Estate Planning Blog

Why Do I Need an Executor?
Why do I need an Executor?

Why Do I Need an Executor?

Why Do I Need an Executor?

What would happen if someone you were close to, asked you to be their Executor? Would you be honored, or would you be uncomfortable with the responsibility? What do you need to do, when do you need to handle these tasks and how much time will it take?

These are the questions often asked about the role of an Executor, as reported in The Huntsville Item in the article “Role of an executor.”

A person having a will prepared is called the “Testator” if male and a “Testatrix” if female. The person they appoint to take care of distributing their assets and carrying out the instructions in their will is called the “Executor” if male and the “Executrix” if female. That person also pays the estate’s debts and taxes. Note that the debts and taxes are not paid from the Executor’s personal accounts, but from the proceeds of the estate.

Why Do I Need an Executor? The Executor has several responsibilities and power. Therefore, it’s important to choose an individual who is organized, good with finances and knows how to get things done. An Executor could be a person or an institution, like a bank. Here are some things to consider when selecting an Executor:

  • Are they good with handling their own personal business?
  • Do they have some familiarity with your business, finances and property?
  • Are they willing and able to act as your Executor?
  • Do they have the time to devote to serving as Executor?
  • Can they work with your estate planning attorney and your accountant?
  • If you own a business, will they be able to keep it going during a transition period?

There should always be a Plan “B” and perhaps even a Plan “C,” if the first person you wish either cannot or will not serve as Executor. If you do not have a Plan “B” or “C,” the court may name an Executor. That may be a person you don’t know, who does not know you, your family or your business.

Why Do I Need an Executor? The Executor’s tasks vary, depending upon the laws of the state. However, in general, these are the Executor’s tasks. Note that an estate planning attorney usually assists with this process.

  • The will is probated, which requires filing an application with the probate court in the decedent’s jurisdiction.
  • The court issues Letters Testamentary to the individual designated in the will as the Executor.
  • A general notice is given to unsecured creditors within 30 days of being appointed Executor.
  • Notice is given to each secured creditor, by certified or registered mail.
  • Documents need to be gathered, including insurance policies, bank statements, income tax returns, car titles, leases, home deeds, home titles, mortgage paperwork, property tax bills, birth, death and marriage certificates and unpaid bills.
  • The post office, relatives, friends, employers, insurance agents, religious, fraternal, veterans’ organizations, unions, etc., all need to be notified.
  • The personal property of the estate needs to be collected, preserved and appraised.
  • The residence needs to be secured and maintained, including a review of insurance coverage.
  • An inventory of the estate’s assets needs to be prepared.
  • The Executor needs to apply for Social Security benefits and an employee identification number (EIN) for the estate’s bank account.
  • Once the EIN number has been created, open a bank account on behalf of the estate and pay all valid debts from the estate account.
  • Determine any tax liability and prepare for a final tax return to be filed.
  • Distribute the assets and property of the estate, according to the directions in the will.

Usually the estate planning attorney handles many of these tasks and works closely with the Executor. Some Executors are compensated by the estate for their time and effort, but that is not always the case. Talk with your estate planning attorney in advance, about any compensation for your Executor.

Reference: The Huntsville Item (April 13, 2019) “Role of an executor”

 

How Many Social Security Mistakes are There?
Social security and mistakes.

How Many Social Security Mistakes are There?

How Many Social Security Mistakes are There?

What happens when there is an age and an earnings gap and it’s time to think about when to file for Social Security benefits? That’s the question posed in the article “How couples can avoid a costly Social Security mistake” from Considerable.

Start by looking at the higher and lower earners levels. As the Social Security rules stand now, it makes sense for the higher earner to defer filing for Social Security, so that her benefit can be maximized. It’s also ensures that the spouse who lives longest, will have the largest household benefit, when one dies. This is the side of Social Security that is often overlooked, because who wants to think about what will happen when a spouse dies? However, in most cases, one survives the other, usually by as many as 10 years.

In a case where the lower earning spouse is also the younger spouse, one strategy is to have that spouse file first for his own retirement benefit, while the older and higher earning spouse files as late as possible.

How Many Social Security Mistakes are There? The key key variable: How old are the spouses when they file for benefits? One common misunderstanding is how Social Security benefits are determined. To claim a maximum spousal benefit, the filing spouse must not file for this benefit before his full retirement age (FRA). If either spouse files earlier, the potential for large reductions in the percentage of the benefit the spouse would otherwise receive will be significant.

