

How The Ancient Ones Handled Their Estate Planning

“I love money. I love everything about it. I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline powered turtleneck sweater. And, of course, I bought some dumb stuff, too.” Steve Martin.

“I made my money the old-fashioned way. I was very nice to a wealthy relative right before he died.” Malcolm Forbes.

It’s not unusual for a family member to find an old bank account or painting, years after someone has passed and the estate has been closed. If it’s not something of great value, says Above the Law in the article “Old Money, Same Issues: Lessons from the 5th Century in Organizing Your Estate,” it’s easy to handle. Contacting a few members of the family to see who wants a small item, can be a simple task.

However, if it’s of high value, the family may need to petition a bank, the probate court or even an unclaimed funds bureau for access to the asset, so it can be distributed to beneficiaries or heirs. The testator needs to appoint a meticulous administrator so no stone is left unturned, when the time comes for marshalling all of the assets, before the estate can be closed.

Israeli archeologists recently unearthed deeply buried stones related to the estate of an ancient Samaritan named Adios. The stone had an inscription that read “Only God help the beautiful property of Master Adios, amen.” The estate is reported to date back 1,600 years to the 5th century. The estate contained stone mechanisms for making wine, flour and oil, including a mill. It was fairly well organized.

We have now organized people who take care of their heirs and beneficiaries, by listing all of their assets and taking the time to have an estate plan created that includes a detailed will, among other important documents. We are centuries away from inscribed stones, but the game plan is the same: write down the assets, have a will that details what assets go to either people or charitable organizations and prepare for the future.

If there is no list of assets, there are ways to uncover them. However, it creates a lot of work for the executor and stress for the family, that could be avoided with an estate plan.

The best evidence of asset holdings are often a decedent’s tax returns. General supporting documentation can reveal useful information about a person’s financial status. A look at a decedent’s paper files can reveal bank accounts, investment accounts and insurance policies.

If the assets are not properly documented in an estate plan, the monies may end up in a state’s unclaimed funds depository. Real estate, if taxes are not paid, may be seized. Many of the concerns for unclaimed funds can be addressed, by taking the time to create a spreadsheet of information and sharing it with the executor.

Whether your assets include a stone mill or bank accounts, how the ancient ones handled their estate planning may in fact be different than a modern American. An estate plan that includes clear and organized information about your assets will increase the likelihood that your assets will be distributed and not disappear, until they are uncovered centuries later.

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Elder Law Estate Planning

Protecting Kids from Too Much, Too Fast, Too Soon

Protecting your children from frittering away an inheritance, is often done through a spendthrift trust but that trust can also be used to protect them from divorce and other problems that can come their way, according to Kiplinger in “How to Keep Your Heirs from Blowing Their Inheritance.”

We all want the best for our kids, and if we’ve been fortunate, we are happy to leave them with a nice inheritance that makes for a better life. However, regardless of how old they are, we know our children best and what they are capable of. Some adults are simply not prepared to handle a significant inheritance. They may have never learned how to manage money or may be involved with a significant other who you fear may not have their best interests in mind. If there’s a problem with drug or alcohol use, or if they are not ready for the responsibility that comes with a big inheritance, there are steps you can take to help them.

Protecting Kids from Too Much, Too Fast, Too Soon. Don’t feel bad if your children aren’t ready for an inheritance. How many stories do we read about lottery winners who go through all their winnings and end up filing for bankruptcy?

An inheritance of any size needs to be managed with care.

A spendthrift trust protects heirs, by providing a trustee with the authority to control how the beneficiary can use the funds. A trust becomes a spendthrift trust, when the estate planning attorney who creates it uses specific language indicating that the trust qualifies as such, and by including limitations to the beneficiary’s control of the funds.

Protecting Kids from Too Much, Too Fast, Too Soon. A spendthrift trust also protects assets from creditors, because the heir does not own the assets. The trust owns the assets. This also protects the assets from divorces, lawsuits and bankruptcies. It’s a good way to keep the money out of the hands of manipulative partners, family members and friends.

Once the money is paid from the trust, the protections are gone. However, while the money is in the trust, it enjoys protection.

The trustee in a spendthrift trust has a level of control that is granted by you, the grantor of the trust. You can stipulate that the trustee is to make a set payment to the beneficiary every month, or that the trustee decides how much money the beneficiary receives.

For instance, if the money is to be used to pay college tuition, the trustee can write a check for tuition payments every semester, or they can put conditions on the heir’s academic performance and only pay the tuition, if those conditions are met.

For a spendthrift trust, carefully consider who might be able to take on this task. Be realistic about the family dynamics. A professional firm, bank, or investment company may be a better, less emotionally involved trustee than an aunt or uncle.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.

Reference:  Kiplinger (June 5, 2019) “How to Keep Your Heirs from Blowing Their Inheritance.”

