EHDH Estate Planning

Should You Update Your Estate Plan?

Some reasons to update your will are more obvious than others, like marriage, divorce, remarriage, births and deaths. However, those aren’t the only reasons your estate plan needs to be reviewed, explains a recent article appropriately titled “When it comes to a will or estate plan, don’t just set it and forget it” from CNBC.

Think of your estate plan like your home. They both need regular updates and maintenance. If your house starts to get rundown or the roof springs a leak, you know you need to get it fixed. Your estate plan is not as visible. However, it is still in need of ongoing maintenance.

Health events should be a trigger, yours or people named in your will. If the person you named as your executor becomes ill or dies, you’ll need to name a new person to replace them. The same goes for a guardian named to care for any minor children, especially if you named a grandparent for this role.

If you move, your estate plan must ‘move’ with you. Each state has different laws regarding how estates are administered. In one state, an executor living out of state may be okay. However, in another, it may make the executor ineligible to serve. Inheritance tax laws also vary.

Any time there is a large change to your personal wealth, whether it’s good or bad, your estate planning attorney should review your will.

The same goes for a change in parental status. The birth of additional children seems like it might not require a review. However, it does. More than a few celebrities failed to update their estate plans and accidentally disinherited children. The same person who may be willing to be a guardian for one child, may find taking on two or three children to be too much of a challenge. If you want to change the guardianship, your estate plan needs to be updated.

A change in your relationship with fiduciaries also merits an update. Someone you named ten years ago to be your executor may no longer be a part of your life, or they may have died. Family members age, retire and move and siblings have changes in their own lives. Reviewing the executor regularly is important.

If a family member becomes disabled, you may need special needs planning.

A commonly overlooked trigger concerns mergers and acquisitions of financial institutions. If your bank is the executor of your estate and the bank is bought or sold, you likely have a new executor. Do you know who the person is, and do you trust their judgment?

Beneficiaries need to be checked every few years to be sure they are still correct. If your life includes a divorce and remarriage, you could be like one man whose life insurance proceeds and property went to his new spouse. His daughter was disinherited because he failed to update his will.

It doesn’t take long to review an estate plan or beneficiaries. However, the impact of not doing so could be long-lasting and cast a negative light on your legacy.

Reference: CNBC (March 1, 2022) “When it comes to a will or estate plan, don’t just set it and forget it”

What Assets are Not Considered Part of an Estate?

In many families, more assets pass outside the Last Will than through the Last Will. Think about non-probate assets: life insurance proceeds, investment accounts, jointly titled real estate assets, assuming they were titled as joint tenants with right of survivorship, and the like. These often add up to considerable sums, often more than the probate estate.

This is why a recent article from The Mercury titled “Planning Ahead: Pay attention to your non-probate assets” strongly urges readers to pay close attention to accounts transferred by beneficiary.

Most retirement accounts like IRAs, 401(k)s, 403(b)s and others pass by beneficiary designation and not through the Last Will. Banks and investment accounts designated as Payable on Death (POD) or Transfer on Death (TOD) also do not pass through probate, but to the other person named on the account. Any property owned by a trust does not go through probate, one of the reasons it is placed in the trust.

Why is it important to know whether assets pass through probate or by beneficiary designation? Here’s an example. A man was promised half of this father’s estate. His dad had remarried, and the son didn’t know what estate plans had been made, if any, with the new spouse. When the father passed, the man received a single check for several thousand dollars. He knew his father’s estate was worth considerably more.

What is most likely to have happened is simple. The father probably retitled the house with his new spouse as tenants by the entireties–making it a non-probate asset. He probably retitled bank accounts with his new spouse. And if the father had a new Last Will created, he likely gave 50% to the son and 50% to the new spouse. The father’s car may have been the only asset not jointly owned with his new spouse.

A parent can also accidently disinherit an heir, if all of their non-probate assets are in one child’s name and no provision for the non-probate assets has been made for any other children. An estate planning attorney can work with the parents to find a way to make inheritances equal, if the intention is for all of the children to receive an equal share. One way to accomplish this would be to give the other children a larger share of probated assets.

Any division of inheritance should bear in mind the tax liability of assets. Non-probate does not always mean non-taxed. Depending upon the state of residence for the decedent and the heirs, there may be estate or inheritance tax on the assets.

Placing assets in an irrevocable trust is a commonly used estate planning method to ensure inheritances are received by the intended parties. The trust allows you to give very specific instructions about who gets what. Assets in the trust are outside of the probate estate, since the trust is not owned by the grantor.

