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Estate Planning Blog

Serving Clients Throughout North Central Missouri

Retirement Planning

Reviewing Estate Plans Matters

If your estate plan or your parent’s estate plan hasn’t been reviewed in the last four years—or the last forty years—it’s time for an estate plan check-up—sooner, not later. Besides the potential for costing a lot to correct, says a recent article in Forbes entitled “5 Reasons To Have Your Parents’ Estate Plan Reviewed,” the documents may no longer work to achieve your parent’s wishes.

Rather than fix a messy situation after death, have an experienced estate planning attorney review the documents now. Here’s why.

Stale documents are anathema to financial institutions. If a power of attorney is more than twenty years old, don’t expect it to be received well by a bank or brokerage house. The financial institution will probably want to get an affidavit from the attorney who originally created the document to attest to its validity. Start with a hunt to find said attorney, and then hope that nothing occurs between the time that you request the affidavit and the time it arrives. For one client, the unexpected death of a parent during this process created all kinds of headaches. A regular review and refresh of estate documents would have prevented this issue.

State laws change. Changes to state laws change how estates are handled. They may be positive changes that could benefit your parents and your family. Let’s say your mother’s will leaves all of the contents of her home to numerous people. Locating all of these people becomes costly, especially if the will needs to be probated. Many states now allow for a separate document that lets personal items be disposed of, without being part of the probated estate. However, if the will has not been reviewed in ten or twenty years, you won’t know about this option.

Languages in estate planning documents change. In addition to changes in the law, there are changes to language that may have a big impact on the estate. Many attorneys have changed the language they use for trusts based on the SECURE Act. If your parent has a retirement account payable to a trust, it is critical that this language be modified, so that it complies with the new law. Lacking these updates, your parent’s estate may be subject to an increase in taxes, fees, or penalties.

Estate laws change over time. Recent years have seen major changes to estate law, from the aforementioned SECURE Act to changes in federal exclusions and gift taxes. Is your parent’s estate plan (or yours) in compliance with the new laws? If assets have changed since the last estate plan was done, there may be tax law changes to be incorporated. Are there enough assets available to pay the taxes from the estate or the trusts? If many accounts pass by beneficiary designation, getting beneficiaries to come up with the cash to pay the tax bill may be problematic.

The decedent’s wishes may not be followed, if documents are not updated. Here’s an example. A man came to an estate planning attorney’s office with his father’s will, which had not been updated. His father died, having been predeceased by the father’s sister. The man was the only living child. He and his father had a mutual understanding that the son would inherit the entire estate on the death of his father. However, his father’s sister had also died, and the will stated that her children would receive the sister’s share. The man had to share his inheritance with estranged nieces and nephews. Had the will been reviewed with an attorney, this mishap could have been prevented very easily.

Reference: Forbes (May 25, 2021) “5 Reasons To Have Your Parents’ Estate Plan Reviewed”

 

estate planning

Fraudsters Continue to Target Elderly

The National Council on Aging reports that seniors lose an estimated $3 billion to financial scams, which is the worst possible time in life to lose money. There’s simply no time to replace the money. Why scammers target the elderly is easy to understand, as reported in the article “Scam Alert: 4 Types of Fraud That Target the Elderly (and How to Beat Them)” from Kiplinger. People who are 50 years and older hold 83% of the wealth in America, and households headed by people 70 years and up have the highest median net worth. That is where the money is.

The other factor: seniors were raised to mind their manners. An older American may feel it’s rude to hang up on a fast-talking scammer, who will take advantage of their hesitation. Lonely seniors are also happy to talk with someone. Scammers also target widows or divorced older women, thinking they are more vulnerable.

Here are the most common types of scams today:

Imposter scams. The thief pretends to be someone you can trust to trick you into giving them your personal information like a password, access to a bank account or Social Security number. This category includes phone calls pretending to be from the Social Security Administration or the IRS. They often threaten arrest or legal action. Neither the IRS nor the SSA ever call people to ask for personal information. Hang up!

