Estate Planning Blog

How to Plan for Beneficiaries with Disabilities

When creating an estate plan, it’s important to consider all of the possibilities—including disability, says a recent article, “Beneficiaries with disabilities will impact plans,” from The News-Enterprise. A well-prepared estate plan can protect all heirs.

Disability planning typically includes two types of protections: first, to protect the disabled individual’s inheritance from the loss of government benefits. This includes Medicaid, SSI, food stamps, Section 8 housing and other means-tested assistance programs.

Good planning protects continuity of care. Most disabled individuals who qualify for government benefits live in supportive housing communities and/or are helped by caregivers. Losing access to these support systems could become overwhelming to a disabled person.

If the inherited assets are used in place of these programs because of poor planning, upon their depletion, the disabled individual would have to start the process of applying for government assistance all over again. The possibility of being assigned to the same programs and receiving the exact same support is unlikely. A long wait time for services could also become problematic.

Second, an estate plan that considers a disabled individual must protect them from vulnerabilities and exploitation. Financial scams and outright thefts are not limited to the able-bodied. A disabled person known to have access to an inheritance becomes a target for scammers. The estate plan needs to ensure a responsible and savvy individual serving as the trustee is looking out for their best interests.

Testamentary documents are most helpful in estate planning for people with disabilities. The most common mistakes made are completely disinheriting the beneficiary or putting funds under the control of a caregiver. Disinheritance is common, as most people don’t understand there are ways to prevent the loss of services while keeping inherited assets available for the individual.

Giving funds to a caregiver is almost always a recipe for disaster. The caregiver may not follow the directions or become a victim of scammers, leaving the disabled heir without the benefit of their inheritance.

One answer is a third-party trust. This is created by one person—the grantor—for the benefit of another person—the beneficiary. It is funded with assets that never belonged to the beneficiary, so any funds in the trust aren’t subject to a payback provision to the state when the beneficiary dies. Third-party trusts are an excellent tool for estate planning and can also pass funds along to contingent beneficiaries when the original beneficiary passes.

An experienced estate planning attorney will know the nuances of planning for disabled individuals. Your estate plan deserves to be created by a professional to protect those you love.

Reference: The News-Enterprise (April 27, 2024) “Beneficiaries with disabilities will impact plans”

What Happens When Blended Families Ignore Estate Planning?

The idea of a “Brady Bunch” family, where two adults with children from prior marriages blend their families, is filled with good intentions. With time and patience, a real family can be created if all parties are willing participants. That is until one of the parents dies and the will is revealed, according to the article “The Brady Bunch Breaks Down: Estate Fights Tear Stepfamilies Apart” from The Wall Street Journal.

The typical estate plan for couples and their families is for the surviving spouse to inherit all the assets when the first parent dies. In a blended family, non-biological children are often disinherited. The spouse has no legal obligation to give anything to the biological children, and, making matters worse, the stepsiblings will inherit the deceased stepparent’s assets.

All of the work to blend the families can be undone. The stories are heartbreaking: children changing locks and kicking out their stepmother before the funeral, adult children learning they’ve inherited nothing, while the stepmother receives a lifetime of assets.

Good planning with an experienced estate planning attorney can prevent these and other ugly scenarios.

Establishing a joint trust to give children equal shares after the second parent dies sounds like a good idea. However, if the stepparent moves the assets into a new trust and names their own biological children as the beneficiaries, the first parent’s children are disinherited.

Creating separate trusts can work. However, they need to be iron-clad. Other options are distributing assets while the parent is living or leaving a specific amount (either a dollar amount or a percentage) in the will directly to the named children. Some families keep biological children in the estate plan and fund a separate trust for the spouse and stepchildren.

A prenuptial agreement is a good tool for blended families. However, it should be in addition to, not instead of, an estate plan.

In some states, the default rule is for the surviving spouse to keep half the community property and have no right in the deceased’s separate property. Most states also allow a surviving spouse to claim an elective share, typically a third or half of the estate.

Another problem that blended families must address is planning for illness and incapacity. The spouse usually makes medical decisions and funeral arrangements. However, stepchildren may have different ideas than their stepparents. Both parents should have their wishes expressed in documents, including a Power of Attorney, Healthcare Power of Attorney, Living Will and whatever documents are required by state and federal laws.