Your estate planning attorney will be able to review probate and non-probate assets to determine the best way to achieve your wishes for your distribution of assets.

Reference: The Mercury (April 12, 2022) “Planning Ahead: Pay attention to your non-probate assets”

What a Will Can and Cannot Do

Having a will doesn’t avoid probate, the court-directed process of validating a will and confirming the executor. To avoid probate, an estate planning attorney can create trusts and other ways for assets to be transferred directly to heirs before or upon death. Estate planning is guided by the laws of each state, according to the article “Before writing your own will know what wills can, can’t and shouldn’t try to do” from Arkansas Online.

In some states, probate is not expensive or lengthy, while in others it is costly and time-consuming. However, one thing is consistent: when a will is probated, it becomes part of the public record and anyone who wishes to read it, like creditors, ex-spouses, or estranged children, may do so.

One way to bypass probate is to create a revocable living trust and then transfer ownership of real estate, financial accounts, and other assets into the trust. You can be the trustee, but upon your death, your successor trustee takes charge and distributes assets according to the directions in the trust.

Another way people avoid probate is to have assets retitled to be owned jointly. However, anything owned jointly is vulnerable, depending upon the good faith of the other owner. And if the other owner has trouble with creditors or is ending a marriage, the assets may be lost to debt or divorce.

Accounts with beneficiaries, like life insurance and retirement funds bypass probate. The person named as the beneficiary receives assets directly. Just be sure the designated beneficiaries are updated every few years to be current.

Assets titled “Payable on Death” (POD), or “Transfer on Death” (TOD) designate beneficiaries and bypass probate, but not all financial institutions allow their use.

In some states, you can have a TOD deed for real estate or vehicles. Your estate planning attorney will know what your state allows.

Some people think they can use their wills to enforce behavior, putting conditions on inheritances, but certain conditions are not legally enforceable. If you required a nephew to marry or divorce before receiving an inheritance, it’s not likely to happen. Someone must also oversee the bequest and decide when the inheritance can be distributed.

However, trusts can be used to set conditions on asset distribution. The trust documents are used to establish your wishes for the assets and the trustee is charged with following your directions on when and how much to distribute assets to beneficiaries.

Leaving money to a disabled person who depends on government benefits puts their eligibility for benefits like Supplemental Security Income and Medicaid at risk. An estate planning attorney can create a Special Needs Trust to allow for an inheritance without jeopardizing their services.

Finally, in certain states you can use a will to disinherit a spouse, but it’s not easy. Every state has a way to protect a spouse from being completely disinherited. In community property states, a spouse has a legal right to half of any property acquired during the marriage, regardless of how the property is titled. In other states, a spouse has a legal right to a third to one half of the estate, regardless of what is in the will. An experienced estate planning attorney can help draft the documents, but depending on your state and circumstances, it may not be possible to completely disinherit a spouse.

Reference: Arkansas Online (Dec. 27, 2021) “Before writing your own will know what wills can, can’t and shouldn’t try to do”

How Do You Split an Estate in a Blended Family?

Estate planning attorneys know just how often blended families with the best of intentions find themselves embroiled in disputes, when the couple fails to address what will happen after the first spouse dies. According to the article “In blended families, estate planning can have unintended issues” from The News-Enterprise, this is more likely to occur when spouses marry after their separate children are already adults, don’t live in the parent’s home and have their own lives and families.

In this case, the spouse is seen as the parent’s spouse, rather than the child’s parent. There may be love and respect. However, it’s a different relationship from long-term blended families where the stepparent was actively engaged with all of the children’s upbringing and parents consider all of the children as their own.

For the long-term blended family, the planning must be intentional. However, there may be less concern about the surviving spouse changing beneficiaries and depriving the other spouse’s children of their inheritance. The estate planning attorney must still address this as a possibility.

When relationships between spouses and stepchildren are not as close, or are rocky, estate planning must proceed as if the relationship between stepparents and stepsiblings will evaporate on the death of the natural parent. If one spouse’s intention is to leave all of their wealth to the surviving spouse, the plan must anticipate trouble, even litigation.

In some families, there is no intent to deprive anyone of an inheritance. However, failing to plan appropriately—having a will, setting up trusts, etc.—is not done and the estate plan disinherits children.

It’s important for the will, trusts and any other estate planning documents to define the term “children” and in some cases, use the specific names of the children. This is especially important when there are other family members with the same or similar names.

As long as the parents are well and healthy, estate plans can be amended. If one of the parents becomes incapacitated, changes cannot be legally made to their wills. If one spouse dies and the survivor remarries and names a new spouse as their beneficiary, it’s possible for all of the children to lose their inheritances.

