Estate Planning

Should I Give My Kid the House Now or Leave It to Him in My Will?

August 25, 2020 No Comments

Transferring your house to your children while you’re alive may avoid probate, the court process that otherwise follows death. However, gifting a home also can result in a big, unnecessary tax burden and put your house at risk, if your children are sued or file for bankruptcy.

Further, you also could be making a big mistake, if you hope it will help keep the house from being used for your nursing home bills.

MarketWatch’s recent article entitled “Why you shouldn’t give your house to your adult children” advises that there are better ways to transfer a house to your children, as well as a little-known potential fix that may help even if the giver has since passed away.

If you bequeath a house to your children so that they get it after your death, they get a “step-up in tax basis.” All the appreciation that occurred while the parent-owned the house is never taxed. However, when a parent gives an adult child a house, it can be a tax nightmare for the recipient. For example, if the mother paid $16,000 for her home in 1976, and the current market value is $200,000, none of that gain would be taxable if the son inherited the house.

Families who see this mistake in time can undo the damage, by gifting the house back to the parent.

Sometimes people transfer a home to try to qualify for Medicaid, the government program that pays health care and nursing home bills for the poor. However, any gifts or transfers made within five years of applying for the program can result in a penalty period, when seniors are disqualified from receiving benefits.

In addition, giving your home to someone else also can expose you to their financial problems. Their creditors could file liens on your home and, depending on state law, get some or most of its value. In a divorce, the house could become an asset that must be sold and divided in a property settlement.

However, the Tax Code says that if the parent retains a “life interest” or “life estate” in the property, which includes the right to continue living there, the home would remain in her estate rather than be considered a completed gift.

There are specific rules for what qualifies as a life interest, including the power to determine what happens to the property and liability for its bills. To make certain, a child, as executor of his mother’s estate, could file a gift tax return on her behalf to show that he was given a “remainder interest,” or the right to inherit when his mother’s life interest expired at her death.

There are smarter ways to transfer a house. There are other ways around probate. Many states and DC permit “transfer on death” deeds that let people leave their homes to beneficiaries without having to go through probate. Another option is a living trust.

Reference: MarketWatch (April 16, 2020) “Why you shouldn’t give your house to your adult children”

How Do I Keep Up My Spirits in the Pandemic?

August 25, 2020 No Comments

The coronavirus has created some stressful situations that can bring out the best or worst in us. We must hope that the pandemic will eventually be brought under control, and our loved ones will survive.

AARP’s recent article entitled “Keeping Caregiver Spirits High During the Coronavirus Outbreak,” says that there’s no single way to find hope.

Many family caregivers draw on their faith, and others rely on sheer determination. However, there some other ways to create hope for caregivers and their loved ones in this pandemic.

The article provides some psychological ideas:

Watch your temperament. Through our disposition and upbringing, each one of us is inclined to look at the world as a pessimist or an optimist. These tendencies become more pronounced under the stress of a crisis. To get a sense of your natural tendency, keep a daily journal, and record your current preoccupying thoughts. Keep that document and review it in a week. Rereading those entries will quickly let you know where you stand psychologically and let you see if you need to take steps to better deal with the current pandemic.

Change your mindset. Since optimism is better, make an effort to increase your optimistic thinking. You could bring your attention more fully to some of the unforeseen benefits of this change in our normally hectic lives. Keeping a gratitude journal is another way of heightening your awareness of the good things we still have.

Rearrange your activities. Directing your activities can result in a more hopeful outlook. Don’t watch hours of cable news shows, because it can have a negative effect on your psyche. Keep informed but balance news with engaging in fun activities.

Contact your positive-minded friends. It is more crucial than ever to virtually contact your friends and family members for support by sharing experiences, fears, and good wishes. Reach out to those who can sustain a more balanced and realistic view, acknowledging these negative times but also the positive possibilities.

Be responsible and stay safe. With all the stress everyone is under right now trying to stay safe during a pandemic, we all have to be careful and sensitive towards those who may be at a higher risk then we are. Don’t add on the extra stress of being irresponsible with what you do and who you see. Maintain social distancing, wear a mask any time you are out in public, and wash your hands regularly to avoid the transfer of germs.

reference: AARP (March 31, 2020) “Keeping Caregiver Spirits High During the Coronavirus Outbreak”

That Last Step: Trust Funding

August 21, 2020 No Comments

Neglecting to fund trusts is a surprisingly common mistake and one that can undo the best estate and tax plans. Many people put it on the back burner, then forget about it, says the article “Don’t Overlook Your Trust Funding” from Forbes.