Medicare representative. A person calls claiming to be a representative from Medicare to get older people to provide personal information. Medicare won’t call to ask for your Social Security number or to obtain bank information to give you new benefits. Phone scammers are able to “spoof” their phone numbers—what may appear on your caller ID as a legitimate office is not actually a call coming from the agency. Before you give any information, hang up. If you have questions, call Medicare yourself.

Lottery and sweepstakes scams. These prey on the fear of running out of money during retirement. These scams happen by phone, email and snail mail, congratulating the recipient with news that they have won a huge lottery or sweepstakes, but the only way to access the prize is by paying a fee. The scammers might even send a paper check to cover the cost of the fee, but that check will bounce. Once you’ve sent the fee money, they’ll pocket it and be gone.

What can you do to protect yourself and your loved ones? Conversations between generations about money become even more important as we age. If an elderly parent talks up a new friend who is going to help them, a red flag should go up. If they are convinced that they are getting a great deal, or a windfall of money from a contest, talk with them about how realistic they are being. Make sure they know that the IRS, Medicare and Social Security does not call to ask for personal information.

For those who have not been able to see elderly parents because of the pandemic, this summer may reveal a lot of what has occurred in the last year. If you are concerned that they have been the victims of a scam, start by filing a report with their state’s attorney general office.

Reference: Kiplinger (June 10, 2021) “Scam Alert: 4 Types of Fraud That Target the Elderly (and How to Beat Them)”

 

Near Retirement Planning

How are Charitable Contributions Used to Reduce Estate Taxes?

Increasing tax changes for the wealthy are coming, and motivation to find ways to protect the wealth is getting increased attention, according to a recent article from CNBC entitled “Here’s how to reduce exposure to tax increases with charitable contributions.” Charitable remainder trusts (CRTs) and Donor Advised Funds (DAFs) are options for people who are already charitably inclined. The CRT is complicated, requiring estate planning attorneys to create them and accountants to maintain them. The DAF is simpler, less expensive and is growing in popularity.

Both enable income tax deductions, in the current year or carried forward for five years, on cash contributions of up to 60% of the donors’ AGI and up to 30% of AGI on contributed assets. These contributions also reduce the size of taxable estates.

CRTs funnel asset income into a tax-advantaged cash stream that goes to the donor or another designated non-charitable beneficiary. The income stream flows for a set term or, if desired, for the lifetime of the non-charitable beneficiary. The trusts must be designed, so that at the end of the term, at least 10% of the funds remain to be donated to a charity, which must be designated at the outset.

No tax is due on proceeds from the sale of trust assets, until the cash makes its way to the non-charitable beneficiary. When assets are held by individuals, their sale creates capital gains tax in the year they are sold.

CRT donors can fund the trusts with highly appreciated assets, then manage them for optimal returns while minimizing tax exposure by adjusting the income stream to spread the tax burden over an extended period of time. If capital gains tax rates are raised by Congress, this would be even better for high earners.

DAFs do not allow dispersals to non-charitable beneficiaries. All gains must ultimately be donated to charity. However, the DAF provides advantages. They are easy to create and can be set up with most large financial service companies. Their cost is lower than CRTs, which have recurring fees for handling required IRS filings and trust management. Charges from financial institutions typically range from 0.1% to 1% annually, depending upon the size, and a custodial fee for holding the account.

DAFs can be created and funded by individuals or a family and receive a deduction that very same year. There is no hurry to name the charitable beneficiaries or direct donations. With a CRT, donors must name a charitable beneficiary when the trust is created. These elections are difficult to change in the future, since the CRT is an irrevocable trust. The DAF allows ongoing review of giving goals.

Funding a DAF can be done with as little as $5,000. The DAF contribution can include shares of privately owned businesses, collectibles, even cryptocurrency, as long as the valuation methods used for the assets meet IRS rules. Donors can get tax deductions without having to use cash, since a wide range of assets may be used.

