Cannon Murray Law

Estate Planning and your Loved Ones

How an Estate Plan Protects Your Loved Ones

Estate plans perform a number of functions, including conveying your wishes for final care, if you should become incapacitated and appointing people to make medical decisions on your behalf.

Everyone needs an estate plan, for their own peace of mind and for their loved ones.    The Huffington Post’s recent article confirms that “You Don’t Have to Own an Estate to Do Estate Planning!” As the article notes, estate planning concerns creating directions so your family understands what to do and when, if you’re not around to tell them.  More than money, an estate plan is about making sure your family is protected, reducing stress and family conflict, making sure your wishes are executed and providing peace of mind for all.

The parts are very straightforward, but every plan is different. You need a healthcare proxy or power of attorney for health care, which designates an individual to coordinate your medical wishes. In some states, a living will is also a tool that helps explain what you want in a variety of medical situations.  Massachusetts relies on the individual you have named as healthcare proxy to make those decisions, so be sure you've named someone who will do what YOU want.  Failing to have a health proxy could mean your care is left to the interpretation of healthcare professionals and family members.

You should also draft a financial power of attorney, which allows someone to take care of your legal or financial affairs if  you are unable to do so.  Consider having a plan for the care of any pets if you live alone and don't have someone who will know what needs to happen if you can't be at home to care for them.

Work with an experienced estate planning attorney to help you create a plan that protects you, while maximizing your investment potential and minimizing your tax liability.

Here's another way to be sure your intentions are known by your family—an ethical will. An ethical will is different than your living will. In fact, it’s not really a will, but a statement that expresses your love, your hopes, your dreams and your wishes. It may be a letter or letters to individual people you love. You can also create a video or a scrapbook.  Think of your ethical will as a personal statement that contains important information about what you want to happen when you are gone. This may include advice for the guardians raising your children, wisdom that you want to share with nieces and nephews, or a statement of memories for loved ones.

Estate planning is about protecting your loved ones and creating a legacy. It has less to do with the value of your estate than you think!

 

 

 

 

Reference: Huffington Post (August 7, 2017) “You Don’t Have to Own an Estate to Do Estate Planning

Common Concerns in Estate Planning

There are certain questions that every estate planning attorney knows will be asked the first time they sit down with clients. Understanding them makes the process easier.

Probate is one of a handful of questions that are routinely asked by clients new to the estate planning process. Figuring out who to name as an executor for your estate and naming guardians for minor children are also concerns. Finally, a bigger conversation about whether or not you can use a form from the internet to create a will is taking place, both in estate planning attorney offices and at kitchen tables.

Next Avenue’s recent article, “Probate, Wills, Executors: Your Estate Planning Questions Answered,” addresses each of these questions.

Probate. Probate is the legal process for transferring your assets to your heirs. It’s governed by the law in the state where you were a resident at the time of death. Each state has its own cutoffs for the size of an estate that can be transferred without going through probate. In some states, the limit is a few thousand dollars, but in some it’s $200,000. In addition, probate is a public notice of death. This allows creditors to file claims against an estate. After they are paid, the rest of the estate goes to the beneficiaries. You may want to avoid the lengthy process, the expenses and fees and perhaps even the publicity. It is important to remember that probate proceedings are open to the public.

The need for an attorney. You should hire an experienced estate planning attorney to draft your will. Many Americans in their 50s and 60s don’t have one and it becomes a real problem for their heirs! A recent Caring.com survey found that 40% of boomers don’t have a will. The more complicated your instructions for passing your assets, the more important it is to use a lawyer. Complexities, nuances, and intricate state probate and tax laws, often result in expensive errors in self-drafted documents. Your tax software may have guaranteed the results, but your heirs will be on their own if your do-it-yourself will is flawed or, something that happens very often, not recognized by the court as legal. Finally, make certain that your heirs know where your will is kept and keep it up-to-date. Remember a will does not avoid probate, it guarantees it.

Naming an executor and a guardian for minor children. Determining who should be your executor is an important decision. This is the person who will have a legal responsibility to make sure that your wishes, as stated in the will, are followed, and that includes taking responsibility for transferring assets, paying debts and making sure all the details are followed. You will need to choose someone you trust who also has the capacity to either carry out these tasks or to know when they need help. Naming a guardian for minor children is equally challenging,  since the person has to be someone who will be entrusted with raising your children as you would want them to be raised.

However, if you do not name either an executor or a guardian in your will, or if you do not have a will, the court will name someone. That person may be a complete stranger, or it may be someone you don’t trust or respect. It’s best to do this as part of your estate planning.