Consider naming an executor or trustee who is neither a biological child nor a relative. Having someone who is impartial and trustworthy could relieve pressure on the children.

An estate planning attorney can clarify the possible issues arising for stepfamilies regarding asset distribution, asset protection, medical directives and planning for incapacity.

Reference: The Wall Street Journal (June 1, 2024) “The Brady Bunch Breaks Down: Estate Fights Tear Stepfamilies Apart”

Supreme Court Considers Case on Estate Insurance Tax Treatment

The U.S. Supreme Court could soon rule on a case that would significantly impact succession plans for closely held businesses and put those plans at risk for higher taxes, as reported in a recent article from Bloomberg Tax, “High Court Signals Doubt Over Estate Insurance Tax Treatment.”

Thomas Connelly and his brother created a buy-sell agreement for their family business, Crown C Supply Co. In the agreement, whichever brother survived the other had the option to buy the other’s stock or required Crown to redeem the stock, using proceeds from the company’s life insurance policies for both brothers. Michael passed away, and his brother followed the terms of the agreement.

The IRS’s position is that Michael’s redeemed stock is worth more than reported, since the company’s value increased when it received the insurance proceeds. According to the IRS, Michael’s redeemed 77% equity interest was valued at $5.3 million. The estate had reported a value of $2.3 million less, since it did not include the value of the insurance proceeds.

Thomas claims the company’s net worth did not increase because the insurance proceeds were offset by the agreement to redeem his brother’s shares.

An assistant to the Solicitor General asked the Court to distinguish between an obligation to outside creditors and the value to an equity interest holder. Redemption gives one shareholder cash in exchange for their assets, while the other is to maintain control of the company.

To date, at least three Circuit Courts have addressed the issue of whether life insurance proceeds used for a stock exemption increase the company’s value. Unfortunately, they don’t all agree. In legal circles, the expression is “Courts are split.”

For business owners with buy-sell agreements incorporating insurance policies, this decision could have significant ramifications for their estate plan. What had been a relatively straightforward estate planning tool may not be allowed after the Supreme Court releases its decision.

Should the Court rule against the estate, there are several alternative planning options. An experienced estate planning attorney can guide privately held businesses in structuring and funding their buy-sell agreements.

Reference: Bloomberg Tax (March 27, 2024) “High Court Signals Doubt Over Estate Insurance Tax Treatment”

Essential Legal Documents for Graduating Seniors

As new legal adults transition from high school to college or the workforce, they must understand the significance of having essential legal documents in place. These documents can protect their interests and ensure their wishes are respected, especially in unexpected situations.

Why Do Young Adults Need Legal Documents?

Many young adults think estate planning is only for older people, but it’s crucial for everyone. Once young adults turn 18, they are legal adults, and parents or guardians no longer have authority over their health or financial accounts or information. Accidents and illnesses can happen at any age, and having the right documents can make a big difference.

There are five essential legal documents that every young adult should have:

• Healthcare Proxy: This document allows a trusted person to make medical decisions on your behalf if you can’t communicate your wishes. Choosing a reliable and nearby person is important for making quick decisions if needed.
• HIPAA Authorization: This gives certain people access to your medical records. Without it, your loved ones might not be able to get the information they need to help you in a medical emergency.
• Durable Financial Power of Attorney: This lets someone manage your finances if you cannot do so yourself. It can help ensure your bills are paid, and your finances are handled properly if you’re incapacitated.
• Living Will: This outlines your medical treatment and end-of-life care preferences. It helps your family know your wishes regarding life support and other critical decisions.
• Preneed Guardian Designation: This appoints someone to care for you or your dependents if you cannot do so. For young parents, it ensures that their children are cared for without waiting for court appointments.

A Story of Preparedness

Consider the story shared by the Financial Planning Association about a young adult who was in a car accident. Despite being healthy and active, the accident left them unable to make decisions.

However, they had a healthcare proxy and a durable financial power of attorney. This enabled their family to step in and make medical and financial decisions on their behalf. Good estate planning can make hard times a little more manageable, even for young and healthy people.

What Happens without These Documents?

Without these essential documents, your family might face delays in managing your affairs. Courts could appoint someone to make decisions for you. While this may work out, there’s no guarantee a court-appointed agent’s views would align with your wishes. Being unprepared can make difficult times even more stressful and challenging.

