Estate Planning Blog

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””

Trust Terms: A Guide to How Trusts are Created and Distributed

This guide defines the essential terms and the process of creating and distributing a trust, helping you plan confidently. It is advisable to work with an experienced estate planning professional to tailor a trust that meets your specific needs and help guide trustees through the intricate financial duties of managing the trust.

How Is Trust Created?

A trust is a legal document that outlines how your assets will be managed during your lifetime and after your death. The person who creates the trust is the grantor, also known as a settlor or trustor. This individual has the legal authority to transfer ownership of their property or assets into the trust. Upon the grantor’s death, they are referred to as the decedent. The grantor supplies the assets within the trust.

Step 1: Decide What Assets to Place in the Trust

The first step in establishing a trust involves deciding which assets you want to include. Assets are property or valuable items, both concrete and digital, that transfer ownership from the grantor to the trust. They can range from cash, real estate, stocks, bonds and business interests.

Step 2: Identify Your Beneficiaries

Next, determine who will benefit from the trust, known as the beneficiaries. This could be family members, friends, or charitable organizations.

Step 3: Determine the Rules of Your Trust

The grantor also sets the trust rules for how assets should be distributed or given to the beneficiaries. Funds could be designed for educational purposes, as a steady income, or as a lump sum upon reaching a certain age.

Step 4: Select Your Trustee or Trust Manager

The trustee’s job involves managing the trust’s assets to a high level of responsibility and dedication, called fiduciary duties. They ensure that all distributions to beneficiaries are made according to the trust rules, and fund management may last several years. The grantor can choose a trusted individual or a professional institution to serve as trustee.

Step 5: Drafting and Funding the Trust with an Estate Attorney

Create your trust by drafting a legal document with an estate planning attorney. Lastly, the grantor must fund the trust or transfer ownership of all assets, known as the principal, that the trust will manage. Assets must be placed in the trust for the trust to have legal authority over them.

How are Assets in a Trust Distributed to Beneficiaries?

Trust administration is the process of managing the assets, distributions and filings of a trust after the grantor’s death. These tasks can often be complex and time-sensitive, making the professional guidance of an estate lawyer essential. The trustee is responsible for managing the trust’s assets, ensuring that distributions are made in accordance with the trust document and fulfilling other fiduciary duties.

Step 1: Notification and Documentation

The trustee will gather all necessary documents, including the trust agreement and death certificate. They must notify all beneficiaries and related parties about the trustor’s death and the start of the trust administration process.

Step 2: Trust Asset Management

The trustee assesses and manages the trust’s assets. This may include liquidating assets, transferring titles and ensuring proper valuation. The trustee must also maintain detailed records of all transactions and decisions made.

Step 3: Financial Obligations

The trustee is responsible for settling the trust’s debts and obligations, including paying taxes. Before distributing assets to beneficiaries, they must ensure that all financial responsibilities are met.

Step 4: Distribution of Assets

Once all financial obligations have been met, the trustee distributes the assets, which involves making a payment or giving property from the trust to the beneficiaries based on the trust terms. Depending on the specific stipulations of the trust, this could be in the form of lump sums, structured payouts, or ongoing distributions.

Step 5: Ongoing Trust Management

If the trust is designed to continue over time, the trustee must manage it according to its terms. This includes ongoing investment management, tax filings and distributions to beneficiaries as required.

Trust Terms Definitions

• Beneficiary: Individuals or entities named by the grantor to inherit the assets in the trust.
• Fiduciary: Someone obligated to act in the best interest of another, such as a trustee for a beneficiary.
• Funding: The act of transferring assets into the trust is essential for its effectiveness.
• Grantor: The person who establishes a trust. They are also known as the settlor or trustor.
• Distributions: Making payments or giving property from the trust to the beneficiaries as outlined in the trust’s terms. Depending on the trust’s rules, this can include periodic payouts, lump-sum disbursements, or specific allocations of property.
• Principal: The original assets placed into the trust, excluding any earnings like interest or dividends.
• Trust: A legal document that outlines how your assets should be managed during your lifetime and after your death.
• Trust Administrator: A professional responsible for overseeing a trust managed by a financial institution.
• Trustee: The organization or person tasked with managing the trust.

Understanding these terms and the steps to creating a trust can empower you to make informed decisions about your estate. Consult with an experienced estate planning professional to help you navigate these processes and establish a trust that aligns with your wishes and efficiently provides for your beneficiaries.

References: U.S. Bank “Trust Terms You Need to Know” and American Bar Association “Glossary of Estate Planning Terms: Estate Planning Information & FAQs”

Why Consider a Prenup before Your Wedding

Prenuptial agreements (“Antenuptial Agreements”) are gaining popularity among millennials. While there’s still a stigma persisting against prenups, they can protect both parties in the event of unexpected troubles. The American Bar Association recommends prenups as a valuable tool to clarify each new spouse’s financial goals and assets, whether joint or separate.

What Is a Prenuptial Agreement?

A prenuptial agreement is a legal contract between two people about to get married. It outlines how assets and debts will be handled during and after the marriage. This can include property, investments, and even future earnings.

Are Prenuptial Agreements Only for the Wealthy?

Many people believe that prenuptial agreements are only for the rich and famous. However, they can be beneficial for anyone. Whether you have significant assets or not, a prenup can protect your financial interests and provide peace of mind.

Why Do Prenups Still Feel Taboo?