 

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Elder Law Estate Planning

Leaving a Legacy Is Not Just about Money

A legacy is not necessarily about money, says a survey that was conducted by Bank of America/Merrill Lynch Ave Wave. More than 3,000 adults (2,600 of them were 50 and older) were surveyed and focus groups were asked about end-of-life planning and leaving a legacy. The article, “How to leave a legacy no matter how much money you have” from The Voice, shared a number of the participant’s responses.

A total of 94% of those surveyed said that a life well-lived, is about “having friends and family that love me.” 75% said that a life well-lived is about having a positive impact on society. A mere 10% said that a life well-lived is about accumulating a lot of wealth.

Leaving a Legacy Is Not Just about Money. People want to be remembered for how they lived, not what they did at work or how much money they saved. Nearly 70% said they most wanted to be remembered for the memories they shared with loved ones. And only nine percent said career success was something they wanted to be remembered for.

While everyone needs to have their affairs in order, especially people over age 55, only 55% of those surveyed reported having a will. Only 18% have what are considered the three key essentials for legacy planning: a will, a health care directive and a durable power of attorney.

The will addresses how property is to be distributed, names an executor of the estate and, if there are minor children, names who should be their guardian. The health care directive gives specific directions as to end-of-life preferences and designates someone to make health care decisions for you, if you can’t. A power of attorney designates someone to make financial decisions on your behalf when you can’t do so, because of illness or incapacity.

An estate plan is often only considered when a trigger event occurs, like a loved one dying without an estate plan. That is a wake-up call for the family, once they see how difficult it is when there is no estate plan.

Parents age 55 and older had interesting views on leaving inheritances and who should receive their estate. Only about a third of boomers surveyed and 44% of Gen Xers said that it’s a parent’s duty to leave some kind of inheritance to their children. A higher percentage of millennials surveyed—55%–said that this was a duty of parents to their children.

The biggest surprise of the survey: 65% of people 55 and older reported that they would prefer to give away some of their money, while they are still alive. A mere 8% wanted to give away all their assets, before they died. Only 27% wanted to give away all their money after they died.

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Elder Law Estate Planning

Are the Wealthy Really Different than the Rest of Us?

Are the Wealthy Really Different than the Rest of Us? Contrary to popular belief, much of the way wealth is transferred to the next generation is l ays Fast Company in a recent article “5 lies you’ve been told about generational wealth” are at the real root of the ability to accumulate wealth.

Here are a few commonly held misconceptions about the beneficiaries of generational wealth:

Wealth lasts many generations. Yes, wealth can and does trickle down and set up future generations for success, but it’s harder to maintain across the generations than you’d think. About 70% of wealthy families lose their wealth by the second generation, and 90% of them do so by the third generation.

One reason could be that the generation that inherits the money may not be well-equipped to manage the money they inherit. However, it’s also that family wealth is diluted, as it is divided up among children, especially if each sibling has a different idea of what to do with their inheritance.

Some financial experts recommend that families create a mission statement, like any organization, to establish what their values and goals are.

Are the Wealthy Really Different than the Rest of Us? Parents talk to them about money. You might think that wealthy parents talk with their kids about money, how to manage it, how to invest it, etc. However, that’s not always the case. For some parents, the less said about the family wealth the better. They don’t want the children to know how much they might inherit, and don’t always offer guidance about how they should spend or invest their money.

Many reach their thirties, forties, or even fifties, with no clue as to how to handle money. Even people who work with the wealthy, are often surprised at their client’s lack of knowledge about finances or legal issues. Someone who saved a million dollars, may know more than someone who inherited tens of millions of dollars.

They know what to do with their money. Here’s a surprise: even people who work at hedge funds or in private equity don’t always know what to do with their money. They know about their area of expertise, but when it comes to paying for college or how to pass wealth down through the generations, they are just as likely to be in the dark as anyone else.

A big inheritance can also come with a lot of stress. Do you think that’s a problem you’d like to have? It may be. However, depending upon how their inheritance is structured, it may not be so easy. An inherited IRA requires annual distributions, which can wreak havoc on tax planning, if they don’t have good advisors. Trusts may come with restrictions on what can and cannot be done with the assets. If the money is lost through their actions, that’s a family affair.

They’re lazy and irresponsible about money. There’s a big difference between what we see in the headlines and what’s really happening in families with inherited wealth. While some rich children do flaunt and fritter away their wealth, many don’t. Children from wealthy families often receive excellent educations and want to make sure the family wealth does not end with them.

They spend their money differently than parents or grandparents. Most of us learn how to manage money and spending from our parents. It’s no different for wealthy people. However, those who built their own wealth tend to be more frugal—they feel lucky to have the assets they never expected to have. A wealthy kid might use family money to put a down payment on a home, but they are thoughtful about spending. For some people, receiving an inheritance may come with a sense of guilt to have so much more than others, or a responsibility to make sure they are good stewards of the family wealth.

Are the Wealthy Really Different than the Rest of Us? Regardless of the size of the estate you are managing or hoping to pass down to your children, don’t neglect having an estate plan. That means sitting down with an estate planning attorney who can help you create a plan that will protect your family and your assets.