Articles Posted in Estate Planning

Many people are uncomfortable with the process of estate planning. As a result, people are not always completely forthcoming with their estate planning attorney or do not think through all aspects of their plan. If you are just starting to draft your estate plan or are thinking of revising your current documents, here are some questions to consider that can make the process easier.

· What are your personal goals? Professional goals?

Establishing personal and professional goals can give an idea of how much you will need to live comfortably in your lifetime and how much will be left for your heirs. If you plan on retiring early or need more money for personal, financial, or health reasons an attorney can help you structure your estate plan accordingly. Establishing goals is also a good way to indicate to your heirs what they should expect to receive from your estate.

In the last post we discussed the first five of ten essential documents that should be considered when estate planning. Those included a basic will, beneficiary forms, a financial power of attorney, medical power of attorney, and a living will. Here are the last five documents that should be included in your estate planning process.

6. Inventory of assets

Every financial planner has a different way of structuring and explaining your assets. Some planners give you a small book detailing every complex facet of your current financial status. Others will hand you a page with a simple chart or graph that sums up your entire account, and a lot of other financial planners fall somewhere in between. You should talk with your financial planner about getting documents that explain your assets in a way that your executor and heirs will be able to understand, and include it with your other estate planning documents.

Most people do not like to talk about estate planning. Some do not want to think about the idea of death, others do not want to discuss financial or personal matters, and more simply procrastinate. However, once you do make the decision to set up your estate plan the options and paperwork can seem daunting. Here are ten basic, essential documents that you should discuss with your attorney about including in your estate planning process.

1. Basic will

The will is the document that most people think of when they consider estate planning. A will, in its most basic form, states who gets what when you pass. Family, friends, trusts, charities, and just about anyone else can be named as an heir or beneficiary in a will. You can also name a guardian for minor children in a will, and you should appoint an executor for the will, as well. If you do not have a will the court decides who gets what in your estate and a judge decides where your children will live.

The loss of a parent is a heartbreaking experience, and discovering that your parent had a large amount of debt can add even more stress to the situation. Usually, creditors have a certain period of time in which to make claims against your parent’s estate. In most cases, you are not responsible for the debts of your deceased parent and if there are not enough assets the debt dies with them; however, in certain circumstances you can be on the hook to pay for what your parent left behind. Responsibility for debts is typically determined by the type of debt, the assets available, and where your parent resided.

Assets can be protected from creditors even if your parent passed on with debt. If you are listed as the beneficiary of a retirement account or life insurance policy that money cannot be touched by creditors. However, other assets in the estate may have to be sold in order to pay off the debts of creditors. This can greatly reduce or eliminate your inheritance from your parent’s estate.

Credit Card Debt

In a unanimous decision the Supreme Court has ruled that an IRA is not protected from creditors in bankruptcy proceedings when it is inherited in an estate. In the case of Clark v. Rameker, Heidi Heffron-Clark inherited an IRA from her mother in 2001. The account contained roughly $450,000 and she began to make distributions. In 2010, Mrs. Heffron-Clark and her husband filed for bankruptcy, but they claimed that the remaining $300,000 in the account was shielded from creditors as retirement funds. The creditors and bankruptcy court disagreed, and the case went all of the way up to the Supreme Court.

Key Distinctions of Inherited IRAs

The Court made its decision that inherited IRA accounts are subject to bankruptcy and creditors based on a couple of specific differences between inherited IRAs and owner IRA accounts. Owners of an inherited IRA cannot put additional funds into the account. Additionally, they can take distributions from the account at any time without penalty. In fact, the law states that an heir to an IRA account must either withdraw the entire amount from the account within five years of the original owner’s death or at the very least take out a minimum amount starting the December 31st after the original owner died. This applies to regular and Roth IRA accounts.

According to some estimates, the Baby Boomer generation will leave over $30 billion to their children in their wills over the next thirty to forty years. When leaving an inheritance for minor or adult children sometimes personal, professional, or financial issues can flare up and complicate the process. If you wish to leave your estate to your children here are five simple steps that will ease any conflicts in the planning.

· Use open communication to manage expectations

Talk to your children about what to expect from the estate. Recent surveys have found that children often undervalue their parents’ estates by over $100,000. Letting your children know where you stand financially and what they should reasonably expect resolves a lot of conflicts before they even begin. You should also communicate about how their expectations should change because of economic downturns, long-term medical care, or other unexpected issues.