How can Young Adults Get Started?

Creating these documents is easier than you might think. Here are some steps to get started:

• Talk to Your Parents or Guardians: Discuss your plans and get their input on who your healthcare proxy or financial power of attorney should be.
• Consult an Attorney: Seek advice from an estate planning attorney who can draft these documents to ensure they meet legal requirements and accurately reflect your wishes.
• Store Documents Safely: Keep your documents in a safe place, and make sure that your designated proxies know where to find them.
• Review Regularly: Life changes might require updates to your documents. Events such as moving to a new state, getting married, or having a child should prompt you to revisit your documents.

Lay the Foundations of a Bright Future

If you’re a young adult or a parent of one, now is the time to start thinking about these important legal documents. Our law firm focuses on estate planning and can help you create a comprehensive plan suited to your wishes. Contact us today to request a consultation and get started.

Key Takeaways

• Young People Need Estate Planning: Having your documents in order can make hard situations easier.
• Key Estate Documents for Young People: HIPAA Authorization, a durable financial power of attorney, and preneed guardian designation are invaluable.
• The Importance of a Will: Young parents need wills to provide for their children’s future in case the worst happens.

Reference: Financial Planning Association (Oct. 2023) “Essential Estate Planning for Young Adults”

Who Is the Best Choice for Executor?

Creating an estate plan includes assigning a person (or persons) to three different roles: one to oversee financial affairs if you are incapacitated—Power of Attorney—the second to be the successor trustee of a trust and the third to be the executor of your will. According to a recent article from Kiplinger, these people are critical to caring for you while you are living and after you have passed. The title says it all: “How to Choose Your Trustee or Executor of Your Will.”

The person managing your estate and the Power of Attorney may have broad discretionary powers, so you’ll want to be sure they are prepared to follow your wishes, even if they aren’t the same as their own. All three are considered fiduciaries and have a legal duty to put your interests above theirs.

Trustee duties depend upon the directions in the trust. If a trust owns a family business, farm, or a portfolio of investments, you’ll want a trustee who understands your family’s business, farm, or investments. The trustee should know they can hire advisors and others who help them if they are unfamiliar with the assets in the trust and recognize a need for professional help.

Trustees need to read the trust and its provisions and understand its requirements. An estate planning attorney can help the trustee become more comfortable with their role. A letter outlining the grantor’s intent, the reason for the trust and desired goals will also be helpful.

Many people choose their child or the guardian of a minor child to be their successor trustee. Taking on this role should be discussed with the individual before the trust is finalized. If the trustee is asked to oversee assets for a minor child until they turn 30, it’s a long-term commitment. If the trustee is also the guardian of a child, the trust language should clarify if the assets are to be used for the child’s maintenance.

A non-family member is sometimes better if the family can pay the fees. An estate planning attorney or a professional trustee can take on this role. The professional trustee typically charges a percentage based on the value of the trust assets. Fees based on the value of the entire taxable estate may not make sense if the trust is simple and doesn’t require a lot of management.

A consultation with a skilled estate planning attorney should include discussions of who is available to serve as a successor trustee. There are very few situations that estate planning attorneys haven’t seen. They can help determine even the most complicated family dynamics to name a trustee.

Y Reference: Kiplinger (April 25, 2024) “How to Choose Your Trustee or Executor of Your Will”

Why are Inheritance Conversations Necessary?

Having an estate plan prepared by an experienced estate planning attorney is nowhere near as challenging as having conversations with adult children about your intentions. However, not having the conversation is a major mistake. The big wealth transfer between generations has led to a rise in litigation over inheritances, according to an article from The Wall Street Journal, “Hash Out the Inheritance Now, or Fight Your Family Later.”

Typical fights? The child who stayed in their hometown to care for Mom versus the one who left to live out their dreams on the opposite coast. The biological children of the first spouse to die in a blended family. There’s plenty more. However, they all result from a lack of candid discussions before parents die.

A study by a financial services company found that a third of Americans state they have no plans to discuss their inheritance with their family. This refusal to have open discussions leads not only to litigation but also to lost family relationships.