The DAF is a good way for less wealthy individuals and families to qualify for itemizing tax deductions, rather than taking the standard deduction. DAF donations are deductible the year they are made, so filers may consolidate what may be normally two years’ worth of donations into a single year for tax purposes. This is a way of meeting the IRS threshold to qualify for itemizing deductions.

Which of these two works best depends upon your individual situation. With your estate planning attorney, you’ll want to determine how much of your wealth would benefit from this type of protection and how it would work with your overall estate plan.

Reference: CNBC (April 20, 201) “Here’s how to reduce exposure to tax increases with charitable contributions.”

 

married couples estate planning

Should Parents of Young Children Have a Trust?

Let’s say that there’s a young father with a wife and young son, who owns a home and a Roth IRA account, with a few stock investments. On the stock investments, he’s filled out the beneficiary designation forms passing all his assets to his wife and son, should anything happen to him.

This father owns his home is joint tenancy with right of survivorship with his wife.

Does he need to set up a separate trust, if most of his assets pass through beneficiary designations?

Nj.com’s recent article entitled “Do I need a trust in case something happens to me?” says that leaving assets outright to a minor is typically a bad move. The son’s guardian and/or the court would take custody of the assets, both of which require significant court oversight and involvement.

The minor would also receive the assets upon attaining the age of majority, which in most states is age 18.

No one can tell what a young child will be like at the age of 18, especially after suffering the loss of their parents. Even if there are no significant issues, such as drug addiction or special needs, parents should think about what they’d have done with that much money at that age.

The best option is to leave assets in trust for the benefit of the minor son.

The trustee can manage and use the assets for the benefit of the young boy with limited court involvement.

The terms of the trust can also delay the point at which the assets can be distributed and ultimately paid over to the beneficiary, if at all.

For example, it’s not uncommon for a trust to stipulate that the beneficiary gets a third of the assets at 25, half of the remaining assets at 30 and the rest at age 35. However, other trusts don’t provide for such mandatory distributions and can hold the assets for the beneficiary’s lifetime, which has its advantages.

In some instances, the terms of the trust are included in a will. This creates a trust account after death, which is also called a testamentary trust.

Talk to an experienced estate planning attorney, who can assess your specific situation and provide guidance in creating an estate plan. The attorney can also make certain that trust assets are correctly titled and that beneficiary designations of retirement accounts and life insurance are correctly prepared, so the trust under the will receives those assets and not the minor individually.

Reference: nj.com (June 14, 2021) “Do I need a trust in case something happens to me?”

 

What are the Most Popular Estate Planning Scams?

The Wealth Advisor’s recent article entitled “Beware of These Common Estate Planning Scams” advises you to avoid these common estate planning scams.

  1. Cold Calls Offering to Prepare Estate Plans. Scammers call and email purporting to be long lost relatives who’ve had their wallets stolen and are stranded in a foreign country. Seniors fall prey to this and will pay for estate planning documents. Any cold call from someone asking that money be wired to a bank account, in exchange for estate planning documents should be approached with great skepticism.
  2. Paying for Estate Planning Templates. For a one-time fee, some scammers will offer estate planning documents that may be downloaded and modified by an individual. While this may look like a great deal, avoid using these pro forma templates to draft individual estate plans. Such templates are rarely tailored to meet state-specific requirements.  Even for those templates that claim to be state-specific, they often fail to incorporate contingencies that are necessary for a comprehensive and complete estate plan. Instead, work with an experienced estate planning attorney.
  3. Not Requiring an Estate Plan. Although less of a scheme, some people think they do not need an estate plan. However, proper estate planning entails deciding who can make health care and financial decisions during life, in the event of incapacity. These documents help to minimize the need for family members to petition the Probate Court in certain situations.
  4. Paying High Legal Fees. Like many things in life, with an estate plan, you may get what you pay for. Paying money upfront to have your intentions memorialized in writing can minimize the expense. Heirs should be on guard if an attorney hired to administer an estate is charging exorbitant fees for what looks to be a well-prepared estate plan. Don’t be afraid to get a second opinion in these situations.
  5. Signing Estate Planning Documents You Don’t Understand. Estate planning documents are designed to prepare for potential incapacity and for death. It is critical that your estate planning documents represent your intentions. However, if you don’t read them or don’t understand what you’ve read, you will have no idea if your goals are accomplished. Make certain that you understand what you’re signing. An experienced estate planning attorney will be able to explain these documents to you clearly and will make sure that you understand each of them before you sign.