If the lower earning spouse files early for his own retirement, it not only reduces his own retirement benefit, but also the potential for the spousal benefit in the future.

That additional benefit would equal the amount by which the lower-earners spousal benefit exceeded his own retirement benefit. There’s no double dipping here. You can’t get the full amount of both benefits, but you can get the amount equal to the higher of the two benefits.

Because the lower earner in this case would already be receiving benefits, the additional benefit would be termed “an excess spousal benefit” by Social Security.

Social Security benefits take a fair amount of figuring out, so do your homework before filing. Include this topic in your conversation, when you sit down with an estate planning attorney to update your estate plan and related documents.

Reference: Considerable (April 18, 2019) “How couples can avoid a costly Social Security mistake”

 

Estate Planning Documents and Medicaid Planning
Estate Planning Documents and Medicaid Planning

Estate Planning Documents and Medicaid Planning

The conversation that you have with an estate planning attorney, for Estate Planning Documents and Medicaid Planning when you are in your thirties with a new house, young children, and many years ahead of you is different than the one you’ll have when you are much older, maybe just before you retire. The estate planning attorney will know that you are about to enter a time in your life, when the legal documents you prepare are more likely to be used, says the article “Learn about legal documents and Medicaid” from the Houston Chronicle.

It should be noted that everyone needs an estate plan at any time of life, so they may state their wishes for how assets are distributed and name a person who will speak in their behalf, in the event of incapacity because of an illness or injury.

The necessary Estate Planning Documents and Medicaid Planning documents must be part of estate plan also includes a power of attorney, so someone you chose can serve as your agent to transact business and handle your financial matters. There should also be a declaration of guardian, in the event of later incapacity and a HIPAA medical authorization document. In some instances, a designation of remains is prepared in order to name an individual who will be the appointed agent to care for the body at the time of death.

However, there’s another reason why you’ll need to meet with an attorney at this time. As we get older, the need to address long term care becomes more important. Making the right decisions now, could have a big impact on the quality of your retirement and your later in life medical care.

If you have not updated your will or your powers of attorney, specifically a durable power of attorney for property, it would be wise to do so now. You will need a document to clearly authorize your agent to deal with assets. Any documents that are out of date, or in which named agents have predeceased you, won’t be effective, leading to problems for you and your heirs.

The document may also need to include a broad gifting power for your named agent, so assets can be transferred out of the estate. If this detail is overlooked, the agent may not be able to protect your assets.

This is the time when you may want to take steps to protect your children upon your death or upon the death of the second parent. If your goal is to eliminate assets to be eligible for Medicaid coverage, Estate Planning Documents and Medicaid Planning needs to be done well in advance. In numerous states, there are state administered programs that pursue recovery of assets when a person has received Medicaid benefits.

Your attorney will be able to work with you and your family to address your specific situation. It may be that your estate plan will include trusts, or that certain assets need to be retitled. Meet with an estate planning attorney who is familiar with your state’s laws. And don’t procrastinate.

Reference: The Houston Chronicle (April 19, 2019) “Learn about legal documents and Medicaid”

 

Property Transfers and Gift Taxes: Basics
Estate Planning tax and transfer

Property Transfers and Gift Taxes: Basics

Property Transfers and Gift Taxes: Basics.

As we age, our needs change. That includes our needs for the property that we own. For one person, the family home was rented to the daughter and her spouse as a “rent-to-own” property. This is generous, since it gives the daughter an opportunity to build equity in a home. The parent had questions about what kind of a deed would be needed for this transaction, and if any gift taxes need to be paid on the gift of the house and a separate parcel of land. The answers are presented in the article “Dealing with property transfers and gift taxes” from Chicago Tribune.

For starters, there are tax advantages while the person is living, since the home is an investment for the owner, as described above. On the day that the home is deeded over to the daughter, she will own the home at the cost basis of the parent. Here is why. The IRS defines the “cost basis” of a real estate property as the price that the owner paid for it, plus the cost of purchase and any fees associated with the sale plus the cost of any new materials or structural improvements.

When you give someone a home, they receive it at the price that was paid for it plus these costs.

Let’s say this person paid $50,000 for the family home, and it’s now worth $700,000. If you give the home to a family member, it’s as if she paid $50,000 for it, not $700,000. There may be tax consequences when she goes to sell it, but that’s in the distant future.

It’s different if the home is inherited. In that case, if the house was valued at $700,000 on the date that the owner died, the heir’s cost basis would be $700,000. However, if the heir sold the property on the exact same day (this is an unlikely scenario), there would be no tax owed on the sale for the heir.