Members of all generations need to hear from their parents and grandparents what they were thinking when they created their estate plan and decided how to distribute their assets. Even when the conversations are uncomfortable, the results are long-lasting.

For one family, a mother told her granddaughters she wanted them to inherit her diamond rings. She expressed her wishes but never put them into her will. Everything was left to her second husband. Her son knew where she kept the will but never asked to see it. Had he reviewed the will, he would have had an opportunity to remind her of her promise.

Blended families are particularly vulnerable to estate battles, making it even more important to have the inheritance conversation before their parents pass. Solutions include creating a trust, having specific provisions in the will and properly titling accounts and real estate assets to ensure that the property passes to the heir of your choosing.

The inheritance conversation is not a one-and-done discussion. Once children are mature enough, it’s good to start talking with them about financial matters. Business owners need to discuss succession plans, especially if their children are in the family business. Unexpected events can occur at any age, so waiting until retirement is on the horizon is not a good idea.

These discussions don’t need to happen at Thanksgiving or other family gatherings. Family meetings should be separate from family events. If family members live far apart, meeting via video might have to substitute. The important thing is to have ongoing discussions in whatever way works for the family.

Finally, one way to avoid surprises is to give heirs all or part of their inheritance with warm hands, that is, while you are still living. This gives parents peace of mind knowing that their children have already received their inheritances.

Reference: The Wall Street Journal (April 6, 2024) “Hash Out the Inheritance Now, or Fight Your Family Later”

Why You Should Regularly Update Your Will

Preparing documents like wills, trusts and powers of attorney will help make your passing easier for your loved ones. Such vital documents should change with your life circumstances. However, many adults never revisit their will after they write it. If you want your assets to do the best for your family, update your estate documents regularly.

What Can Happen If You Don’t Update Your Will?

Whitney Houston’s Costly Oversight

Whitney Houston’s unfortunate passing in 2012 left behind an outdated will. She created it in 1993, a month before the birth of her daughter. At the time, Whitney Houston didn’t expect to pass away before her daughter, Bobbi Kristina Brown, entered adulthood or to build a fortune of $20 million.

The outdated will stipulated that Bobbi Kristina would inherit 10% of Houston’s fortune at 21. By the time of Whitney Houston’s passing, this represented a staggering $2 million. This failure to update left Bobbi Kristina burdened with grief and vast financial responsibility. It may also have contributed to Bobbi Kristina’s own tragedy. Three years later, she died in a drug-related drowning incident like her mother.

Why Is It Crucial to Update Your Estate Plan?

If you want your loved ones to thrive even after you’re gone, update your estate planning documents regularly, as explained by the University of Florida in their guide, 17 Reasons to Update Your Will. Instead of planning for some far-off future, write your will with today in mind and update as needed. Here are some critical times when you should consider updating your will:

• Moving to a New State: Laws differ by state. If you move, review your estate plan with a local attorney to ensure that you follow the new regulations.
• Marriage or Divorce: Ensure that your estate plan reflects your current marital situation.
• Adding to Your Family: The birth or adoption of a new family member warrants revising your estate plans.
• Changes in Your Assets: If assets or the total value of your estate have changed, it’s advisable to update your will.

How Often Should You Update Your Will?

You should review your estate plan every three to five years. If you experience significant life events, you should make a special update to your will. Consult an experienced estate planning attorney and ensure that your documents reflect your wishes.

When Should You Consult an Estate Planning Attorney?

Anything that would make your old will outdated is a reason to consult an attorney. A possible reason to revise your estate could be a change in your familial relationships or the growth of your estate. Whatever your circumstances, an attorney can provide guidance tailored to your current needs.

Conclusion

Don’t wait for the unexpected; regular updates to your estate plan can protect you and your loved ones from future complications. If you’re uncertain whether your estate plan is current, contact our law firm to schedule a consultation. Our experienced team is ready to help ensure that your final testament is best for you and your loved ones.

Key Takeaways

• Regular Updates Are Essential: You should change your will after major events, such as marriage, moving, or having children.
• Protect Your Loved Ones: An up-to-date will can distribute your assets according to your wishes.
• Consult Professionals: Keep your estate planning on track by regularly consulting an attorney.

References: AARP (September 2016), “Celebrity Estate Planning Mistakes”

University of Florida, “17 Reasons to Update Your Will””