You can avoid these common scams by establishing a relationship with an experienced attorney you trust.

Reference: The Wealth Advisor (June 7, 2021) “Beware of These Common Estate Planning Scams”

 

Is Estate Planning for Everyone?

Can I Collect Social Security from an Ex-Spouse?

The divorce rate among Americans 50 and older has roughly doubled since the 1990s, and nearly tripled for those over 65. Kiplinger’s recent article entitled “Yes, You Can Collect Social Security from an Ex-Spouse: Here’s How” explains that you can collect on your ex-spouse’s record if:

  • You’re at least 62 and single
  • You were married to your ex-spouse for at least 10 years
  • The benefit you are entitled to receive based on your own work history is less than the benefit you’d get based on your former spouse’s work history; and
  • Your ex-spouse qualifies for Social Security.

You can even begin drawing benefits before your ex-spouse has retired, provided he or she qualifies, and you’ve been divorced at least two years. You can receive up to 50% of the amount your former spouse would receive in benefits at their full retirement age (this is for all spouses, not just exes). This is not in addition to your own benefit. Your benefit has to be lower than half of your ex’s benefit for you to apply.

Many divorced spouses are eligible for the same survivor benefits as current spouses. This means you could get the full amount of your ex’s benefits, not just half. Your marriage has to have lasted at least 10 years, and the amount has to be greater than what you’d receive based on your own record.  There’s also another big difference: you can start getting survivor benefits at age 60, or 50 if you’re disabled.

The Social Security Administration (SSA) says that if you are divorced, when applying for benefits on your ex’s record, you will be asked questions about your name and work history. You may need to provide:

  • A birth certificate or other proof of birth.
  • Proof of U.S. citizenship or lawful alien status, if you were not born in the United States.
  • S. military discharge paper(s), if you had military service before 1968.
  • W-2 forms(s) and/or self-employment tax returns for last year.
  • Your marriage certificate.
  • Your final divorce decree.

Speak with an experienced elder law attorney before deciding how and when to take Social Security.

Reference: Kiplinger (May 13, 2021) “Yes, You Can Collect Social Security from an Ex-Spouse: Here’s How”

 

Retirement Planning

Do I Need an Estate Plan If I’m Not Married?

The County 17 recent article entitled “Even ‘Singles’ Need Estate Plans” says if you die intestate (i.e., without a last will and testament), your assets could be subject to the probate process. Translation? Your assets would be distributed by the court according to your state’s intestate succession laws. That means it’s done without any regard for your wishes. Even if you don’t have children, you may have nephews or nieces, or even children of cousins or friends, to whom you would like to leave some of your assets. This might include not just money but also cars, collectibles, or family memorabilia. However, if everything you own goes through probate, there is no guarantee that these people will get what you want them to have.

If you want to leave something to family members or close friends, you will need to make this instruction in your last will. You also may want to provide support to some charitable organizations. You can just name these charities in your last will, but there may be options that could provide you with more benefits.

One is a charitable remainder trust. With this, you would transfer appreciated assets, like stocks, mutual funds, or other securities, to an irrevocable trust. The trustee, whom you’ve named (you could serve as trustee yourself) can then sell the assets at full market value, avoiding the capital gains taxes you’d have to pay if you sold them yourself, outside a trust. If you itemize, you may be able to claim a charitable deduction on your taxes. With the proceeds, the trust can purchase income-producing assets and provide you with an income stream for the rest of your life. At death, the remaining trust assets will pass to the charities you have designated.