This is a very simplified explanation of how a home can be passed from one generation to the next. It would be best to speak with a good estate attorney, who can evaluate all the factors, since every situation is different. One suggestion might be to put the property into a living trust, in which case the daughter will still pay rent to the parent, but then would inherit the property when the parent died.

The estate planning attorney could use the same living trust for the separate parcel of land. Once the home and the land are deeded into the living trust, the owner can state her wishes for how the properties are to be used.

As for the question of gift taxes, anyone can give anyone else $15,000 per year, with no need to file any forms with the IRS or pay any taxes. If you give someone more than $15,000 in one year, the IRS requires a gift tax form with the federal income tax return.

A meeting with an estate planning attorney to discuss Property Transfers and Gift Taxes: Basics is the best way to ensure that the transfer of a family home to a family member is handled correctly and that there are no surprises.

Reference: Chicago Tribune (April 23, 2019) “Dealing with property transfers and gift taxes”

 

Estate Planning Includes Account Passwords
Estate Planning account passwords

Estate Planning Includes Account Passwords

With most bank customers receiving financial statements electronically instead of on paper, there are some actions you need to take to be sure your accounts are incorporated into your estate planning. It is a requirement that proper estate planning includes account passwords.

Kiplinger’s recent story, Your Estate Plan Isn’t Complete Without Fixing the Password Problem,” says that having online access to investments is a great convenience for us. We can monitor bank balances, conduct stock trades, transfer funds and many other services that not long ago required the help of another person.

The bad thing about these advancements, is that they can make for a very difficult situation for a surviving spouse or executor attempting to determine where the assets of a deceased person are held.

This was in the news recently, when the founder and CEO of a cryptocurrency exchange died unexpectedly. Gerry Cotten didn’t share the password to the exchange’s cold storage locker—leaving $190 million in cryptocurrency belonging to his clients totally inaccessible. Investors may never see their funds again.

You can see how important it is to provide a way for someone to access your data, if you become incapacitated or die.

The easiest, but least secure answer is to just give your passwords to a trusted family member. They’ll need passwords to access your accounts. They’ll also need a password to access your email, where electronic financial statements are sent. Another simple option is to write down and place all passwords in a safe deposit box.

Your executor or guardian/attorney-in-fact through a power of attorney (in the case of incapacitation) can access the box and your passwords to access your computer, email and financial platforms.

This is a bit safer than simply writing down and providing passwords to a trusted friend or spouse. However, it requires diligence to keep the password list updated.

Finally, the most secure way to safely and securely store passwords is with a digital wallet. A digital wallet keeps track of all your passwords across all your devices and does so in an encrypted file in the cloud. There are also websites that hold your passwords.

There’s only one obstacle for an executor or surviving spouse to overcome—the password for your digital wallet.

Reference: Kiplinger (April 19, 2019) “Your Estate Plan Isn’t Complete Without Fixing the Password Problem”

Estate planning includes account passwords and must be in a secure place for your beneficiary to access them.

Loss of a spouse
Loss of a spouse

Loss of a spouse

The loss of a spouse after decades of marriage is crushing enough, but then comes a tsunami of decisions about finances and tasks that demand attention, when we are least able to manage it. Even highly successful business owners can find themselves overwhelmed, says The New York Times in the article “You’re a Widow, Now What?”

Most couples tend to divide up tasks, where one handles investments and the other pays the bills.  However, moving from a team effort to a solo one is not easy. For one widow, the task was made even harder by the fact that her husband opted to keep his portfolio in paper certificates, which he kept in his desk. His widow had to hire a financial advisor and a bookkeeper, and it took nearly a year to determine the value of nearly 120 certificates. That was just one of many issues.

The loss of a spouse cause a widow to settle the affairs of the estate, deal with insurance companies, banks and credit cards that have to be cancelled. Her husband was also a partner in a business, which added another layer of complexity.

She decided to approach the chaos, as if it were a business. She worked on it six to eight hours a day for many months, starting with organizing all the paperwork. That meant a filing system. A grief therapist advised her to get up, get dressed as if she was going to work and to make sure she ate regular meals. This often falls by the wayside, when the structure of a life is gone.

This widow opened a consulting business to advise other widows on handling the practical aspects of settling an estate and also wrote a book about it.

The loss of a spouse is one of the most emotionally wrenching events in a person’s life. Women live longer statistically, so they are more likely than men to lose a spouse and have to get their financial lives organized. The loss of a key breadwinner’s income can be a big blow for those who have never lived on their own. The tasks come fast and furious, in a terribly emotional time.