Done properly, trust funding helps avoid probate, provides for you and your family in the event of incapacity, and helps save on estate taxes.

Creating a revocable trust gives you control. With a revocable trust, you can make changes to the trust while you are living, including funding. Think of a trust as an empty box—you can put assets in it now, or after you pass. If you transfer assets to the trust now, however, your executor won’t have to do it when you die.

Note that if you don’t put assets in the trust while you are living, those assets will go through the probate process. While the executor will have the authority to transfer assets, they’ll have to get court approval. That takes time and costs money. It is best to do it while you are living.

A trust helps if you become incapacitated. You may be managing the trust while you are living, but what happens if you die or become too sick to manage your own affairs? If the trust is funded and a successor trustee has been named, the successor trustee will be able to manage your assets and take care of you and your family. If the successor trustee has control of an empty, unfunded trust, a conservatorship may need to be appointed by the court to oversee assets.

There’s a tax benefit to trusts. For married people, trusts are often created that contain provisions for estate tax savings that defer estate taxes until the death of the second spouse. Income is provided to the surviving spouse and access to the principal during their lifetime. The children are usually the ultimate beneficiaries. However, the trust won’t work if it’s empty.

Depending on where you live, a trust may benefit you with regard to state estate taxes. Putting money in the trust takes it out of your taxable estate. You’ll need to work with an estate planning attorney to ensure that the assets are properly structured. For instance, if your assets are owned jointly with your spouse, they will not pass into a trust at your death and won’t be outside of your taxable estate.

Move the right assets to the right trust. It’s very important that any assets you transfer to the trust are aligned with your estate plan. Taxable brokerage accounts, bank accounts, and real estate are usually transferred into a trust. Some tangible assets may be transferred into the trust, as well as any stocks from a family business or interest in a limited liability company. Your estate planning attorney, financial advisor and insurance broker should be consulted to avoid making expensive mistakes.

You’ve worked hard to accumulate assets and protecting them with a trust is a good idea. Just don’t forget the final step of funding the trust.

Reference: Forbes (July 13, 2020) “Don’t Overlook Your Trust Funding”

Everything You Need to Know about creating a Family Trust.

August 13, 2020 No Comments

A family trust is a trust you create to directly benefit your family members financially, explains Yahoo Finance in its article “What Is a Family Trust and How Do You Set One Up?”

The three parties involved in a trust arrangement are the grantor, the trustee, and the beneficiaries. The grantor is the person who creates the trust and transfers her assets into it. The trustee manages the assets in the trust for the beneficiaries. The beneficiaries get some type of financial benefit from the trust. With a family trust, it’s just your family members who are beneficiaries.

This is a kind of living trust and can be revocable or irrevocable. It takes effect during your lifetime. A revocable trust can be changed or terminated at any time, but an irrevocable trust is permanent. With a revocable family trust, you can be your own trustee, and name successor trustees to take control, in the event you become incapacitated or pass away. If it’s an irrevocable trust, you must designate another person to act as the trustee.

A family trust makes certain that your property is managed according to your instructions for your beneficiaries. You can add conditions such as, that a child can’t use the money until they complete college or reach a certain age. You might also create a family trust if you have a child who needs specialized medical care.

A family trust can also be useful in estate planning if you want to avoid probate. Transferring the title of assets to a trust means that they’re no longer subject to probate. You can also use an irrevocable family trust to protect assets from creditors if you’re sued.

Speak with an experienced estate planning attorney to make certain that this type of trust is right for you.

There are several types of trust options you can use in estate planning. Some of these trusts have extremely specific purposes, while others are more general. An estate planning attorney can help you compare different trust options to help you determine if a family trust is right for your estate plan.

Reference: Yahoo Finance (March 17, 2020) “What Is a Family Trust and How Do You Set One Up?”

Why Is Trust Funding Important in Estate Planning?

August 12, 2020 No Comments

Trust funding is a crucial part of estate planning that many people forget to do. If done properly with the help of an experienced estate planning attorney, trust funding will avoid probate, provide for you in the event of your incapacity and save on estate taxes, says Forbes’ recent article entitled “Don’t Overlook Your Trust Funding.”

If you have a revocable trust, you have control over the trust and can modify it during your lifetime. You can also fund the trust while you’re alive. This will save your family time and aggravation after your death.