Aside from family members and charitable groups, there’s a third entity that’s critical to your estate plans: you. You should make arrangements to protect their interests, but, in the absence of an immediate family, as a single person, you need to be especially watchful of your financial and health care decisions. As a result, as part of your estate planning, you may want to include these two documents: durable power of attorney and a health care proxy.

A durable power of attorney lets you name a trusted individual to manage your finances, if you become incapacitated. This is especially important for anyone who doesn’t have a spouse. If you become incapacitated, your health care proxy (also known as a health care surrogate or medical power of attorney) lets you name another person to legally make health care decisions, if you are unable to do so.

Estate planning moves can be complex, so you’ll need help from an experienced estate planning attorney. While you may not have an immediate family, you still need to take steps to protect your legacy.

Reference: County 17 (May 24, 2021) “Even ‘Singles’ Need Estate Plans”

 

estate planning and elder law

Will Melinda Gates Changed Estate Plan after Divorce?

Divorce experts say there are signs that Melinda Gates’ divorce filing shows that she’s going to change her three children’s inheritance after her estranged husband, Bill Gates, has said he’s leaving them only $10 million each.

Page Six’s recent article entitled “Melinda Gates could be angling to change kids’ $10M inheritance in split” says that Melinda has taken the highly unusual step of designating some top trust and estate lawyers as her representatives in her divorce filing, along with the customary matrimonial attorneys. This move signals that Melinda has potential plans for her family which are not the same as Bill’s.

Bill Gates has previously said his children will get a “minuscule” piece of his $130 billion fortune. The Microsoft mogul plans to leave just $10 million to each of his three children.

Melinda said in her divorce filing that a separation agreement was in place, and sources say that if the parameters of the couple’s inheritance are not detailed in the pact, either party could change the amount their children inherit.

Inheritance typically isn’t addressed in such separation agreements.

Melinda’s filing for divorce and potentially changing her children’s inheritance follows a path of female empowerment increasingly expressed by the philanthropist. Gaining control in her share of the fortune and coming out from under Bill’s shadow is a big step for empowerment. Bill and Melinda announced on May 3 that they were getting divorced after 27 years of marriage.

They added: “Over the last 27 years, we have raised three incredible children and built a foundation that works all over the world to enable all people to lead healthy, productive lives. We continue to share a belief in that mission and will continue our work together at the foundation, but we no longer believe we can grow together as a couple in this next phase of our lives. We ask for space and privacy for our family as we begin to navigate this new life.”

There are reports that Melinda grew concerned about Bill’s association with the late pedophile investor Jeffrey Epstein. Melinda had reportedly warned her husband that she was uncomfortable with Epstein after they met him in 2013. That was the same year Bill allegedly flew on Epstein’s private jet from New Jersey to Palm Beach, Florida.

A spokesperson for Gates has previously said he stands by a 2019 statement that he met Epstein but “didn’t have any business relationship or friendship with him.”

Reference: Page Six (May 17, 2021) “Melinda Gates could be angling to change kids’ $10M inheritance in split”

 

Retirement Planning

When Should an Estate Plan Be Reviewed?

If your parents don’t remember when they last reviewed their estate plan, then chances are it’s time for a review. Over the years, wishes, relationships and circumstances change, advises the recent article, “5 Reasons To Have Your Parents’ Estate Plan Reviewed,” from Forbes. An out-of-date estate plan may not achieve your parent’s wishes, or be declared invalid by the court. Having an estate planning attorney review the estate plan may save you money in the long run, not to mention the stress and worry created by an estate disaster. If you need reasons, here are five to consider.

Financial institutions are wary of dated documents. Banks and other financial institutions look twice at documents that are not recent. Trying to use a Power of Attorney that was created twenty years ago is bound to create problems. One person tried to use a document, but the bank insisted on getting an affidavit from the attorney who prepared it to be certain it was valid. While the son was trying to solve this, his mother died, and the account had to be probated. A “fresh” power of attorney would have solved the problem.

