How Do I Keep From Disinheriting My Kids When I Remarry?

Roughly 17% of people remarry after the first marriage ends, and the rate of remarriage has decreased over time for all age groups except the 55-and-older group. That rate was 57% in 2013 compared to 42% in 1960. CNBC brings up some practical pointers in its recent article, “Remarried after having kids? Here are tips to avoid accidentally disinheriting them.” As the article notes, if you’ve remarried and want to pass on assets to your children from a previous marriage, don’t overlook the importance of estate planning.

Many people don’t have even a basic will or trust. The risk can be higher, if you have no estate planning when you remarry—your children could unintentionally be disinherited.

The older you are when you remarry, the more apt you are to be bringing assets into the marriage, such as retirement savings, life insurance, brokerage accounts, real property and family heirlooms. Estate planning helps to avoid family conflict.

If you die without a will or trust intestate), a judge will decide who gets what. Of course, everyone’s situation is different, and some can be more complex than others. However, here are some keys to consider, when thinking about how to make sure your heirs end up with the assets you want them to have.

Account beneficiaries. It’s easy to miss this when you remarry. Update the beneficiary designations on retirement accounts, life insurance policies and other accounts. This designation supersedes any intention stated in your will. Also, if you have an account that is governed by ERISA, such as a 401(k), your new spouse will automatically inherit the account unless they sign a waiver, regardless of who you list as beneficiaries.

Your home. Remarriage frequently involves a jointly-owned home. Depending on state law and how the property is titled, your intention for your children to inherit your share of it could be thwarted.  If the house is deeded as “joint tenancy with right of survivorship” or “tenancy by the entirety,” the property typically automatically belongs to the surviving spouse, regardless of what your will says. If you own the house in “tenancy in common,” you can leave your share to a person other than your spouse, if you want. With a trust, you have many more options, including letting the new spouse live there for the rest of their lives, with the property going to your children when they die.

Your personal property. If you want your children to get some particular items when you pass away, be as detailed as possible in your will, so there is no room for confusion.

Power of Attorney. Select someone to handle your finances, if you reach a stage where you can’t. A durable power of attorney for your finances allows that person to be in charge of paying bills and filing tax returns.

Advance Healthcare Directive. This states your wishes if you’re placed on life support or suffer from a terminal condition. It helps guide your proxy’s decision-making, and if you have no one named, your doctors must follow your wishes in that document.

Creating an estate plan can help ensure that your assets wind up where you want, and your wishes are carried out fully.

Reference: CNBC (January 17, 2019) “Remarried after having kids? Here are tips to avoid accidentally disinheriting them”

Suggested Key Terms: Estate Planning Lawyer, Wills, Asset Protection, Probate Court, Inheritance, Power of Attorney, Healthcare Directive, Living Will, Intestacy, Pension, Tenancy by the Entirety, Tenancy in Common, Joint Tenancy, Beneficiary Designations, Life Insurance

Estate Planning When a Family Member Is an Addict

Opioid addiction has reached epidemic proportions, with drug overdoses now the leading cause of death for Americans under age 50. Families struggling with the emotional and financial damage, are the subject of the article How to leave money to a family member with an addiction” from MarketWatch.

Even good children from loving families become addicted and are driven to steal and lie to get money to support their habits. Parents of children are wracked by guilt and anger. The stories of families spending hundreds of thousands of dollars in an effort to help their children are growing in number—as are the number of families who exhaust their retirement savings paying for rehabilitation and related services.

Trusted family advisors, including estate planning attorneys and financial advisors, find themselves working with families to protect the family finances and the well-being of their addicted family members. The fallout from addiction creates many secondary problems for families.

Estate planning for a family grappling with addiction addresses many different issues, not just inheritance. Guardianship of minor children and protecting the interests of family members are among the issues that estate planning addresses. A mindfully created estate plan can serve as a resource and a means of protecting a legacy.

Lump sum distributions or full bequests to an adult struggling with addiction can be deadly, if the person uses the funds to purchase large quantities of drugs. At the same time, writing someone out of the will completely and withdrawing all support, can be devastating to the addicted adult and the family.

Creating a trust can help to protect assets and ensure that there is some degree of accountability in how the distributions are made. Incentive trusts, where a certain behavior or accomplishment markers are determined, can be used to encourage behaviors.