Most people don’t intend to disinherit their own children or their stepchildren. However, this occurs often when the spouses neglect to revise their estate plan when they marry again, or if there is no estate plan at all. An estate planning attorney has seen many different versions of this and can create a plan to achieve your wishes and protect your children.

A final note: be realistic about what may occur when you pass. While your spouse may fully intend to maintain relationships with your children, lives and relationships change. With an intentional estate plan, parents can take comfort in knowing their property will be passed to the next generation—or two—as they wish.

Reference: The News-Enterprise (Dec. 7, 2021) “In blended families, estate planning can have unintended issues”

How Do I Address an Estranged Child in My Estate Planning?

For most families, estate planning is a relatively straightforward task, protecting loved ones and preparing to distribute assets. But when parent-child relationships have frayed or fractured, estate planning becomes more complicated and emotional, according to the article from The News-Enterprise titled “Estate planning must account for estranged children.”

The relationship may be broken for any number of reasons. The child may have married an untrustworthy person, have addiction issues, or have made a series of hurtful decisions. In some families, the parents don’t even know why a break has occurred, only that they are shut out of lives of their children and grandchildren.

The reason for the estrangement impacts how the parents address their estate plan regarding the child. If there is an addiction problem, the parents may want to limit the child’s access to funds, and that can be accomplished with a trust and a trustee. However, if the situation is really bad, the parents may wish to completely disinherit the child. Both require considerable legal experience, especially if the child might contest the will.

There are three basic options for dealing with this situation.

One is to leave an outright gift of some kind, with no restrictions. The estranged child may receive a smaller inheritance, but not so small as to open the door to litigation.

Second, the parent may create a testamentary trust in their last wills. Testamentary trusts become effective at death, with funds going into the trust and controlled by a trustee. The heir will have no control over the assets, which are also protected from creditors, divorces, or scammers.

Third is the option to completely disinherit the child. That way the child will not be entitled to any portion of the estate. The language in the last will must be watertight and follow the laws of the state exactly so there is no room for the disinheritance to be challenged.

There needs to be language that clarifies whether the child’s descendants (grandchildren) are also being disinherited. If the child is disinherited but their children are not, the descendants will inherit the child’s share as if the child had predeceased his or her parents.

Some estate planning attorneys recommend writing a letter to the child to explain the reasoning behind their disinheritance. The letter could be seen as reinforcing the parent’s intent, but it may also open old wounds and have unexpected consequences.

Your estate planning attorney will be able to clarify the steps to be taken in your estate. This is a situation where it will be helpful to discuss the full details of the relationship so the correct plan can be put into place.

Reference: The News-Enterprise (July 20, 2021) “Estate planning must account for estranged children”

Your Will and Estate Planning Checklist

Dying without a last will creates additional costs and eliminates any chance your wishes for loved ones will be followed after your death. Typically, people think about last wills when they marry or have children, and then do not think about last wills or estate plans until they retire. While a last will is important, there are other estate planning documents that are just as important, says the recent article “10 Steps to Writing a Will” from U.S. News & World Report.

Most assets, including retirement accounts and insurance policy proceeds, can be transferred to heirs outside of a will, if they have designated beneficiaries. However, the outcome of an estate may be more impacted by Power of Attorney for financial matters and Medical Power of Attorney documents.

Here are ten specific tasks that need to be completed for your last will to be effective. Remember, if the will does not comply with your state’s estate law, it can be declared invalid.

1. Find an estate planning attorney who is experienced with the laws of your state.
2. Select beneficiaries for your last will.
3. Check beneficiaries on non-probate assets to make sure they are current.
4. Decide who will be the executor of your last will.
5. Name a guardian for minor children, if yours are still young.
6. Make a letter describing possessions and who you want to receive them. Be very specific.

There are also tasks for your own care while you are living, in case of incapacity:

1. Name a person for the Power of Attorney role. They will be your representative for legal and financial matters, but only while you are living.
2. Name a person for the Medical Power of Attorney to make decisions on your behalf, if you cannot.
3. Create an Advance Directive, also known as a Living Will, to explain your wishes for medical care, particularly concerning end-of-life care.
4. Discuss these roles and their responsibilities with the people you have chosen, and make sure they are willing to serve.

Be realistic about the people you are naming to receive your property. If you have a child who is not good with managing money, a trust can be set up to distribute assets according to your wishes: by age or accomplishments, like finishing college, going to rehab, or maintaining a steady work history.