State laws change. Things that seem small become burdensome in a hurry. For example, if someone wants to leave a variety of personal effects to many different people, each and every one of the people listed would need to be located and notified. Many states now allow a separate writing to dispose of personal items, making the process far easier. However, if the will is out of date, you may be stuck with a house-sized task.

Legal document language changes. The SECURE Act changed many aspects of estate planning, particularly with regard to retirement accounts. If your parents have retirement accounts that are payable to a trust, the trust language must be changed to comply with the law. Not having these updates in the estate plan could result in an increase in income taxes or costly fees to fix the situation.

Estate tax laws change. In recent years, there have been many changes to federal tax laws. If your parents have not updated their estate plan within the last five years, they have missed many changes and many opportunities. It is likely that your parents’ assets have also changed over the years, and the documents need to reflect how the estate taxes will be paid. Are their assets titled so that there are enough funds in the estate or trust to cover the cost of any liability? Here’s another one—if all of the assets pass directly to beneficiaries via beneficiary designations, who is going to pay for the tax bills –and with what funds?

Older estate plans may contain wishes from decades ago. For one family, an old will led to a situation where a son did not inherit his father’s entire estate. His late sister’s children, who had been estranged from him for decades, received their mother’s share. If the father and son had reviewed the will earlier, a new will could have been created and signed that would have given the son what the father intended.

These types of problems are seen daily in your estate planning attorney’s office. Take the time to get a proper review of your parent’s estate plan, to prevent stress and unnecessary costs in the future.

Reference: Forbes (May 25, 2021) “5 Reasons To Have Your Parents’ Estate Plan Reviewed”

estate planning

Can Family Members Contest a Will?

Estate planning documents, like wills and trusts, are enforceable legal documents, but when the grantor who created them passes, they can’t speak for themselves. When a loved one dies is often when the family first learns what the estate plans contain. That is a terrible time for everyone. It can lead to people contesting a will. However, not everyone can contest a will, explains the article “Challenges to wills and trusts” from The Record Courier.

A person must have what is called “standing,” or the legal right to challenge an estate planning document. A person who receives property from the decedent, and was designated in their will as a beneficiary, may file a written opposition to the probate of the will at any time before the hearing of the petition for probate. An “interested person” may also challenge the will, including an heir, child, spouse, creditor, settlor, beneficiary, or any person who has a legal property right in or a claim against the estate of the decedent.

Wills and trusts can be challenged by making a claim that the person lacked mental capacity to make the document. If they were sick or so impaired that they did not know what they were signing, or they did not fully understand the contents of the documents, they may be considered incapacitated, and the will or trust may be successfully challenged.

Fraud is also used as a reason to challenge a will or trust. Fraud occurs when the person signs a document that didn’t express their wishes, or if they were fooled into signing a document and were deceived as to what the document was. Fraud is also when the document is destroyed by someone other than the decedent once it has been created, or if someone other than the creator adds pages to the document or forges the person’s signature.

Alleging undue influence is another reason to challenge a will. This is considered to have occurred if one person overpowers the free will of the document creator, so the document creator does what the other person wants, instead of what the document creator wants. Putting a gun to the head of a person to demand that they sign a will is a dramatic example. Coercion, threats to other family members and threats of physical harm to the person are more common occurrences.

It is also possible for the personal representative or trustee’s administration of a will or trust to be challenged. If the personal representative or trustee fails to follow the instructions in the will or the trust, or does not report their actions as required, the court may invalidate some of the actions. In extreme cases, a personal representative or a trustee can be removed from their position by the court.

An estate plan created by an experienced estate planning lawyer should be prepared with an eye to the family situation. If there are individuals who are likely to challenge the will, a “no-contest” clause may be necessary. Open and candid conversations with family members about the estate plan may head off any surprises that could lead to the estate plan being challenged.

One last note: just because a family member is dissatisfied with their inheritance does not give them the right to bring a frivolous claim, and the court may not look kindly on such a case.

Reference: The Record-Courier (May 16, 2021) “Challenges to wills and trusts”