New York Estate Planning & Elder Law Blog

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.