This may mean that the addicted adult does not receive funds, until after passing a drug test, attending a certain number of treatment sessions or entering a residential rehabilitation program.

Incentive trusts are part of a special area of estate planning. Therefore, it is necessary to work with an attorney who has experience with trusts and with incentive trusts. Ideally, the attorney who helps your family, will be one who is also familiar with the impact of addiction on families.

Creating incentives for positive outcomes includes having consequences when the person fails to meet the terms of the trust.

In this situation, a trustee who is extremely trustworthy and not prone to being manipulated is necessary. They will need to make sure the person adheres to the requirements and while they may be given certain levels of discretion, this person will need to be strong-willed enough to withstand a strong-minded, potentially aggressive, addict.

This kind of trust may require the beneficiary to submit to specific terms and provide access to their health records, which itself requires a HIPAA waiver for the trustee.

Creating an estate plan with an incentive trust presents many challenges for the family and the trustee. It may well become a highly charged, emotional process. However, talking about these issues openly is part of preparing for the future. Concerns about what will happen to an addictive member of the family after the parents are gone, will hopefully create some peace of mind in a turbulent setting.

Reference: MarketWatch (Jan. 14, 2019) How to leave money to a family member with an addiction”

Suggested Key Terms: Estate Planning, Inheritance, Finances, Addiction, Trusts, Incentives, Trustee

Still Wondering Why You Need to Review an Estate Plan?

One of the most common mistakes in estate planning is thinking of the estate plan, as being completed and never needing to be reviewed. That is similar to taking your car for an oil change and then simply never returning for another oil change. The years go by, your life changes and you need an estate plan review.

The question posed by the New Hampshire Union Leader in the article “It’s important to periodically review your estate plan” is not if you need to have your estate plan reviewed, but when.

Most people get their original wills, trusts and other documents from their estate planning attorney, put them into their safe deposit box or a fire-safe file drawer and forget about them. There are no laws governing when these documents should be reviewed, so whether or when to review the estate is completely up to the individual. That often leads to unintended consequences that can cause the wrong person to inherit, fracture the family and leave heirs with a large tax liability.

A better idea: review the estate plan on a regular basis. For some people with complicated lives and assets, that means once a year. For others, every three or four years works. Some reviews are triggered by changes in life, including:

  • Marriage or divorce
  • Death
  • Large changes in the size of the estate
  • A significant increase in debt
  • The death of an executor, guardian or trustee
  • Birth or adoption of children or grandchildren
  • Change in career, good or bad
  • Retirement
  • Health crisis
  • Changes in tax laws
  • Changes in relationships to beneficiaries and heirs
  • Moving to another state or purchasing property in another state
  • Receiving a sizable inheritance

What should you be thinking about, as you review your estate plan? Here are some suggestions:

Have there been any changes to your relationships with family members?

Are any family members facing challenges or does anyone have special needs?

Are there children from a previous marriage and what do their lives look like?

Are the people you named for various roles—power of attorney, executor, guardian and trustees—still the people you want making decisions and acting on your behalf?

Does your estate plan include a durable power of attorney for healthcare, a valid living will, or if you want this, a DNR (Do Not Resuscitate) order?

Has your estate plan addressed the possible need for Medicaid?

Do you know who your beneficiary designations are for your accounts and are your beneficiary designations still correct? Your beneficiaries will receive assets outside of the will and nothing you put in the will can change the distribution of those assets.

Have you aligned your assets with your estate plan? Do certain accounts pass directly to a spouse or an heir? Have you funded any trusts?

Finally, have changes in the tax laws changed your estate plan? Your estate planning attorney should look at your state, as well as federal tax liability.

Just as you can’t plant a garden once and expect it to grow and bloom forever, your estate plan needs to be reviewed, so that it can protect your interests as your life and your family’s life changes over time.

Reference: New Hampshire Union Leader (Jan. 12, 2019) “It’s important to periodically review your estate plan”

Suggested Key Terms: Estate Plan, Will, Assets, Beneficiary Designations, Medicaid, Tax Laws, Durable Power of Attorney, DNR, Inheritance, Tax Laws, Retirement

How Do I Handle an Inherited IRA?