You can also protect yourself and your family if you become incapacitated. Your revocable trust likely provides for you and your family during your lifetime. You are able to manage your assets yourself, while you are alive and in good health. However, who will manage the assets in your place, if your health declines or if you are incapacitated?

If you go ahead and fund the trust now, your successor trustee will be able to manage the assets for you and your family if you’re not able. However, if a successor trustee doesn’t have access to the assets to manage on your behalf, a conservator may need to be appointed by the court to oversee your assets, which can be expensive and time-consuming.

If you’re married, you may have created a trust that has terms for estate tax savings. These provisions will often defer estate taxes until the death of the second spouse, by providing income to the surviving spouse and access to principal during her lifetime. The ultimate beneficiaries are your children.

You’ll need to fund your trust to make certain that these estate tax provisions work properly.

Any asset transfer will need to be consistent with your estate plan. Ask an experienced estate planning attorney about transferring taxable brokerage accounts, bank accounts and real estate to the trust.

You may also want to think about transferring tangible items to the trust and a closely held business interests, like stock in a family business or an interest in a limited liability company (LLC).

Reference: Forbes (July 13, 2020) “Don’t Overlook Your Trust Funding”

Estate Planning & Probate Planning

August 12, 2020 No Comments

The nature of the probate process varies from state to state and even varies from county to county. However, the nature of the process is the same. A court has to validate a will to ensure that it meets the legal requirements of the state before assets can be distributed, explains the article “Probate workarounds can save heirs time, money” from the Baker City Herald. A typical will in some states can take nine to twelve months, and court shutdowns related to COVID-19 means that the wait could be longer. Probate is also expensive. probate process

When does probate make sense? When a person dies with a lot of debt, probate can be helpful by limiting the number of time creditors have to make their claims against the estate. If there’s not enough to pay everyone, the probate court makes the decision about how much each creditor gets. Without probate, creditors may surface long after assets have been distributed, and depending upon the amount owed may sue heirs or the executor.

The court supervision provided by probate can be helpful if there are any concerns about the instructions in the will not be carried out. However, the will and the details of the estate become public, which is bad not just for privacy reasons. If there are any greedy or litigation-happy family members, they’ll be able to see how assets were distributed. All assets, debts, and costs paid by the estate are disclosed, and the court approves each distribution. This much oversight can be protective in some situations.

What’s the alternative? Some states have simplified probate for smaller estates, which can reduce the time and cost of probate. However, it varies by state. In Delaware, it is estates worth no more than $30,000, but in Seattle, small means estates valued at $275,000 or less.

These limits don’t include assets that go directly to heirs, like accounts with beneficiaries or jointly owned assets. Most retirement funds and life insurance policies have named beneficiaries. The same is often true for bank and investment accounts. Just remember not to name your estate as a beneficiary, which defeats the purpose of having a beneficiary.

Are there any other ways to avoid probate? Here’s where trusts come in. Trusts are legal documents that allow you to place your assets into ownership by the trust. A living trust takes effect while you are still alive, and you can be a trustee. Once created, the property needs to be transferred into the trust, which requires managing details: changing titles and deeds and account names. This type of trust is revocable, which means you can change it at any time. As a trustee, you have complete control over the property. A successor trustee is named to take over if you die or become incapacitated.

An estate planning attorney will know other legal strategies to avoid probate for part or all of your estate.

Reference: Baker City Herald (July 16, 2020) “Probate workarounds can save heirs time, money”

What is the best way to lessen the chances of someone challenging your will?

August 11, 2020 No Comments

What happens when estate planning doesn’t go according to plan? A last will and testament is a legally binding contract that determines who will get a person’s assets. However, according to the article “Can you prevent someone from challenging your will?” in the Augusta Free Press, it is possible for someone to bring a legal challenge. preparing a will

Most will contests are centered around five key reasons:

The deceased had a more recent will.
The will was not signed voluntarily.
The deceased was incapacitated when she signed the will.
The will was not signed in front of the right number of witnesses.
The will was signed under some kind of duress or mental impairment.

What is the best way to lessen the chances of someone challenging your will? Take certain steps when the will is created, including:

Be sure your will is created by an estate planning attorney. Just writing your wishes on a piece of paper and signing and dating the paper is not the way to go. Certain qualifications must be met, which vary by state. In some states, one witness is enough for a will to be properly executed. In others, there must be two and they can’t be beneficiaries.

The will must state the names of the intended beneficiaries. If you want someone specific to be excluded, you’ll have to state their name and that you want them to be excluded. A will should also name a guardian if your children are minors. It should also contain the name of an alternate executor, just in case the primary executor predeceases you or cannot serve.