Despite their benefits, prenuptial agreements often feel taboo. According to Sky News, many people view discussing financial matters before marriage as unromantic or unfaithful. However, this perspective is changing. As time passes, more people recognize the practical benefits of a prenup.

A Story of Prenups and Peace of Mind

The Sky News article tells the story of Olivia and Leo. Olivia built a business from the ground up, and both had children from previous marriages. “The idea of a prenup isn’t very romantic,’ she said.

However, they created a prenup to outline everything they owned. “It didn’t feel right that if something were to happen in the future, I could just have what she had built with her business,” said Leo. Their agreement gave them peace of mind, allowing them to focus on their relationship without unneeded financial worries.

What Should Be Included in a Prenup?

A prenuptial agreement can cover a wide range of issues, including:

• Property Ownership: Who owns what property, and how it will be divided in case of a divorce?
• Debts: How existing debts will be handled.
• Inheritance: Protection of family inheritances.
• Business Interests: Protection of individual business interests.
• Financial Responsibilities: How finances will be managed during the marriage.

How to Discuss a Prenup with Your Fiance?

Bringing up the topic of a prenuptial agreement can be challenging. Here are some tips:

• Start Early: Discuss the possibility of a prenup well before the wedding.
• Be Honest: Openly discuss your financial situation and concerns.
• Focus on the Future: Emphasize that a prenup is about planning for the future and ensuring financial stability.

Plan For Peace of Mind with a Prenup

If you are considering a prenuptial agreement or want to learn more about how it can benefit you, contact our estate planning law firm. We can help you create a plan that protects your interests and ensures a stable financial future. Schedule a consultation with us today to get started.

Key Takeaways

• Financial Clarity: Prenuptial agreements clearly understand each partner’s financial rights and responsibilities.
• Protection of Assets: A prenup can safeguard personal and family assets for both partners.
• Debt Management: Prenups help manage and separate individual debts, shielding partners from the others’ liabilities.
• Conflict Reduction: A prenuptial agreement significantly reduces conflicts and legal battles post-divorce.
• Future Planning: Prenups facilitate open discussions about finances, helping couples plan for a stable financial future.

References: News.Sky (May 20 2024) “Prenuptial agreements are on the rise – so why do they still feel taboo?” and American Bar Association (May 1 2024) “What Is a Prenuptial Agreement?”

How to Discuss Estate Planning with Your Aging Parents

Estate planning is essential to protect your parents’ assets and wishes. Proper estate planning can put their assets to use, serving their priorities, even when they’re gone. It can spare you and your loved ones extra stress while you process their passing. However, discussing estate planning can be uncomfortable for everyone involved. Take a compassionate, thoughtful approach to having a conversation that benefits everyone.

When Should You Talk to Your Parents about Estate Planning?

According to Thrivent, the best time to talk to your parents about estate planning is sooner rather than later. When your parents are relaxed and receptive, starting a conversation about their passing is easier. If you wait until a crisis, you’ll have to navigate the emotional burdens your parents are already suffering. Be proactive and discuss estate planning with your parents, when possible, not when necessary.

How to Start the Conversation

Before bringing up the topic, organize your thoughts and consider who needs to join the conversation. Involve siblings or other close family members and ensure that everyone is on the same page. Emphasize that the conversation is about supporting your parents. Put their wishes first and foremost, rather than centering on anyone’s personal gain.

What Estate Planning Topics Should I Discuss with My Parents?

• Wills: Ask your parents if they have a will and if it’s up to date. A will outlines how they want their assets distributed and names an executor to handle the document’s requests.
• Power of Attorney: Discuss the importance of power of attorney. This way, your parents have someone to handle financial issues if they are unable to do so themselves.
• Healthcare Proxy: A healthcare proxy is also known as a healthcare power of attorney. By setting this up, your parents can choose someone to make medical decisions on their behalf if they are incapacitated.
• Living Will: A living will dictates end-of-life care preferences, including options such as feeding tubes, respirators and do-not-resuscitate orders.
• Trusts: Explain the benefits of setting up a trust. A trust can manage assets during and after their lifetime. This can protect them from fraud and abuse and reduce the tax burden on their estate.
• Beneficiaries: Ensure that your parents have up-to-date beneficiary designations on their accounts and life insurance policies.
• Burial Decisions: Discuss any pre-planned funeral arrangements or burial plots they might want to purchase in advance.
• Organ Donation: Many people wish to donate their bodies for the good of others. If they wish to do so, your parents will need to complete a consent form first.

Reflecting on the Next Step

If your parents have already started estate planning, this conversation can help clarify their plans and address any gaps. By approaching the topic with compassion and patience, you can help them take important steps toward securing their future.

Don’t Leave It Up to Chance

Estate planning is crucial for protecting your aging parents’ wishes and ensuring peace of mind for the whole family. To learn more or to start creating a plan, request a consultation with our experienced estate planning attorneys today.

Key Takeaways

• Set Clear Intentions: Make it clear that your goal is to support your parents and ensure that their wishes are followed.
• Explain the Benefits: Highlight how estate planning protects their legacy and reduces future stress for the family.
• Listen Actively: Give your parents space to share their thoughts and feelings. Respect their decisions and pace.
• Offer Help: Assist with finding an attorney or accessing necessary forms and documents.

Reference: Тhrivent (Jul. 25, 2023) “How to Talk to Your Parents About Estate Planning With Compassion | Thrivent”