Widows may not realize how vulnerable they are, after the death of their long-time spouses. They need to hold off on any big decisions and attack their to-do list in stages. The first task is to contact the Social Security administration, call the life insurance company and pay important bills, like utilities and property insurance premiums. If your husband was working, contact his employer for any unpaid salary, accrued vacation days and retirement plan benefits.

Next, name your adult children, trusted family members, or friends as agents for your financial and health care power of attorney.

How to take the proceeds from any life insurance policies, depends upon your immediate cash needs and whether you can earn more from the payout by investing the lump sum. Make this decision part of your overall financial strategy, ideally with a trusted financial advisor.

Determining a Social Security claiming strategy comes next. Depending on your age and income level, you may be able to increase your benefit. If you wait until your full retirement, you can claim the full survivor benefit, which is 100% of the spouse’s benefit. You could claim a survivor benefit at age 60, but it will be reduced for each month you claim before your full retirement age. If both spouses are at least 70 when the husband dies, a widow should switch to a survivor benefit, if her benefit is smaller than his.

Expect it to be a while, until you feel like you are on solid ground. If you were working when your spouse passed, consider continuing to work to keep yourself out and about in a familiar world. Anything that you can do to maintain your old life, like staying in the family home, if finances permit, will help as you go through the grief process.

Reference: The New York Times (April 11, 2019) “You’re a Widow, Now What?”

 

‘Someday’ Is Sooner than You Think
Worrying about aging parents

‘Someday’ Is Sooner than You Think

If you and your siblings have been worrying about older parents please understand that ‘someday’ is sooner than you think.

The cause for sleepless nights for many, now comes from worrying about older parents. As parents age, it becomes more important to talk with them about a number of “someday” issues, advises Kanawha Metro in the article “Preparing for someday.” As their lives move into the elder years, your discussions will need to address housing, finances and end-of-life wishes.

Where do your parents want to spend their later years? It may be that they want to move to an active retirement community not far from where they live now, or they may want a complete change of scenery, perhaps in a warmer climate.

One family made arrangements for their mother to take a tour of a nearby senior-living community, after their father passed. By showing their mother the senior-living community, they made an unknown, slightly intimidating thing into a familiar and attractive possibility. Because she saw the facility with no pressure, just a tour and lunch, she knew what kind of options it presented. The building was clean and pretty, and the staff was friendly. Therefore, it was a positive experience. She was able to picture herself living there.

Money becomes an issue, as parents age. If the person who always handled the family finances passes away, often the surviving spouse is left trying to figure out what has been done for the last five decades. A professional can help, especially if they have had a long-standing relationship.

However, when illness or an injury takes the surviving spouse out of the picture, even for a little while, things can get out of control fast. It only takes a few weeks of not being able to write checks or manage finances, to demonstrate the wisdom of having children or a trusted person named with a power of attorney to be able to pay bills and manage the household.

As parents age and their health becomes fragile, they need help with doctor appointments. Having a child or trusted adult go with them to speak up on their behalf, or explain any confusing matters, is very important.

Having an estate plan in place is another part of the business of aging that needs to be accomplished. It may be helpful to go with your parents to meet with an estate planning attorney to create documents that include a last will and testament, durable power of attorney and advanced health care directive. Without these documents, executing their estate or helping them if they become incapacitated will be more complex, and more costly.

Eliminate a scavenger hunt by making sure that at least two siblings know where the originals of these documents are.

One of the more difficult conversations has to do with end-of-life and funeral arrangements. Where do your parents want to be buried, or do they want to be cremated? What should be done with their remains?

What do they want to be done with their personal belongings? Are there certain items that they want to be given to certain members of the family, or other people they care for? One family used masking tape and a marker to write the names of the people they wanted to receive certain items.

Finally, what do they want to happen to their pets? If there is a family member who says they will take their parent’s pet, can that person be trusted to follow through? There needs to be a Plan A, Plan B and Plan C so that the beloved pet can be assured a long and comfortable life after their owner has passed.

Yes, these are difficult conversations. However, not having them can lead to far more difficult issues. Knowing what your loved ones wish to happen, and making it enforceable with an estate plan, provides everyone in the family with peace of mind.

Reference: Kanawha Metro (May 29, 2019) “Preparing for someday”

If you and your siblings have been worrying about older parents please take the necessary steps to put your house in order because someday is sooner than you think.