What about video wills? First, make a proper paper will. If you feel the need to be creative, make a video. In many states, a video will is not considered to be valid. A video can also become confusing, especially if what you say in the paper will is not exactly the same as what’s in the video. Discrepancies can lead to will contests.

Don’t count on those free templates. Downloading a form from a website seems like a simple solution, but some of the templates online are not up to date. They also might not reflect the laws in your state. If you own property, or your estate is complex, a downloaded form could create confusion and lead to family battles.

Tell your executor where your will is kept. If no one can find your will, people you may have wanted to exclude from your estate will have a better chance of succeeding in a will challenge. You should also tell your executor about any trusts, insurance policies, and any assets that are not listed in the will.

Don’t expect that everything will go as you planned. Prepare for things to go sideways, to protect your loved ones. It is costly, time-consuming, and stressful to bring an estate challenge, but the same is true on the receiving end. If you want your beneficiaries to receive the assets you intend for them,

Reference: Augusta Free Press (July 12, 2020) “Can you prevent someone from challenging your will?”

What Will Biden Do with Medicaid, if Elected President?

August 10, 2020 No Comments

In the height of the 2020 presidential race, many people are wondering what Biden’s approach to Medicaid will be if Elected President.

Biden’s proposal is ambitious. It addresses the long-term care needs of the Medicaid population in a fairly complex manner. The proposal continues to leave big gaps in Medicaid-based care and does nothing for the millions of people who need long-term support and services but are ineligible for Medicaid.

Biden’s plan is part of an ambitious plan to help parents of young children, says Forbes’ recent article entitled “Biden Makes Big Commitment To Home-Based Medicaid Long-Term Care, But Gaps Remain.”

However, the former Vice President’s plan goes well beyond the more modest suggestions made by a joint task force with support from former primary rival Bernie. It’s also much more specific. Alzheimer's Signs to look out for He promises to spend $450 billion to enhance Medicaid home-based care, and he says he’d clear 800,000 people from the program’s waiting lists for such community care. However, this plan could somewhat decrease the number of Medicaid recipients living in nursing homes.

Biden seems to look at only one Medicaid long-term care problem, which is the waiting lists. However, a state can end the waiting list,s by limiting the amount of home-based services it provides—a state could simply provide less care to more people.

In an attempt to avoid this, Biden says he will add new federal dollars into a new home care program and fund new innovative models in community care. That promise may motivate states to move from the current complex system of multiple federal waivers into a single new model. The federal government currently requires states to offer Medicaid long-term care to nursing home residents only. The states can get waivers from the federal government that let them provide home-based care, but the special programs are complex for both states and consumers.

Biden would support states moving into the better-funded program, but it wouldn’t be required. Biden identifies a wide range of services that could be funded with this new model. They include things, like primary medical care, transportation, adult day programs, home-delivered meals, and home renovations (such as wheelchair ramps).

Biden also proposes to up the pay for direct care workers.

The VP’s plan is as a major $450 billion-plus commitment to enhance Medicaid’s home and community-based care programs.

Reference: Forbes (July 21, 2020) “Biden Makes Big Commitment To Home-Based Medicaid Long-Term Care, But Gaps Remain”

What Happens if my Parent Refuses to Create an Estate Plan?

August 6, 2020 No Comments

Getting a parent to create an estate plan can be a tough scenario. It happens more often than you’d think. Someone owns a home, investment accounts, and an inheritance, but doesn’t want to have an estate plan. They know they need to do something, but keep putting it off—until they die, and the family is left with an expensive and stressful mess. A recent article titled “How to Get a Loved One to Visit an Estate Planning Attorney Before It’s Too Late” from Kiplinger, explains how to help make things right. preparing a will

Most people put off seeing an estate planning attorney because they are afraid of death. They may also be overwhelmed by the thought of how much work is involved. They are also worried about what it all might cost. however, if there is no estate plan, the costs will be far higher for the family.

How do you get the person to understand that they need to move forward?

Talk with the financial professionals the person already uses and trusts, like a CPA or financial advisor. Ask them for a referral to an estate planning attorney they think would be a good fit for the person who doesn’t have an estate plan. It may be easier to hear this message from a CPA, than from an adult child.

Work with that professional to promote the person, usually an older family member, to get comfortable with the idea to talk about their wishes and values with the estate planning attorney. Offer to attend the meeting, or to facilitate the video conference, to make the person feel more comfortable. Remember that the goal is getting your parent to create an estate plan.