Do not forget to tell family members where they can find your last will and other estate documents. You should also talk with them about your digital assets. If accounts are protected by passwords or facial recognition, find out if the digital platform has a process for your executor to legally obtain access to your digital assets.

Finally, do not neglect updating your last will every three to four years or anytime you have a major life event. An estate plan is like a house: it needs regular maintenance. Old last wills can disinherit family members or lead to the wrong person being in charge of your estate. An experienced estate planning attorney will make the process easier and straightforward for you and your loved ones.

Reference: U.S. News & World Report (May 13, 2021) “10 Steps to Writing a Will”

Common Mistakes when Making Beneficiary Designations

Let’s say you divorce and remarry and forget to change your beneficiary from your ex-spouse. Your ex-spouse will be smiling all the way to the bank. There won’t be much that your new spouse could do, if you forgot to make that change before you die. Any time there is a life change, including happy events, like marriage, birth or adoption, your beneficiary designations need to be reviewed, says the article “One Beneficiary Mistake You Really Don’t Want to Make” from Kiplinger.

If there are new people in your life you would like to leave a bequest to, like grandchildren or a charitable organization you want to support as part of your legacy, your beneficiary designations will need to reflect those as well.

For people who are married, their spouse is usually the primary beneficiary. Children are contingent beneficiaries who receive the proceeds upon death, if the primary beneficiary dies before or at the same time that you do. It is wise to notify any insurance company or retirement fund custodian about the death of a primary beneficiary, even if you have properly named contingent beneficiaries.

When there are multiple grandchildren, things can get a little complicated. Let’s say you’re married and have three adult children. The first beneficiary is your spouse, and your three children are contingent beneficiaries. Let’s say Sam has three children, Dolores has no children and James has two children, for a total of five grandchildren.

If both your spouse and James, die before you do, all of the proceeds would pass to your two surviving children, and James’ two children would effectively be disinherited. That’s probably not what you would want. However, there is a solution. You can specify that if one of your children dies before you and your spouse, their share goes to his or her children. This is a “per stirpes” distribution.

This way, each branch of the family will receive an equal share across generations. If this is what you want, you’ll need to request per stirpes, because equal distribution, or per capita, is the default designation. Not all insurance companies make this option available, so you’ll need to speak with your insurance broker to make sure this is set up properly for insurance or annuities.

Any assets that have a named designated beneficiary are not controlled by your will. Consequently, when you are creating or reviewing your estate plan, create a list of all of your assets and the desired beneficiaries for them. Your estate planning attorney will help review all of your assets and means of distribution, so your wishes for your family are clear.

Reference: Kiplinger (March 23, 2021) “One Beneficiary Mistake You Really Don’t Want to Make”

Why Do I Need a Will?

Estate planning attorneys aren’t the only professionals to advise anyone who is a legal adult and of sound mind to have a will. Financial advisors, CPAs and other professional advisors recognize that without a will, a person places themselves and their family in an unnecessarily difficult position. A recent article titled “One document everyone should have” from the Aiken Standard explains why this document is so important and what else is needed for an estate plan. A will is a “testamentary” document, meaning it becomes operative, only when the person who makes the will (the “testator”) dies.

The process of probate can only begin upon death. Each county or jurisdiction has a probate court, where the estate assets of deceased individuals are administrated. On the date a person dies, those assets must be identified. Some assets must be used to pay debts, if there are any, and the balance is distributed either according to the directions in the will or, if there is no will or the will has been deemed to be invalid, according to the laws of the state.

All this assumes, by the way, that the decedent did not arrange for his or her assets to pass without probate, by various non-probate transfer methods. For example, there is no probate required, if there is a surviving joint owner or designated beneficiary.

When there is no will and assets are subject to probate, then such assets are passed by intestacy, which usually means they are distributed along the lines of kinship. This may not always be the desired outcome, but with no will, the law controls asset distribution.

Why is a will important?

• It allows you to leave specific property to specific loved ones, friends, or charities.
• It may be used to provide funeral and burial instructions, although they can also be provided in a different document, so they are available to family or friends immediately.
• A will can direct how you want assets to be used to pay debts, any taxes and payment of estate administration expenses, which include the cost of probate, legal fees and executor fees.
• A will can be used to minimize estate taxes, which may be levied not just by the federal government but also by the state.
• The will names the estate’s executor and the extent of his or her powers.
• If there are minor children, the will is used to name a guardian to raise the children.
• If you would like to disinherit any relative, the will provides the means to doing so.

