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Estate Planning Blog

Serving Clients Throughout North Central Missouri

Extended-Family

How Can I Clean Up My Estate Plan?

Chicago Business Journal’s recent article entitled “8 steps to tidy up your estate plan now” gives you some items to think about when working through your affairs.

Make certain that your plan is accurate and up to date. Your basic documents, which include your will, health care directive and power of attorney, should be in place and up-to-date. Review them to confirm that they’re consistent with your wishes and the current laws.

Review your named beneficiaries and fiduciaries. Confirm that the names of designated beneficiaries and fiduciaries are accurate. Most assets will pass under your will or through trusts, other accounts such as retirement, or life insurance may pass directly to a named (or contingent) beneficiary. If your planning circumstances have changed since creating these designations, update them.

Review your life and property insurance coverage. Be sure that these policies offer adequate coverage and meet their intended purpose. As your wealth increases, the planning purposes behind a term policy for risk mitigation purposes or a whole life policy to ensure ample liquidity upon death may become unnecessary. However, if your assets’ value has grown, you may need to re-examine if the current property coverage is sufficient to minimize your increased potential liability.

Ensure that your beneficiaries have enough liquidity. The estate administration process can be slow and tiresome. It’s possible that a person may not have immediate access to liquidity after a spouse’s death, depending on how assets are titled. A temporary (but major) burden can be avoided, by confirming at least some liquidity will be titled in or directly available to your spouse after you have passed.

Locate and compile important information and account identification. A difficult step in estate administration is locating a decedent’s assets. Make this process easier for loved ones, by creating a list of your accounts, property of significant value, liabilities and contacts at each financial institution. Make the list easily accessible to your family or executor, and update it whenever opening or closing an account.

Review digital assets and online accounts. These assets are frequently overlooked as to access and ownership after death. Instead of divulging passwords or allowing account access, you can add a “digital assets clause” to your planning documents. This lets named parties access specific items within the bounds of accepted legal standards.

Draft a letter of wishes. This document allows you to fully express your intentions and hopes, as well as any explanations or instructions you want to impart to your loved ones.

Plan to review. Repeat the review process regularly and calendar a reminder to give yourself an annual financial and planning checkup.

Reference: Chicago Business Journal (Dec. 2, 2021) “8 steps to tidy up your estate plan now”

 

estate planning and elder law

What Taxes Have to Be Paid When Someone Dies?

The last thing families want to think about after a loved one has passed are taxes, but they must be dealt with, deadlines must be met and challenges along the way need to be addressed. The article “Elder Care: Death and taxes, Part 1: Tax guidance for administering a loved one’s estate” from The Sentinel offers a useful overview, and recommends speaking with an estate planning attorney to be sure all tasks are completed in a timely manner.

Final income tax returns must be filed after a person passes. This is the tax return on income received during their last year of life, up to the date of death. When a final return is filed, this alerts federal and state taxing authorities to close out the decedent’s tax accounts. If a final return is not filed, these agencies will expect to receive annual tax payments and may audit the deceased. Even if the person didn’t have enough income to need to pay taxes, a final return still needs to be filed so tax accounts are closed out. The surviving spouse or executor typically files the final tax return. If there is a surviving spouse, the final income tax return is the last joint return.

Any tax liabilities should be paid by the estate, not by the executor. If a refund is due, the IRS will only release it to the personal representative of the estate. An estate planning attorney will know the required IRS form, which is to be sent with an original of the order appointing the person to represent the estate.

Depending on the decedent’s state of residence, heirs may have to pay an Inheritance Tax Return. This is usually based on the relationship of the heirs. The estate planning attorney will know who needs to pay this tax, how much needs to be paid and how it is done.

Income received by the estate after the decedent’s death may be taxable. This may be minimal, depending upon how much income the estate has earned after the date of death. In complex cases, there may be significant income and complex tax filings may be required.

If a Fiduciary Return needs to be filed, there will be strict filing deadline, often based on the date when the executor applied for the EIN, or the tax identification number for the estate.

The estate’s executor needs to know of any trusts that exist, even though they pass outside of probate. Currently existing trusts need to be administered. If there is a trust provision in the will, a new trust may need to be started after the date of death. Depending on how they are structured, trust income and distributions need to be reported to the IRS. The estate planning attorney will be able to help with making sure this is managed correctly, as long as they have access to the information.