An experienced estate planning attorney will have worked with reluctant people before. They’ll know how to put the older person at ease and explore their concerns. When the conversation is pleasant and productive, the person may understand that the process will not be as challenging and that there will be a lot of help along the way.

If there is no trusted team of professionals, then offer to be a part of any conversations with the estate planning attorney to make the introductory discussion easier. Share your own experience in estate planning, and tread lightly.

Trying to force a person to engage in estate planning with a heavy hand, almost always ends up in stubborn refusal. A gentle approach will always be more successful. Explain how part of the estate plan includes planning for medical decisions while the person is living and is not just about distributing their assets. You should be firm, consistent, and kind.

Explaining what their family members will need to go through if there is no will, may or may not have an impact. Some people don’t care, and may simply shrug and say, “It’ll be their problem, not mine.” Consider what or who matters to the person. What if they could leave assets for a favorite grandchild to go to college? That might be more motivating.

One other thing to consider: if the person has an estate plan and it is out of date, that may be just as bad as not having an estate plan at all, especially when the person has been divorced and remarried. Just as many people refuse to have an estate plan, many people fail to update important documents, when they remarry. More than a few spouses come to estate planning attorney’s offices when a loved one’s life insurance policy is going to their prior spouse. It’s too late to make any changes. A health care directive could also name a former brother-in-law to make important medical decisions. During a time of great duress, it is a bad time to learn that the formerly close in-law, who is now a sworn enemy, is the only one who can speak with doctors. Don’t procrastinate, if any of these issues are present.

Reference: Kiplinger (May 11, 2020) “How to Get a Loved One to Visit an Estate Planning Attorney Before It’s Too Late”

What are the Duties of a Trustee?

August 4, 2020 No Comments

Clients often ask us about the duties of a trustee. One of the reasons people use trusts in their estate planning, is that the person named as a trustee has a legal duty to put the trust’s interests first, rather than their own interests. This is called a “fiduciary duty,” and it becomes very important when planning for the future of your assets and family. It’s an enforceable legal obligation says the article “Fiduciary Duties in Trusts and Estate Planning” from yahoo! finance.

A trustee is the person appointed to be in charge of a trust. There are many different kinds of trusts, created to own assets, including money, life insurance policies and homes. The person named as trustee in the trust document makes decisions about the trust assets to benefit the beneficiary’s best interests.

Trusts created while a person is living are known, appropriately enough, as living trusts. There are people who choose to be their own trustees and manage their trusts for as long as they are able. Married couples may be co-trustees on their trusts. The trust documents should be prepared, so that upon the death of one spouse, the surviving spouse becomes the trustee and manages the account.

The person creating the trust should also name a successor trustee. This is the person who will manage the trust when the trustee or the co-trustees are no longer competent to manage the trust. That might be because they have died or because they have become incapacitated due to an injury or illness.

The fiduciary duties of a trustee are to act in the best interest of the beneficiaries. These are some guidelines:

The assets a trustee manages do not belong to them, and the trustee must not mix personal assets with assets in the trust.
A trustee may not use the trust’s assets for their benefit.
The trustee must not favor one beneficiary over the other.
The trustee must follow the directions in the trust document.
The trustee must keep accurate records, file tax returns and report to beneficiaries, as directed in the trust.

There are three fiduciary duties when it comes to a trust: loyalty, care and full disclosure. The trustee(s) must act in the best interest of the trust and its beneficiaries. This is a high standard and why the decision on who to name as a trustee is so important.

The terms of every trust vary, depending on the type of trust and the needs of the estate plan. The trustee needs to be familiar with the trust and its directions, so they can perform correctly.

An estate planning attorney is needed to draft trusts, so they reflect the wishes of the person and their goals. Using a downloaded form or even a standard legal form is a big risk for families.

Reference: yahoo! finance (July 8, 2020) “Fiduciary Duties in Trusts and Estate Planning”

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Should I Give My Kid the House Now or Leave It to Him in My Will?

How Do I Keep Up My Spirits in the Pandemic?

That Last Step: Trust Funding

Everything You Need to Know about creating a Family Trust.

Why Is Trust Funding Important in Estate Planning?

Estate Planning & Probate Planning

What is the best way to lessen the chances of someone challenging your will?

What Will Biden Do with Medicaid, if Elected President?

What Happens if my Parent Refuses to Create an Estate Plan?

What are the Duties of a Trustee?

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