The usual story regarding issues with prepaid funerals is similar to this – one person purchases a prepaid funeral plan and does not inform her family. Years later, she passes away and the documentation for the prepaid funeral plan is nowhere to be found nor does anyone know that it even exists. The family pays for the funeral, and only afterwards is the paperwork discovered. However, at that point the funeral has already occurred, and the home refuses to refund the family for the costs.

On the outset, prepaid funerals sound like a good idea to include in estate planning. It appears to be a way to reduce the stress and costs of planning a funeral on your family; however, many issues can arise with the incorporation of a prepaid funeral into an estate. Other options are available in estate planning that can solve the same problems without the potential pitfalls of a prepaid funeral.

Common Problems with Prepaid Funerals

Finding happiness with someone else at any age is a wonderful thing that we all strive for. However, combining family and finances later in life can be more complicated than getting married in your 20s or 30s. In addition to separate finances a lot of people who marry later in life already have their own estate plan in place. Combining two estate plans into one cohesive set of final wishes can be complicated. Here are a few tips to keep in mind when combining estate plans after a late-in-life marriage.

Talking About Prior Obligations

Older couples can bring prior obligations and debts into the estate planning process. While most financial matters affect the present, some obligations can have a direct effect on the estate planning process. If your new spouse has a reverse mortgage on the home or owes half of his pension to a former spouse it will have a direct impact on what will be inherited from the estate.

The importance of having a thorough and complete estate plan cannot be overstated. Not only does it protect your wishes, it also ensures that your loved ones are provided for after you are gone. However, the estate planning process is not a one-and-done deal. It is also important to update your estate planning documents to reflect any personal, familial, or financial changes that have occurred in your life. The estates of some famous actors illustrate why it is important to have an updated plan.

The actor Paul Walker, known mostly for his role in the high speed franchise, “The Fast and the Furious,” died tragically at the age of 40 in an automobile accident. At the time of his death, he was survived by his parents, his 15 year old daughter, and a girlfriend of seven years. Mr. Walker did have an estate plan in place with a pour-over will and trust set up for his daughter. Unfortunately, Mr. Walker set up his estate plan twelve years prior – the same year that his first hit franchise movie came out. Since then, his wealth had increased dramatically and he entered into a long-term relationship. Because his plans were never updated his daughter will be inheriting millions more than anticipated, his long-term girlfriend will get nothing, and the family does not have the direction to know what his true last wishes would have been.

Philip Seymour Hoffman provides another good example of why it is important to update your estate planning documents. Mr. Hoffman died at age 46 from a drug overdose earlier this year. At the time of his death he was survived by his companion of fourteen years and mother of his children as well as his three kids ages 10, 7, and 5. At the time of his death, Mr. Hoffman had an estate plan that was created in 2004. It provided for the eldest child who was the only one born at the time, and did not have any language that provided for the case of future children. His two pretermitted children, those born after the creation of the will, are now left in a precarious legal situation. In addition, since the creation of his estate plan Mr. Hoffman had gained significant wealth and acclaim from winning an Oscar and his successful movie career. He never updated his will to manage this new wealth, and as a result of the language of his will all of the assets that go to his longtime companion will be taxed once under his estate and again under her estate when she dies before it goes to their children.

According to 2010 U.S. Census data, 56.7 million Americans, or almost 20 percent of U.S. residents, have a disability. Within this demographic, over 5 million adults need assistance with self-care and independent living activities, including difficulty getting around inside the home, getting into/out of bed, bathing, dressing, eating, toileting, managing money, preparing meals, doing housework, taking prescription medications, and using the phone.

More than half of those with severe disabilities who are age 15 to 64 receive some form of public assistance. Approximately 33 percent receive Social Security benefits and approximately 20 percent receive Supplemental Security Income (SSI) benefits. Some also receive other forms of cash assistance such as Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP) (formerly called food stamps), and public or subsidized housing.

Given the above statistics, many people who are making estate plans will be leaving money or property to someone with a disability who has a special needs situation. However, if the inheritance is not structured properly, the receipt of money or property can negatively impact a person with disabilities’ eligibility for some public assistance programs.