The decedent’s tax returns may have a lot of information, but probably don’t include trust information. If the person had a Grantor Trust, you’ll need an experienced estate planning attorney to help. During the Grantor’s lifetime, the trust income is reported on the Grantor’s 1040 personal income tax return, as if there was no trust. However, when the Grantor dies, the tax treatment of the trust changes. The Trustee is now required to file Fiduciary Returns for the trust each year it exists and generates income.

An experienced estate planning attorney can analyze the trust and understand reporting and taxes that need to be paid, avoiding any unnecessary additional stress on the family.

Reference: The Sentinel (Dec. 3, 2021) “Elder Care: Death and taxes, Part 1: Tax guidance for administering a loved one’s estate”

 

Trust Administration

Prince Philip’s Will: Are Royals Different than Regular People?

There’s a royal battle brewing over Prince Philip’s will, but it’s not what you might expect. The lawsuit isn’t being brought by a creditor or even a potential beneficiary of the estate, A major United Kingdom newspaper, The Guardian, has instead announced that it’s taking legal action. This is according to a recent article titled “The Legal Battle Over Prince Philip’s Will” from Wealth Management.

The newspaper is arguing that the press should be allowed to attend the hearing for the will and claims that doing so constitutes a serious interference with principle of open justice. In other words, the Royal Family is a public family, funded by the public and the public is entitled to know what’s in the will.

A hearing was held in September concerning keeping the will sealed for 90 years, and the press was neither notified nor invited. The only people in attendance were Prince Philip’s estate attorney and an Attorney General. The court’s position is that the presence of the Attorney General represented the people.

British law is similar to American law, when it comes to making wills public. Once the will goes into probate, following the death of the person, it’s a public document. This is why estate planning attorneys recommend using trusts, which remain private and allow assets to pass outside of the probate process. It’s also why certain information should never be in a will, like financial account titles and numbers.

The idea of sealing a will is an exception under rare circumstances, and in England this has to date only been done for the royal family. The president of the family division of the high court ruled that these exceptions are necessary to enhance the protection of the royal’s private lives and the dignity of the sovereign and other close family members.

There have been many attempts to challenge the privacy of royal wills. So far, none has been successful.

The question posed by this lawsuit concerning the public’s right to know is not a new one. However, it will be interesting to watch in a day and age when royalty and the role of the royal family is under severe scrutiny.

The royal family is funded by taxpayers, who routinely question how much privacy should be permitted when the money comes from their pockets. Whether such special rules are really needed to protect the “integrity” of the royals has been an on-going debate in the U.K.

In the United States, individuals and families use trusts and other methods to maximize their privacy and to convey assets to their heirs.

Reference: Wealth Management (Dec. 1, 2021) “The Legal Battle Over Prince Philip’s Will”

 

Approaching Retirement

Should I Use a Corporate Trustee?

When you work with an experienced estate planning attorney to create a revocable living trust, you will usually name yourself as trustee and manage your financial assets as you have previously. However, it’s necessary to name a successor trustee. This person or entity can act, if you’re incapacitated or pass away.

Selecting the right trustee is one of the most important decisions you’ll make.

The Quad Cities Times’ recent article entitled “Benefits of a corporate trustee” warns that care should be taken when selecting someone to serve in this role. Family members may not have the experience, ability and time required to perform the duties of a trustee. Those with personal relationships with beneficiaries may cause conflicts within the family. You can name almost any adult, including family members or friends, but think about a corporate or professional trustee as the possible answer.

Experience and Dedication. Corporate trustees can devote their full attention to the trust assets and possess experience, resources, access to tax, legal, and investment knowledge that may be hard for the average person to duplicate. A corporate trustee can be hired as the administrative trustee—letting them concentrate on the operation of the trust. You can also hire a registered investment advisor to manage the investment assets. A corporate trustee can also be engaged as both administrative trustee and investment manager.

Regulation and Protection. Corporate trustees provide safety and security of your assets and are regulated by both state and federal law. Corporate trustees and registered investment advisors are both held to the fiduciary standard of acting solely in the best interests of trust beneficiaries.

Successor Trustee. If you choose to name personal trustees, you may provide in your trust documents for a corporate trustee as a successor, in case none of the personal trustees is available, capable, or willing to serve. Corporate trustees are institutions that don’t become incapacitated or die. You should consider the type of assets you own including investment securities, farmland and commercial real estate and then choose the most qualified corporate trustee to manage them.