Reference: Next Avenue (April 7, 2017) “Probate, Wills, Executors: Your Estate Planning Questions Answered”

Staying Connected to a Valued Community through Planned Giving

Staying Connected to a Valued Community through Planned Giving

Through the use of a Charitable Remainder Unitrust, the Whitehouses receive lifetime income. At the same time, their beloved university and Calvary Church benefits from their generosity.

Getting updates about Bethel University are important to Neil and Marilyn Whitehouse. They like to know about the activities and events at Bethel, a top-ranked Evangelical Christian university located in St. Paul, Minnesota. As long-standing supporters of the university, Bethel’s story is also part of their story.

As Bethel University News reports, in “Former Trustee Stays Connected to Community through Giving,” the Whitehouses first became involved at Bethel through friendships formed at their church. They’ve been a part of the President’s Circle for more than 30 years, which is the giving level for those who donate more than $1,000 annually to Bethel. Neil said that they see the benefits of their financial gifts.

In the 1980s, Neil was asked by the Bethel president about serving on Bethel’s Board of Regents.

While he was on the board, two of the Whitehouse children attended school there.

Neil set up a Charitable Remainder Unitrust that will benefit Bethel and their church.

“Hearing about the significant impact Bethel is having on the community and students across the country is so encouraging,” says Neil. “It’s exciting to see that Bethel is expanding into areas they haven’t offered in the past. Efforts made on behalf of the students by the faculty and administration have made Bethel the place it is today.”

This past February, Neil and Marilyn met with Bethel President, his wife and other members of the university’s past and present leadership at meetings held in Florida.

Neil recommends that others invest their resources in Bethel,  since he is confident that the university will continue benefitting the community for years to come.

Reference: Bethel University News (March 17, 2017) “Former Trustee Stays Connected to Community through Giving”

Michael Jackson: A Case Study in Failing to Plan for your Estate

Michael Jackson: A Case Study in failing to plan for your estate

Eight years after his death, the tax liability from Jackson’s estate has not been resolved. The numbers are big, and adding up fast.

 “Depending on the outcome of the case, Jackson’s estate could be on the hook for more than $500 million in taxes and $200 million in penalties…”

U.S. Tax Court Judge Mark Holmes is overseeing hearings on the value of the Gloved One’s estate. Depending on the findings, the estate may need to pay more than $500 million in taxes and $200 million in penalties. Jackson’s former attorney, John Branca, claims that Jackson was in debt to the tune of $400 million when he died.

As reported in a recent article in Accounting Today, “Court hears IRS dispute over value of Michael Jackson estate,” Jackson’s estate originally claimed it considered his name and likeness essentially worthless. Jackson’s reputation was tainted by child-abuse allegations and strange public behavior. The estate first estimated his name and image to be worth only $2,105, although it later said they could be worth $3 million. The IRS thought the number was more than $434 million. An estate of this size and public prominence, hardly needed a red flag like this.

After Jackson’s 2009 death, a documentary on rehearsals for his comeback tour grossed $261 million, Cirque de Soleil created a successful show with his music and Jackson’s songs and memorabilia continue to generate big sales figures.

However, it’s the valuation on the date of Jackson’s death that counts for estate taxes. The value of the estate on that date is what matters, not necessarily its value when it is exploited afterwards. However, the IRS examines post-valuation date events to determine the value. Since Jackson’s estate did a terrific job in exploiting the music catalog and the name and likeness after the date of death, there’s plenty of evidence of what the value of his name and likeness might have been worth on the date of his death. The estate will say that you can’t look at those post-valuation date events because they have nothing to do with what it was worth on the day he died. The licensing agreements weren’t in place, and his image was damaged, the estate’s attorneys will argue.

The IRS will respond, however, that it doesn’t matter what Jackson was doing with his name and likeness. In light of the fact that the music promoter AEG was supporting a multimillion-dollar comeback tour for him when he died, shows that he was worth far more. That tour suggests that maybe it wasn’t just his death that caused the renewed interest. Perhaps if Jackson lived another year, this cash flow would have been inevitable.

Before it can come to a final conclusion, the Tax Court will review expert testimony, valuation reports and other documents, which are under seal as part of an active case. Judge Holmes will take all of these factors into consideration and come to a final decision.

Reference: Accounting Today (February 8, 2017) “Court hears IRS dispute over value of Michael Jackson estate”

Suggested Key Terms: Probate Court, Estate Planning Lawyer, Probate Attorney, Estate Tax, Estate Valuation

 

You Still Need a Will

No Kids? You Still Need a Will.