With an inherited IRA, in many cases the parent is the original beneficiary and the children are the successor beneficiaries. Both the original owner and beneficiaries need to follow some strict rules.

nj.com’s recent article, “Inheriting an inherited IRA? Your payout choices will be limited,” explains that per IRS rules, if you die prior to withdrawing all the funds from an inherited IRA, then the beneficiaries are bound by the same Required Minimum Distribution (RMD) schedule that they’d chosen, when they inherited it.

A person will typically choose either his own life expectancy or the life expectancy of the original plan participant, whichever’s longer. The successor beneficiaries must then keep withdrawing what’s left, according to that same schedule.

However, it’s different if you leave your own IRA to your children. In most circumstances, children who inherit an IRA would be able to withdraw the funds over their own life expectancies.

Note: this is the general rule. The IRA rules are quite complex, and there are many exceptions to the general rules. Ask the financial institution where the IRA is held, if they have any rules concerning their IRAs that may change the general rules.

With an inherited IRA, you need to take annual distributions no matter what age you are when you open the account. This doesn’t apply, if you’ve simply transferred another IRA to your own IRA.

Again, as a general rule, you must take distributions during your lifetime or within five years after the original account holder passed away.

If you inherit a Traditional IRA, you’ll pay taxes on any distributions you take. Rollover, SEP, and SIMPLE IRAs become Inherited Traditional IRAs. In contrast, with an Inherited Roth IRA, you don’t pay taxes on distributions.

To evaluate the potential effect an inheritance might have on your overall tax situations, talk to an experienced estate planning attorney.

Reference: nj.com (December 20, 2018) “Inheriting an inherited IRA? Your payout choices will be limited”

Suggested Key Terms: Inheritance, Planning, Financial Planning, Inherited IRA, Roth IRA, SEP, SIMPLE IRA, Required Minimum Distribution (RMD)

How Would Cinderella’s Story Be Different, if Dad Did Estate Planning?

The story never really focuses on why Cinderella is placed in such a dire position in the first place. However, The National Law Review article titled “A Cautionary Fairy-Tale–If Only Cinderella’s Father Had An Estate Plan” does. It starts with a light-hearted tone, but the details quickly move to how many different ways that this family situation could have been prevented with proper estate planning.

To refresh your memory: Cinderella’s mother died, her father remarried and then he died. She is basically a slave to her evil stepmother and stepsisters, in her own home.

Let’s start with what would happen, if there had been no estate plan. If the family lived in Arizona, half of her father’s estate would go to her stepmother, and half of the estate would be given to Cinderella. As a minor, her half of the estate would be placed in an UTMA account–Uniform Transfers to Minors Act. There would be a court-appointed custodian, who would be required to use these funds for her health, education, maintenance and support. The court would have likely appointed the Evil Stepmother, who would not likely have complied with the guidelines. A second option would have been for the money to be placed in a trust for Cinderella’s benefit, but the Evil Stepmother would likely have been named a trustee, and that would not have worked out well either.

What Cinderella’s father should have done, was to create a Revocable Living Trust Agreement, stating that certain assets are the separate property of the father (Schedule A), that certain assets are the property of the Evil Stepmother (Schedule B) and that certain assets are community property of the father and the Evil Stepmother (Schedule C).

A neutral successor trustee would have been named—a friend, fiduciary, corporate trustee or perhaps the Fairy Godmother—to oversee the trust. At the death of the father, the trust should have directed that the trust be divided into two subtrusts, known as an A/B split trust.

The Survivor’s Trust (Trust A) would have gathered all the Evil Stepmother’s separate property and one half of the value of the community property assets. Trust B (The Decedent’s Trust) would have all of the father’s separate property, as well as half the value of the community property assets. The trust could have been structured, so that the Evil Stepmother could use the Survivor’s Trust assets as she wanted and could only receive income, if the assets to the Survivor’s Trusts were depleted.

The neutral successor trustee would either work with the Evil Stepmother or make sure that Cinderella’s share of the Decedent’s Trust was not being improperly depleted. At the death of the Evil Stepmother, the assets in the Decedent’s Trust would go to Cinderella.

Cinderella’s father could have also taken out a large life insurance policy to ensure that she was cared for, with the proceeds to be distributed to an UTMA account, with a neutral custodian or to a support trust with a neutral trustee.