Everyone needs a will, regardless of how large or small their personal assets may be. Every adult should also have an estate plan that includes other important documents, like a Power of Attorney to name another individual to act on your behalf, if you are unable to do so because of an injury or illness. A Healthcare Proxy and a Living Will are also important, so those who love you can follow your end of life care wishes.

Reference: Aiken Standard (March 13,2021) “One document everyone should have”

How Do I Disinherit My Child?

Disinheriting a child or any person trying to gain access to your assets after you have died requires skilled estate planning. The things that can be done before you die to protect your estate are the subjects of a recent article “Disinheriting a child” from Westfair Online. It should be noted that if you anticipate a challenge to your will, or if you suspect claims will emerge after you pass, it will be wise to prepare your estate and family members for the legal, financial and emotional aspects of an estate battle.

Here are some of the steps to consider.

Avoiding probate. The probate estate includes assets that are controlled by your Last Will and Testament on the day you die. It does not include assets where there are named beneficiaries. Such assets pass directly to beneficiaries.

Before a will can be executed, it must go through probate. Part of the probate process is the notification of any individuals who may be entitled to receive assets. If you pass away without a will, the estate still needs to be probated and those individuals must still be provided with a notice of your passing and the distribution of your assets. If you had intended to disinherit someone and did not take the necessary steps, it is as if you have issued an invitation to them.

Using a revocable trust. Trusts are used to remove assets from probate estates. A revocable trust is a trust that allows you to maintain complete control over the assets in the trust, while you are living. When you die, the trust does not go through probate and no one needs to be notified of the trust’s existence or its terms, if you so specify and state law permits. Your wishes and assets may remain private. This is especially useful, if you want to disinherit someone.

The revocable trust is not immune from contest, but it makes the challenging more difficult.

Changing titles to joint ownership and naming beneficiaries. Changing your bank, investment and real estate property ownership to joint ownership is a way to avoid probate and have assets pass directly to your intended beneficiaries. However, there are complications to this strategy. If the person you add to an account has money problems, your assets are now available to their creditors. If the person on the account goes through a divorce, your assets are legally available to their spouse. And if the joint owner should die before you, any protection you may have obtained is gone. A trust may be a better solution.

Review your retirement plans and any other assets that allow you to name a beneficiary to ensure that the person who will receive these assets is still the person you want.

What about a no-contest clause? It seems like a simple solution—by including a no-contest clause, often referred to as an “in terrorem” clause, anyone who seeks to contest the will immediately forfeits any distribution to that person, if they are not successful in the will contest. However, what if they are successful in the will contest?

Talk with an experienced estate planning attorney about these and other strategies to defuse a disinherited person’s potential claims. Disinheriting a child sparks many estate battles, so preparations need to be made to protect the family and the estate.

Reference: Westfair Online (Jan. 26, 2021) “Disinheriting a child”

Estate Planning Is Best When Personalized

Just as a custom-tailored suit fits better than one off the rack, a custom-tailored estate plan works better for families. Making sure assets pass to the right person is more likely to occur when documents are created just for you, advises the article “Tailoring estate to specific needs leads to better plans” from the Cleveland Jewish News.

The most obvious example is a family with a special needs member. Generic estate planning documents typically will not suit that family’s estate planning.

Every state has its own laws about distributing property and money owned by a person at their death, in cases where people don’t have a will. Relying on state law instead of a will is a risky move that can lead to people you may not even know inheriting your entire estate.

In the absence of an estate plan, the probate court makes decisions about who will administer the estate and the distribution of property. Without a named executor, the court will appoint a local attorney to take on this responsibility. An appointed attorney who has never met the decedent and doesn’t know the family won’t have the insights to follow the decedent’s wishes.

The same risks can occur with online will templates. Their use often results in families needing to retain an estate planning attorney to fix the mistakes caused by their use. Online wills may not be valid in your state or may lead to unintended consequences. Saving a few dollars now could end up costing your family thousands to clean up the mess.

Estate plans are different for each person because every person and every family are different. Estate plan templates may not account for any of your wishes.

Generic plans are very limited. An estate plan custom created for you takes into consideration your family dynamics, how your individual beneficiaries will be treated and expresses your wishes for your family after you have passed.

Generic estate plans also don’t reflect the complicated families of today. Some people have family members they do not want to inherit anything. Disinheriting someone successfully is not as easy as leaving them out of the will or leaving them a small token amount.

Ensuring that your wishes are followed and that your will is not easily challenged takes the special skills of an experienced estate planning attorney.

Reference: Cleveland Jewish News (Dec. 9, 2020) “Tailoring estate to specific needs leads to better plans”