Whether you are single, married, have kids or no kids, you still need a will to distribute your assets upon your death, unless you want the state to make all decisions for you.

A recent Gallup survey reported in Yahoo Finance, “Estate Planning Is Important for People Without Children,” paints a picture of people who do not understand or don’t want to deal what will happen after they die. Singles without children who do not have a will, unmarried couples and married couples without kids still need to have an estate plan and a will. The cost and hassle that is created for spouses and for relatives, even distant relatives, is something that they may not be aware of.

There can be unintended beneficiaries, and this is especially true for singles. Complications and unintended consequences make it critical for singles and married couples without kids to plan for the distribution of their assets, as well as how to take care of themselves if they become incapacitated.

Everyone’s estate plan should have, at the bare minimum, a will and powers of attorney (POA) for financial and health care decisions. Powers of attorney are used in the event that an individual is unable to make decisions for him or herself. Married couples typically default to the spouse. However, if a couple is in a long-term relationship without a legal relationship (not married), then the powers of attorney are crucial. If you fail to name a person in a POA, the default may be a parent or sibling to whom you’re not physically or emotionally close. As a result, that person will be able to make decisions that may be contrary to what your partner would carry out according to your wishes.

Think hard about who you’d want to be a power of attorney. That person should have strong character and the ability to make tough decisions. After your POAs are created, think about the beneficiaries of your assets. When you do this, speak with your family members about these decisions.

For those couples without children, they may have favorite charities and may want to leave a gift to these organizations. As far as taxes are concerned, making charitable distributions while you’re alive is more efficient. The donor gets both an income tax deduction and a gift tax deduction, based on the amount of the gift.

One popular option is to create a donor-advised fund, which lets you take a current-year tax deduction on the fair market value of any gifts to the fund. The money doesn’t need to be immediately donated, allowing you time to make a decision on which charity to select.

 Would you leave outright gifts to charity after your death? You can earmark money in IRAs, instead of other assets. A charity does not pay taxes on the retirement funds, but a non-charity beneficiary must.

Singles or couples without children may consider creating a charitable foundation, which will require the help of an estate planning attorney to set it up properly. This is a wonderful way to build a legacy that can impact and improve the lives of others.

Reference: Yahoo Finance (February 16, 2017) “Estate Planning Is Important for People Without Children”

Step by Step Guide to Settling an Estate

For some people, the details of settling an estate provide a welcome distraction from grief, while others find the tasks overwhelming. Regardless of the emotions, there are certain tasks that must be taken care of in a timely manner when settling an estate. The process generally takes about a year.

A strong team of trusted advisors, including an estate planning attorney and CPA, will be invaluable to help as you begin the process of settling the estate of a loved one. A recent article in The Montgomery Advertiser, “Checklist for settling an estate,” notes that the process is likely to take about a year.

Here’s an idea of what happens at critical intervals of the process. This list can be a key estate-planning tool because how you handle the estate, financial, and funeral arrangements can significantly reduce the stress on family members. This list is helpful for survivors as well as for those who are preparing for their future. Work through this list and discuss it with your Personal Representative while you’re in good health. If you make changes, let your Personal Representative know.

Collect key documents. A Personal Representative must locate, identify, and organize a deceased person’s financial records, tax returns, and other important documents to see what he or she owned or controlled. Having all that summarized in one place is a huge help.

Pick up the phone. The Personal Representative should inform key contacts that the person has died. This should include the Social Security Administration, if the deceased was receiving benefits; the Veterans Administration, if he or she was a qualified veteran for burial benefits; his or her employer; insurance companies; banks and credit unions; the mortgage company; and credit card companies for possible death benefits. Creditors will probably request a copy of the death certificate, so be sure to have enough copies.

File the will for probate. If you have the will, the Personal Representative named in the will should be notified. A decision needs to be made about filing the will for probate. Probate the will if there’s property in the name of the decedent that needs to be transferred. Anything in joint names with a surviving spouse or surviving children doesn’t pass under the will.

Get an estate planning attorney. The Personal Representative can elect to work with an experienced estate attorney, which is a good idea. If there’s no will and no trust, the property owned by the deceased will pass to the "intestate" heirs, which is determined by state law. In that scenario, one or more of those heirs will need to file a petition for "letters of administration" in order to sell or transfer the decedent's property.

Pay bills. The Personal Representative must make sure that the deceased’s bills and other debts continue to be paid until they are disposed of.

Pay the taxes. Ask a qualified estate planning attorney for advice. The Personal Representative should be certain there’s a final income tax return filed on behalf of the deceased, and may need to file income tax returns and an estate tax return.