In sum, many estate owners can benefit from the advantages of a corporate trustee.

Ask an experienced estate planning attorney when creating or amending a revocable living trust, about naming the appropriate corporate trustee, and the advisability of including terms for your registered investment advisor to manage assets for your trust.

Reference: Quad Cities Times (Nov. 28, 2021) “Benefits of a corporate trustee”

 

mountains

Is Prince’s Estate Settled Yet?

The long-running estate battle over Prince’s estate may be coming to a close, according to a recent article from Yahoo! News, “Minnesota probate court set to discuss ‘final distribution’ of Prince estate in February.” The Carver County probate court has set a date to start talking about Prince’s assets with heirs and beneficiaries.

Prince died of a fentanyl overdose in April 2016, with no estate plan. Administering the estate and coming up with a plan for its distribution among heirs has cost tens of millions of dollars, in an estate estimated at more than $100 million. One of many obstacles in settling the estate: a complicated dispute with the IRS over the value of Prince’s assets.

The estate will be almost evenly split between a music company—Primary Wave—and the three oldest of the pop icon’s eldest six heirs or their families.

Primary Wave bought out all or most of the interests of Prince’s three youngest siblings, one of whom died in August 2019. Three older siblings, including one who died in September 2021, rejected the offers from Primary Wave.

Comerica Bank & Trust, the administrator of the estate, settled with the IRS over the value of the estate, according to a late November filing in the U.S. Tax Court. The Carver County probate court has to approve this agreement.

Another tax dispute, this one between Prince’s estate and the state of Minnesota, has not yet been resolved.

Last year, the IRS set a value of $163.2 million on Prince’s estate. Comerica valued the estate at $82.3 million—nearly half of the IRS value. The value was so low the IRS penalized the estate with a $6.4 million “accuracy-related penalty.” Comerica followed by suing the IRS in U.S. Tax Court, saying the IRS calculations were loaded with mistakes. With the settlement now underway, the tax trial has been cancelled. The estate and the IRS have been ordered to file a status report on the case in February 2022.

The IRS and Comerica agreed on the value of Prince’s real estate holdings at $33 million. The harder task was to place a value on intangible assets, like Prince’s music rights.

The full IRS settlement most likely led to the probate court setting a date for a hearing. With the settlement, certain parts of the estate may move forward.

However, don’t expect it to be quick. It may be months before the court approves any distributions.

The lesson from Prince’s estate: everyone needs an estate plan, whether the estate is modest or includes multi-million assets and multiple heirs. Tens of millions in legal fees plus a $6.4 million penalty from the IRS adds up, even when the estate is this big.

Reference: Yahoo! News (Dec. 22, 2021) “Minnesota probate court set to discuss ‘final distribution’ of Prince estate in February”

 

Retirement Planning

What Estate Planning Documents Should Everyone Have?

This is the time of year when people start thinking about getting piles or files of paperwork in order in preparing for a new year and for taxes. A recent article “How to Prepare, Organize and Store Estate-Planning Documents” from The Street gives useful tips on how to do this.

First, the most important documents:

Estate Planning documents, including your Will, Power of Attorney (POA), Healthcare Proxy, Living Will (often called an Advance Care Directive). The will is for asset distribution after death, but other documents are needed to protect you while you’re alive.

The POA is used to name someone to act on your behalf, if you cannot. A POA can be created to be specific, for example, to have someone else pay your bills, or it can be general, letting someone do everything from paying bills to managing the sale of your home. Be cautious about using standard POA documents, since they don’t reflect every situation.

A Healthcare Proxy empowers someone you trust to make medical decisions on your behalf. The Living Will or Advance Care Directive outlines the type of care you do (or don’t) want when at the end of your life. This alleviates a terrible burden on your loved ones, who may not otherwise know what you would have wanted.

Add a Digital POA so someone will be able to access and manage your online accounts (subject to the terms and conditions of each digital platform).

Your Last Will and Testament conveys how you want your estate—that is, everything you own that does not have a surviving joint owner or a designated beneficiary—to be distributed after death. Your will is also used to name a guardian for minor children. It is also used to name an executor, the person who will be in charge of carrying out the instructions in the will.