The only way Cinderella could have recovered any assets would have been through litigation, which is the likely way this story would have turned out, if it happened today. It’s not ideal, but if a child has been left with nothing but an Evil Stepmother and two nasty stepsisters, a lawsuit is a worthwhile effort to recover some assets. Assuming that the Evil Stepmother either adopted Cinderella or was appointed her guardian by the court, there would be a fiduciary obligation to protect her, and an accounting of assets at the time of her father’s death would have been prepared.

Estate planning would have preempted the story of Cinderella. It does serve as a clear example of what can happen with no estate plan in place. Whether your blended family enjoys a great relationship or not, have your estate plan created, so that if things turn wicked, your beloved children will be protected.

Reference: The National Law Review (Jan. 16, 2019) “A Cautionary Fairy-Tale–If Only Cinderella’s Father Had An Estate Plan”

Suggested Key Terms: Estate Planning, Stepmother, Stepsisters, Trust, Fiduciary, Blended Family

How Seniors Can Avoid Spam Phone Calls

Seniors are the victims of financial fraud in alarming numbers. One of the favorite tools of scammers is the telephone. There are about four million robocalls an hour in the United States, and untold numbers of calls from live telemarketers.

Experts tell us not to answer the phone, if we do not recognize the caller. However, if your phone sends missed calls to voice mail, the spammer will likely call back, now that he knows it is a working number. Experts offer some savvy solutions on how seniors can avoid spam phone calls and cut these annoying calls by more than 90 percent.

Know When to be on Your Guard

If you live in Atlanta, Los Angeles, New York City, Miami, Chicago, Houston, Dallas, and Birmingham, Alabama, you are in a frequently-targeted area. Spammers tend to make their highest number of robocalls on Tuesdays and Fridays. Of course, anyone living anywhere can get robocalls and phone calls from live con artists on any day of the week.

Know Who is Calling

The largest cell phone service providers offer features that can help you identify who is calling. These features are usually at little or no charge, but you should check the cost with your company.

Block the Spammers

Let’s say someone whose number you do not recognize called you. You did not answer. Instead, you Googled the phone number and discovered that many people had reported the caller as a spammer. You can block that number on your cell phone, so all future calls from that number will not even ring. Of course, professional scammers use multiple phone numbers, but just keep blocking them as they cycle through their numbers.

You can block “anonymous” and “private” numbers on your landline, by pressing *77. To deactivate the blocking, press *87.

Some services like YouMail and RoboKiller will filter your calls for free, and for a nominal fee, you can get the ad-free version of the apps. You can select various options to tailor the app to your needs and preferences.

If You Do Not Want to Block Callers

You still have options if you do not want to let calls go to voice mail, use a spam blocker app, or pay for caller ID. A low-tech solution that anyone can perform is to go ahead and take the call, but do not say anything, not a single word. Here is how it works:

  1. You pick up the phone but do not say “hello” or anything else. Usually, the robocall/telemarketer phone system will automatically hang up within a few seconds.
  2. If there is actually a “live” person on the other end of the call, remain silent. Wait out the person, so he or she speaks first. If you do not know the person or recognize the voice or you realize that it is an unwanted call, just hang up without saying anything.
  3. Another tactic is to keep a portable tape recorder next to your phone and, instead of speaking, play a recording to spammers that says that your number is not in service. Just make sure you do not talk to the caller.

Just Stay Safe

Whatever technique you choose to deal with telephone con artists, keep yourself and your money safe. Do not give any personal or financial information to a caller. Do not give your credit card or checking account numbers over the phone.

If someone calls you, claiming to be from the IRS, the electric company, your mortgage lender, or anyone else demanding payment or offering you a deal that sounds too good to be true, just hang up. These are almost always fraudulent calls. Legitimate businesses will send you a mailing, not try to get your information or money over the phone.

The laws in every state are different, so you should speak with an elder law attorney in your area.

References:

AARP. “5 Ways to Stop Spam Calls.” (accessed January 8, 2019) https://www.aarp.org/money/scams-fraud/info-2018/tips-to-stop-spam-calls.html

Suggested Key Terms: stop the spam calls, how to block telemarketers, tips to avoid phone scams

How Do I Keep My Estate Planning Documents Straight?