Distribute the assets. Work with the estate planning attorney to ensure that all expenses and taxes have been taken care of and that it is time to distribute assets. Once all of the assets are distributed, then the estate can be truly closed.

Don’t be surprised if after the estate is closed, a few pieces of mail or unexpected bills arrive. Speak with your estate planning attorney, who will be able to guide you in resolving these final last bits of the estate.

Reference: Montgomery Advertiser (January 4, 2017) “Checklist for settling an estate”

 

Who really owns what?

I periodically have clients come in who are married couples, but for one reason or another have held their real property and bank accounts in separate names for their entire marriage.  Now it is time to do estate planning, and I often suggest the use of a Revocable Living Trust.  

Revocable Living Trusts serve many purposes, but the most common advantages I see are probate avoidance and Massachusetts estate tax planning.  The couple would often both be Donors (ones who make and fund the trust) as well as the initial Trustees and Beneficiaries.  This means that as long as the clients are alive and competent, they have complete control over the trust assets and can do what they want to with them. 

However, the real estate is now own by "Susan Smith and John Doe, Trustees of the Smith Doe Trust".  One partner, usually the "owner" of the property will visibly flinch at the idea of "giving up" control of the real estate.  The belief seems to be that holding real estate in your name alone will somehow protect your interest in a divorce court, or for nursing home planning.  This is not true.  In Massachusetts, the courts look past the type of ownership when determining what is or is not a marital asset for divorce purposes.  (This presumes no prenuptial agreement).  In addition, government assistance generally hinges on household assets and income, not an individual's.   We do sometimes utilize having a single spouse on a deed in Medicaid planning, but at that point the goal is generally not keeping your spouse from getting your stuff.

Marriages are widely analogous to partnerships, and come with all kinds of special rights and obligations.  Many tax and Medicaid planning strategies ONLY work with married couples, and benefits like social security can be enhanced if you have a spouse.  But it does also mean, that your name on the deed or the bank account doesn't necessarily mean that it is yours alone...

What to Do When the Unthinkable Occurs

You know that someday you and your spouse will die. But when you are young, it simply doesn't seem possible. Here are some tips for coping with an unexpected loss of a spouse.

There are many different kinds of grief, but when a spouse dies at an exceptionally young age, it is hard to know how to move forward—even when there are tasks that must be taken care of. In The Huffington Post's article, "The Business of Surviving a Spouse," details are provided for what has to happen shortly after the person has died.

Some decisions may be put off because they're simply too difficult when grief is fresh, but there are decisions that need to be made that are simple and straightforward. These are usually issues that concern getting the affairs of the deceased in order. It may seem daunting and overwhelming, but the right guidance and preparation can be a big help.

Consult with an estate planning attorney to help you submit claims for benefits due as the surviving spouse and assess your spouse's debts and assets. However, in order to do this, you need to collect the following documents:

• At least 10 original death certificates (from the funeral home or the Vital Statistics office where the death occurred);
• Estate planning documents, such as the will and trusts;

• Insurance policies;
• The most recent credit card and mortgage statements;
• Investment account statements;
• The past three years of tax returns;
• Marriage, birth, and (if applicable) divorce certificates of the spouse and children of the deceased;
• Checking and savings account statements;
• Any other loan documents;
• Car registrations; and
• Social Security information.
•  

With these documents and information at the ready, notify these institutions of the death to close out accounts and submit claims:

• The spouse's employer;

• Social Security;
• Veterans Affairs (if applicable);
• U.S. Postal Service;
• The Department of Motor Vehicles;
• Insurance companies;
• Credit bureaus;
• Financial institutions;
• Service providers; and
• Any charities that automatically withdraw a donation from a checking account.

Nothing will take away the heartbreak of this loss, but spending time dealing with the estate and the paperwork can sometimes provide a modicum of relief as your focus shifts, even if only for a short while.

Reference: Huffington Post (April 2, 2016) "The Business of Surviving a Spouse"

Could My Children Handle Their Inheritance Wisely?

How to Plan for Adult Children When Not All Are Responsible Adults

We love our children equally, but we recognize that they handle money differently. Can we protect the ones who lack financial discipline from squandering their inheritance?

Few families can say that all of their adult children are responsible and skillful when it comes to handling money. You know who your kids are, and you know who will be able to manage an inheritance of any size—and who will blow through it in matter of years, or even months. How can you protect these children while giving the more reliable ones their inheritance with no strings attached?

A recent New Jersey 101.5 article, "How to plan for spendthrift children," recommends the use of a trust. Trusts are used in estate planning to restrict the use of assets by the beneficiaries and/or to protect the inherited assets from the creditors of the beneficiaries.