How Can a Power of Attorney Mistake Leave You Penniless?
Can power of attorney leave you penniless?

How Can a Power of Attorney Mistake Leave You Penniless?

Can power of attorney leave you penniless?

Just before Dorothy Jorgensen’s husband died of cancer, he altered his power of attorney and designated one of his relatives. That relative withdrew everything but a few bucks, reports WPRI.com in the article “Son questions power of attorney after mother’s bank account is drained.”

“When I went to pick up a prescription for my mother, there was insufficient funds to pick up a prescription,” Dorothy’s son, Gene Weston, said. “I can’t believe that someone would do that to an elderly woman.”

The couple had been married for almost twenty years. Both had added money to the account.

“My mother is still alive, and my mother needs to continue living,” Weston said.

The son called the police, because he claims there’s no way the power of attorney document for his stepfather was legitimate.

“He was on morphine at the time,” Gene Weston said.

According to a local police report, detectives interviewed several people and found Jorgensen’s husband was “only taking a minimal dose of meds.”

Police determined that Mr. Jorgensen “acted with his own free will” and ended their criminal investigation.

However, these types of cases involving powers of attorney often wind up in civil court. When people make a change to a power of attorney right before their death, it can raise concerns, especially when the person is elderly and on medication.

One thing that many people don’t know, is that they can limit the power of attorney document to protect a surviving spouse or family members.

It’s important to carefully choose an agent and make certain that the power of attorney is properly notarized. You should select a person whom you trust, and whom you know will do the right thing for you, in case you can’t make your own decisions.

The relative who withdrew the money from Jorgensen’s bank account was not willing to speak with a reporter. However, she said that she did nothing wrong. While this may be legally correct, clearly the amount of money taken by the relative that left the widow without any money, was not the right thing to do.

Reference: WPRI 12 (April 15, 2019) “Son questions power of attorney after mother’s bank account is drained”

 

Here’s Why a Basic Form Doesn’t Work for Estate Planning
Estate planning basics, basic form will

Here’s Why a Basic Form Doesn’t Work for Estate Planning

Here’s Why a Basic Form Doesn’t Work for Estate Planning:

It’s true that an effective estate plan should be simple and straightforward, if your life is simple and straightforward. However, few of us have those kinds of lives. For many families, the discovery that a will that was created using a basic form is invalid leads to all kinds of expenses and problems, says The Daily Sentinel in an article that asks “What is wrong with using a form for my will or trust?”

If the cost of an estate plan is measured only by the cost of a document, a basic form will, of course, be the least expensive option — on the front end. On the surface, it seems simple enough. What would be wrong with using a form?

Actually, a lot is wrong. The same things that make a do-it-yourself, basic form will seems to be attractive, are also the things that make it very dangerous for your family. A form does not take into account the special circumstances of your life. If your estate is worth several hundreds of thousands of dollars, that form could end up putting your estate in the wrong hands. That’s not what you had intended.

Another issue: any basic form will that is valid in all 50 states is probably not going to serve your purposes. If it works in all 50 states (and that’s highly unlikely), then it is extremely general, so much so that it won’t reflect your personal situation. It’s a great sales strategy, but it’s not good for an estate plan.

If you take into consideration the amount of money to be spent on the back end after you’ve passed, that $100 will becomes a lot more expensive than what you would have invested in having a proper estate plan created by an estate planning attorney.

What you can’t put into dollars and cents, is the peace of mind that comes with knowing that your estate plan, including a will, power of attorney, and health care power of attorney, has been properly prepared, that your assets will go to the individuals or charities that you want them to go to, and that your family is protected from the stress, cost and struggle that can result when wills are deemed invalid.

Here’s one of many examples of how the basic, inexpensive form created chaos for one family. After the father died, the will was unclear, because it was not prepared by a professional. The father had properly filled in the blanks but used language that one of his sons felt left him the right to significant assets. The family became embroiled in expensive litigation, and became divided. The litigation has ended, but the family is still fractured. This was not what their father had intended.

Other issues that are created when forms are used: naming the proper executor, guardians and conservators, caring for companion animals, dealing with blended families, addressing Payable-on-Death (POD) accounts and end-of-life instructions, to name just a few.

Avoid the “repair” costs and meet with an experienced estate planning attorney in your state to create an estate plan that will suit your needs.

Reference: The Daily Sentinel (May 25, 2019) “What is wrong with using a form for my will or trust?”

I hope this blog post answers Here’s Why a Basic Form Doesn’t Work for Estate Planning.