The basic estate planning document that is only effective during a person’s lifetime are durable powers of attorney. They are “durable” because they stay effective, even after mental disability. The basic estate planning document effective only after death is a will. The most common estate planning document effective both during lifetime and after death is a revocable living trust.

The Times Herald says in the article “Powers of attorney good for life and beyond” that there are two general types of powers of attorney, one for financial matters and the other for health care matters. They shouldn’t be combined in a single document, because they have different legal requirements. Unless they say otherwise in the document, powers of attorney don’t expire until the creator does. However, there are a few powers in both financial and health care powers of attorney that can survive the person who created the document.

The person who signs a financial power of attorney is called the principal. The person granted authority to act on behalf of the principal, is the agent or the attorney-in-fact. Without a valid executed financial power of attorney in place, if you become mentally disabled, your family would have to file for a probate court supervised conservatorship to have someone handle your property and financial affairs.

With a properly drafted durable power of attorney for health care (or health care power of attorney), you can avoid a guardianship and instead have the health care agent you selected make decisions for you, when you are unable. Without a valid executed health care power of attorney, if you become mentally disabled, your family would have to file for a probate court supervised guardianship to have someone handle your care, custody and medical and mental health care treatment decisions, like where you’re going to live and who’s going to be the primary caregiver.

Some attorneys will set expiration dates in powers of attorney, such as five years, after which the power of attorney will expire and will no longer be valid. In many of these cases, it’s common for the creator of the POA to not know that the form was expired. You can typically revoke powers of attorney at any time, if you aren’t mentally disabled. Powers of attorney expire when you do.

You can include in your health care power of attorney the power to make an organ donation. You can also include the authority to resolve a conflict between the terms of your advance health care directive or living will and the administration of means necessary to ensure the medical suitability of the anatomical gift. If your health care POA says that these anatomical gift powers remain exercisable after your death, then the powers continue after your death and aren’t revoked.

Stay in control of your assets while you’re alive and provide for yourself and your family in the event of your mental disability—and when you’re gone, give your assets to whom you want.

Reference: The Times Herald (December 21, 2018) “Powers of attorney good for life and beyond”

Suggested Key Terms: Capacity, Conservatorship, Guardianship, Revocable Living Trust, Probate Court, Power of Attorney, Healthcare Directive, Living Will

Include a Letter with Your Estate Plan

You have your vital documents in order, and you keep them current. You have a will or trust. Your living will, also called health care power of attorney is complete, and you have spoken with the person you have named as your health care decision-maker about your end-of-life wishes. You have taken care of all your legal and financial issues, including final instructions and a list of who will receive particular items.

While your loved ones will appreciate that you have thoughtfully taken care of these essential issues and will not leave them with a mess to clean up one day, there is one more thing you should do. You need to sit down and create something your family members and close friends will treasure for the rest of their lives. You should write and include a letter with your estate plan.

Words are Important

People can carry sadness for a lifetime because a parent never said “I love you” to the child. The parent might be shocked that the child felt unloved. Some people think they do not have to tell someone they love them, because they show their affection in the daily tasks of providing a home and upbringing for the child.

In addition to the worldly goods that you give to your loved ones, leaving a “last letter” behind can help them deal with their grief at losing you. You can use the letter to accomplish things you might not have done as much as you wish you had. You can write one letter that speaks to several people or write multiple letters.

What to Put in the Letter

You can begin by telling the people in the letter that they are important to you. You should tell them that you love them and let them know in writing how proud you are of them. No matter how many times you have spoken these words to them before, they can hold a letter in their hands for years and read it over and over.

Sometimes people write letters of apology to those they have hurt at some point in their lives. Apologies are helpful in making peace with one’s life. If you cannot bring yourself to say the words during your lifetime or you anticipate that the person would respond in an unacceptable manner, you can do your part by putting the apology in a letter.

If you can forgive someone who did something wrong to you, it can be cathartic to write a letter of forgiveness. These letters take great care, as they can be interpreted as sanctimonious or judgmental.

What Not to Put in the Letter

While it might be tempting to take one last jab at someone you feel wronged you, the last letter is no time to be spiteful. If you cannot write something kind to a person, do not write anything.

What to Do with the Letter

All you need to do is tuck the letter in with your legal papers. One day, when your loved ones go through your will or trust, they will get a pleasant surprise and something to cherish.