A trust for children can be established in the parent's will or other testamentary documents—like a revocable trust—which will be effective upon his or her death. Another way to do this is to create a trust in a separate trust document during the parent's lifetime. This is then funded during his or her lifetime and/or by a direction in the will at death.

The parent will have to designate a trustee to administer the trust. This can be an individual or a financial institution or a combination of both. This should be a trusted individual who will make distributions to the child in his or her best interest and in accordance with the terms of the trust.

Trustees are typically entitled to be compensated, but that compensation can be waived or set in a separate agreement.

For example, the trust can set forth the terms of distribution. This language can be very broad—such as "in my trustee's discretion"—or more defined—such as "in my trustee's discretion for the benefit of my child's health, education and welfare after taking into consideration all other income and assets available to my child."

Another option is to consider staggering the distribution of funds so that they are made at specific ages (e.g., 21, 30, or 40) or for specific purposes like education or a first home. A spendthrift provision in the trust, which may not be necessary, shows the parent's intention that the beneficiary was not to have the voluntary or involuntary right to assign rights or assets in the trust to third parties, especially his or her creditors.

An estate planning attorney will be able to help you figure out the strategy that best suits your situation and that will best protect your children and your legacy.

Reference: New Jersey 101.5 (May 5, 2016) "How to plan for spendthrift children"

Revocable Trusts -- What are they and do I need one?

Understanding How Revocable Trusts Are Used In Estate Planning

The use of trusts in estate planning is not just for Rockefeller-sized estates. However, knowing the correct trust to use and when certain changes need to be made requires the help of an experienced estate planning attorney to achieve estate planning goals.

Estate planning often gets lumped into the same category as a visit to the dentist: we know it's important, but we'd rather go sailing. Or paint the house. Or do anything else to avoid it. But you spend a lifetime accumulating assets—as we are reminded by foster.com in "When to amend your revocable trust." As such, it is necessary to take the time to create a plan to ensure that when we do pass away, our wealth and assets are transferred to others in a way we want.

If your estate plan includes a revocable living trust, start by examining the provisions for potential revisions. First, look at who was named as successor trustee and make certain that he or she is still willing and able to serve in that role when called upon. Also, terms governing how assets in the trust are to be distributed after your death should be reviewed carefully to make sure the named beneficiaries and amounts they are to receive from the trust are still as you would like.

Providing for your spouse is typically an estate planning goal for couples, as well as ensuring that property is transferred with the least amount of loss from estate taxes. You can do this by adding a "credit shelter" or "bypass" provision to revocable trust documents.

Federal estate and gift tax rules state that spouses can pass an unlimited amount of property to each other without incurring gift or estate tax. Each spouse is also given a specific exemption amount to shelter property from tax liability when passed to others at their death.

When the first spouse dies, estate tax can be avoided by leaving all property to the surviving spouse. At the survivor's death, the estate tax will be due to the extent that the couple's remaining assets exceed the federal estate tax exemption.

However, the problem with leaving all property outright to a surviving spouse is that the first spouse can't use his or her estate tax exemption. It would be wiser to include a bypass provision in the trust that transfers an amount equal to the federal estate tax exemption amount to a separate trust—with the remainder going directly to the survivor.

The bypass trust can provide income to your survivor spouse and can make additional distributions for his or her health, support, education, or maintenance. However, the trust can't give him or her unlimited access to the funds. This way, the bypass trust's assets will not be a part of the surviving spouse's estate and subject to the estate tax. Taxes are minimized by the bypass trust because both spouse's estate tax exemptions are fully utilized.

Bypass trusts were an effective planning tool when the federal estate tax exemption was just $1 million, but in 2012, Congress upped the exemption amount and portability of the exemption between spouses. In 2016, the estate tax exemption amount is $5.45 million. As a result, bypass trusts may no longer be needed to avoid federal estate tax.  However, in Massachusetts, where there is a $1 million exemption, bypass trusts are alive and well.

Every situation is different, so for your particular case, your attorney may speak with you about reasons to keep the bypass trust language in place. Some of those reasons include protecting the trusts assets against creditor claims, being able to make larger gifts to heirs without gift tax impacts, or preserving assets for minor children.

At CannonMurrayLaw, we invite our clients to come back in every three years and go over trust language as well as looking at the successor trustees or changing family needs.  Trusts are complicated, and having it explained more than once can be a big help during times of change or crisis.

Reference: foster.com (January 17, 2016) "When to amend your revocable trust"