A list of all of your assets, including bank accounts, retirement accounts, investments, savings and checking accounts, will make it easier for your executor to identify and distribute assets. Don’t forget to check to see which accounts allow you to name a beneficiary and make sure those names are correct.

Both wills and trusts are used to convey assets to beneficiaries, but unlike a will, “funded” trusts don’t go through the probate process. An experienced estate planning attorney can create a trust to distribute almost any kind of property and follow your specific directions. Do you want your children to gain access to the trust after they have reached a certain age? Or when they have married and had children of their own? A trust allows for greater control of your assets.

Finally, talk with your family members about your estate plan, your wishes for end-of-life medical care and what you want to happen after you die. Write a letter of intent if it’s too hard to have a face-to-face conversation about these topics, but find a way to let them know. Your estate planning attorney has worked with many families and will be able to provide you with suggestions and guidance.

Reference: The Street (Dec. 20, 2021) “How to Prepare, Organize and Store Estate-Planning Documents”

 

estate planning

Why Should I Name a Beneficiary? Child Divorce?

For five years, Lewis, who was also trustee of the trust, distributed funds to Vivian, his daughter in law. However, shortly after Lewis passed away, Clark and Vivian divorced. Clark married Sophia, and the problems began, according to the article “Which spouse gets the benefit?” from Glen Rose Reporter.

As a successor trustee, Clark started making the annual distributions from the trust to his new spouse, Sophia. Vivian filed suit, claiming these funds were intended for her. However, the trust directions only said, “his son’s spouse.” Did the phrase mean a particular person or the person who was Clark’s spouse? What did Lewis want to happen to the funds? For obvious reasons, his wishes could not be determined.

This fact pattern is from a real case, Ochse v. Ochse, filed in San Antonio, Texas. The trial court determined that Lewis’ wish was to benefit his son’s ex-spouse, who was his daughter-in-law when the trust was confirmed. An appellate court affirmed the decision.

Was the length of the first marriage part of the court’s decision? Clark had been married to Vivian for thirty years, which is likely to have been a part of the father’s decision. Clark had only been married to his second wife for seven years.

What if the father was alive and able to declare his intentions? It might not have made a difference. The court in this case found the term “son’s spouse” to unambiguously mean the spouse at the time the trust was created.

When a term is found to be unambiguous, there’s no evidence to question its meaning. So even if Lewis were alive and well, the court would not have let his intention be heard.

This kind of situation is seen often when a life insurance policy is left to a first spouse, the couple divorces and the beneficiary on the policy was never updated. Most of the time, the ex-spouse receives the proceeds from the life insurance.

In the case of Ochse v. Ochse, the matter would have been simplified if Lewis had named his daughter-in-law by name as the beneficiary of the trust. Clark might still have tried to change the terms, but it would have been clear who the intended beneficiary was.

No one likes to imagine their children divorcing, especially when the parents have a good relationship with the daughter or son-in-law. However, this needs to be taken into consideration when naming beneficiaries. If you adore your daughter-in-law and want her to receive an inheritance from you, then make sure to name her as a beneficiary. If you are concerned the marriage may not last, talk with an estate planning attorney about creating a trust to protect inheritances from being lost in a divorce.

Reference: Glen Rose Reporter (Dec. 17, 2021) “Which spouse gets the benefit?”

 

Is Estate Planning for Everyone?

Should I Get a Medical Alert System?

Many seniors live on their own without grown children nearby to assist them when they have a medical emergency. These individuals can really benefit the most from a medical alert system.

Know Techie’s recent article entitled “Should every senior citizen own a medical alert system?” gives us some reasons why every senior citizen should have a medical alert system.

A medical alert system is a simple device that monitors a person in their home and sends an electronic signal, if the emergency button is pressed. At the call center, a medical professional responds to the call. If the person can’t talk, help is sent.

Alert System Features. A medical alert system for seniors should have the following features:

  • Ease of use
  • It should be comfortable to wear and water-resistant
  • Have a long-lasting battery and GPS
  • 24/7 live assistance; and
  • Automatic fall detection.

It is also important to look at the alert’s attractiveness because some elderly fear the stigma associated with the medical alert system.

Promotes Peace of Mind. A caregiver and/or a family member will have peace of mind. If anything happens, they will have access to immediate assistance. This can improve a senior’s quality of life.