You should talk with an elder law attorney near you about the ways that your state rules might vary from the general law of this article.

References:

AARP. “How to Write a Last Letter to Your Loved Ones.” (accessed January 8, 2019) https://www.aarp.org/retirement/planning-for-retirement/info-2018/letter-to-remember.html

Suggested Key Terms: writing a last letter for your loved ones, include a personal letter with your estate plan

Who Pays What Taxes on an Inherited IRA?

The executor of a person’s estate must take on the important responsibility of ensuring that the deceased person’s last wishes are carried out, concerning the disposition of their property and possessions. There are times when investments and savings are part of that estate.

An individual may have an IRA that designates the beneficiary or her estate as her heir. Inherited IRAs are not like other assets. Executors must be aware of what to do when withdrawing the IRA into the estate account, particularly about how will these funds will be taxed.

nj.com’s recent article asks “Who pays taxes on this inherited IRA?” It explains that the distributions from an IRA are treated as ordinary income by the federal tax code.

The will must be probated, and it may stipulate that the money from the IRA is to be given to the deceased’s children.

These distributions to the children are taxed at their marginal tax rates. However, it is important to note that when an estate is an IRA beneficiary, the entire account must be withdrawn within five years.

If the executor moves the IRA directly into inherited IRAs for each of the beneficiary children, the beneficiaries would be responsible for paying the taxes.

If the executor withdraws the IRA assets, then the executor would pay the taxes from the estate assets.

You will need to speak with the custodian of the IRA to find out what is and is not permitted in terms of distribution: are they allowed to roll the IRA into a beneficiary IRA, or can they divide the account into separate IRAs for the beneficiaries? The distribution must take place within five years, so keep that in mind when discussing options and goals for the IRA and the heirs. An estate planning attorney will be able to determine your best tax options for the inherited IRA when settling the estate.

Reference: nj.com (January 7, 2019) “Who pays taxes on this inherited IRA?”

Suggested Key Terms: Estate Planning, Wills, Executor, Asset Protection, Probate Court, Inheritance, Tax Planning, Probate Attorney, Estate Tax, Gift Tax, IRA, Beneficiary Designations

How Can I Leverage Life Insurance in Estate Planning?

If someone you care about is one of our country’s estimated 75 million baby boomers, there are a few things you should know. Insurance News Net’s article, “How To Use Life Insurance In Better Estate Planning” says that middle-income boomers are carrying more debt into retirement than ever before. That said, life insurance can help provide your surviving family with an income after you die and also be used to pay off debts. The proceeds from life insurance policies can be used to pay down your mortgage and debts. It can also be used to help pay for funerals and other final expenses.

If you have sufficient assets to pay your debt when you pass away, your creditors will receive their payments from your estate.  However, be aware that it matters if your home is your primary asset and if your spouse or another family member is a co-applicant or co-signer on an account, because your mortgage and other debts, such as credit card bills or car loans, could become their responsibility.

Carrying debt in retirement is very common today. Life insurance can help provide peace of mind knowing that provision has been made for the comfort and security of your family. Boomers should conduct an inventory of their finances and debt, weigh their options and find a life insurance policy that will help with any potential financial burdens upon death. Let’s look at some tips to help you decide, if purchasing life insurance is right for you:

  1. What’s your need? Do people depend on you financially? Do you have sufficient funds to cover your final expenses? Consider life insurance to help protect your family’s future. Your policy’s beneficiary can use the money for living expenses or to pay off debts.
  2. Educate yourself on the different types of life insurance. There are three major types of life insurance coverage—term life, whole life and universal life. All three pay a death benefit, but each can differ in terms of coverage length, premium flexibility, cash value accumulation and distribution.
  3. Determine the amount of life insurance you need. What amount of coverage would your family need, if something happened to you? What expenses would have to be covered or debts paid off? What amount is earmarked for savings? The answers will help you determine the type and amount of life insurance you’ll need.
  4. Long term care. Many life insurance policies today come with the added ability to receive benefits to pay for long-term care, including in-home care, assisted living, and nursing home care. These benefits are often crucial, because Medicare does not pay for long-term care.

Reference: Insurance News Net (January 7, 2019) “How To Use Life Insurance In Better Estate Planning”

Suggested Key Terms: Estate Planning, Joint Tenancy, Life Insurance

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