Emergency Help. Every minute matters in an emergency. A medical alert system will ensure that the seniors can access medical help right away. Every call center has experienced health experts to handle any situation.

If you don’t have a caregiver, the thought of having continuous monitoring can give you peace of mind.

Reference: Know Techie (Dec. 11, 2021) 30

 

Extended-Family

Do I Need More than a Will?

A will lets you distribute your assets, name a guardian for minor children and name an executor to carry out your wishes when you die.

The Chicago Sun-Times’ recent article entitled “Estate planning: When a will won’t work” says that you should know what a will can’t or shouldn’t do, especially if you’re writing your own without a lawyer, or you could unknowingly make a mistake that ruins your estate plan.

A will can’t avoid probate, and your will becomes a public record. However, a frequently used method to bypass probate is to create a revocable living trust, and transfer ownership of your assets into the trust. You retain control, but after you die, your successor trustee can distribute your property without a court’s involvement.

Jointly-held property also passes directly to the other owner, and accounts with beneficiaries (life insurance and retirement funds) also avoid probate. Another option is to use “transfer on death” or “payable on death” documents to designate beneficiaries for other financial accounts.

You might think that a will is a way to make people to do what you want. For instance, you could leave your son a bequest that he gets only if he finally finishes college. However, putting conditions in a will may not work well. Some conditions aren’t legally enforceable or are simply too burdensome to enforce.

If you want to impose conditions, ask an experienced estate planning attorney to create a trust. You might also use a trust is when you want to leave money to someone with special needs who is getting government benefits. That’s because a bequest could disqualify them from essential benefits, such as Supplemental Security Income and health insurance coverage through Medicaid.

Technically you can disinherit your spouse in your will. However, disinheriting a spouse can be extremely hard to do. That’s because the state has a mechanism that protects a spouse from being completely disinherited. In many states, a spouse has a right to claim one third to one half of the estate, regardless of what a will states.

However, a spouse can agree to be disinherited in a prenuptial or postnuptial agreement or can “disclaim” or refuse an inheritance, so that it goes to other heirs.

Reference: Chicago Sun-Times (Nov. 18, 2021) “Estate planning: When a will won’t work”

 

retirement planning

Can I Avoid Taxes when I Inherit?

Kiplinger’s recent article entitled “Minimizing Taxes When You Inherit Money” says that if you inherit an IRA from a parent, the taxes on mandatory withdrawals could mean you will have a smaller inheritance than you anticipated.

Prior to 2020, beneficiaries of inherited IRAs or other tax-deferred accounts, like 401(k)s, could transfer the money into an account known as an inherited (or “stretch”) IRA. From there, you could take withdrawals over your life expectancy, allowing you to minimize withdrawals taxed at ordinary income tax rates. This lets the funds in the account to grow.

However, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 stopped this tax-saving strategy. Most adult children and other non-spouse heirs who inherit an IRA after January 1, 2020, now have two options: (i) take a lump sum; or (ii) transfer the money to an inherited IRA that must be depleted within 10 years after the death of the original owner. This 10-year rule doesn’t apply to surviving spouses, who can roll the money into their own IRA and allow the account to grow, tax-deferred, until they must take required minimum distributions (RMDs) at 72.  Spouses can also transfer the money into an inherited IRA and take distributions based on their life expectancy. The SECURE Act also created exceptions for non-spouse beneficiaries for those who are minors, disabled, chronically ill, or less than 10 years younger than the original IRA owner.

As a result, IRA beneficiaries who aren’t eligible for the exceptions could wind up with a big tax bill, especially if the 10-year withdrawal period is when they have a lot of other taxable income.

The 10-year rule also applies to inherited Roth IRAs. However, although you must still deplete the account in 10 years, the distributions are tax-free, provided the Roth was funded at least five years before the original owner died. If you don’t need the money, delay in taking the distributions until you’re required to empty the account. That will give you up to 10 years of tax-free growth.

Many heirs cash out their parents’ IRAs. However, if you take a lump sum from a traditional IRA, you’ll owe taxes on the whole amount, which might move you into a higher tax bracket.

Transferring the money to an inherited IRA lets you allocate the tax bill, although it’s for a shorter period than the law previously allowed. Since the new rules don’t require annual distributions, there’s a bit of flexibility.

Reference: Kiplinger (Oct. 29, 2021) “Minimizing Taxes When You Inherit Money”