Posts Categorised: Estate Planning
What is a Living Trust?
A Living Trust (not to be confused with a Living Will) is an estate planning legal document that is similar to a Will, but accomplishes more than just passing out your assets upon your death. Unlike a Will, a Living Trust is effective as soon as you sign it. A Will, on the other hand, is only effective after you pass away. This means that a Living Trust can contain instructions for what should happen to you and your assets should you become mentally disabled, and how your assets should be distributed when you pass away.
Here’s How the Living Trust Works
A Living Trust needs at least one trustee. The first trustee is typically the person making the trust. This person (or persons for a married couple) is called the “trustmaker”, “settlor”, “trustor”, or “grantor”.
The trustee (or trustees), is the person in charge of the Living Trust assets.
While you are alive and well, you are the trustee and the beneficiary of your Living Trust.
After your Living Trust is created, your assets are retitled from your name to the name of your Living Trust. Your Living Trust can also be set up to receive your estate assets such as your life insurance proceeds and your death benefits from your retirement accounts.
While you are alive and well (meaning you are not suffering from a mental disability), you are in full control of the assets in the Living Trust. You can revise or revoke your Living Trust at any time. Your Living Trust does not have to file a tax return or pay any income taxes. It is disregarded for tax purposes.
At Your Passing
At your passing, assets in your Living Trust are distributed to your loved ones according to your wishes.
As illustrated here, because the trust document, rather than a Will, owns your assets and directs how those assets will be distributed, you can avoid probate.
As you can see, your loved ones will receive their inheritances faster, and won’t have to pay all of the costs associated with probate.
This is especially helpful when you own real estate in more than one state, which necessitates a probate in each of those states.
Other Advantages of a Living Trust
One of the greatest benefits of a Living Trust is the ability to avoid probate. Probate costs can be effectively reduced or even eliminated by your Living Trust. Without a Living Trust, probate or some type of court administration is guaranteed. If all of your assets are in your Living Trust, your entire estate will avoid probate.
What’s more, by owning all of your assets in your Living Trust, you will make the administration of your estate easier for your loved ones and shorten the time they must wait to receive their inheritances. Probate can typically take 6 months to two (2) years to complete. Because you are avoiding probate, and the necessary court interference and costs that come with it, your loved ones won’t have to wait and they won’t have to pay the huge probate costs.
Another advantage to your Living Trust is that it can make it more difficult for anyone to challenge the administration of and distributions from your estate. Probating a Will guarantees an objectant the opportunity to be heard by the Court. If there is no Court, there is no forum in which a disgruntled beneficiary can complain about your estate.
Also, unlike a Will, which is effective only after you pass away, your Living Trust allows you to include instructions for someone else to manage your personal assets and needs if you ever suffer from a mental disability.
Your Living Trust is also an extremely flexible way to protect your loved ones from creditors, bankruptcy, divorce, etc. Your Living Trust can also protect the assets being left to your minor children and/or grandchildren. Also, a Living Trust can be especially useful for parents who want to provide fairly for children from previous marriages.
In some cases, small-business owners would benefit from a Living Trust. You may wish to transfer ownership of your businesses to your Living Trust. At death, your Living Trust can benefit your loved ones, while making sure that your businesses continue to grow in the hands of a qualified trustee who can keep your businesses going.
Setting Up Your Living Trust
You should only let a qualified and competent attorney help you set up a Living Trust. Be careful of people who will “sell” you a living trust. If you talk with a qualified and competent attorney now, you may save yourself and your loved ones trouble later.
Estate Planning is applying the law of property, trusts, wills, insurance, and taxation to the ordering of one’s affairs, while keeping in mind the possibility of retirement and the certainty of death. Estate Planning is controlling your property while you are alive and well, planning for yourself and your loved ones in case you become mentally disabled, giving what you have to whom you want when you want and the way you want, and having full access to today’s legal and financial opportunities.
The basic estate plan consists of a Power of Attorney, Health Care Proxy, Living Will, and Last Will and Testament. Having these documents as part of your basic estate plan will help you identify and address whatever legal, health, or financial issues you might face, as well as help you satisfy your estate planning objectives.
Power of Attorney.
A Power of Attorney serves a useful function, when used appropriately. When used appropriately, the Power of Attorney is a wonderful tool to make sure your property, financial, and/or legal decisions are made effectively and efficiently by the person you trust and who will be responsible for making these important decisions. However, the Power of Attorney can also be a dangerous weapon in the hands of an agent who is not trustworthy and does not act in your best interest. The Power of Attorney can also be a dangerous weapon when prepared by a short-sighted legal or financial professional.
For people who do not have the independent capacity to make decisions for him or herself, a Power of Attorney is, many times, the only way to a successful long-term care plan. Having the necessary and appropriate authority within a valid Power of Attorney will assist your agent/family member/decision-maker make the decisions to put the plan together and put it in place. Without this authority, your family’s only other option might be a guardianship, and all of the problems associated with that.
See also my blog post – Appointing a Power of Attorney – from August 2015.
Health Care Proxy.
In New York, appointing someone you can trust to decide about your medical treatments and/or health care if you become unable to decide for yourself is the best way to protect your wishes and concerns regarding your health care decisions. “Health care” means any treatment, service, or procedure to diagnose or treat, a physical or mental condition. You have the right to appoint someone by filling out a form called a Health Care Proxy.
The Health Care Proxy designates an agent to make your health care decisions (in the event you are not mentally able to make those decisions for yourself). Also, the agent is designated to represent your wishes, as set forth in your Living Will (discussed next), with respect to the use of unnatural extraordinary means to sustain your life. Hospitals, doctors, and other health care providers/facilities must follow your health care agent’s decisions as if they were your own. You may give the health care agent as little or as much authority as you want, and may allow your health care agent to make all of your health care decisions or only certain ones. The Health Care Proxy can also be used to document your wishes or instructions with regard to organ and/or tissue donation.
If you are worried about when the Health Care Proxy becomes effective, discuss options with your attorney. Your attorney should be able to discuss with you language detailing the process by which your attending physician certifies that you are mentally disabled. The following language may be used as an example: “For purposes of establishing incapacity, whenever two (2) licensed, practicing medical doctors who have personally examined me (one of whom shall be my primary care or attending physician) who are not related to me or to any beneficiary or heir at law by blood or marriage certify in writing that I am unable to make my own decisions relating to my health care choices because of mental or physical infirmity and the certificates are written into my medical record, then the agent appointed hereunder shall assume all powers granted in this Health Care Proxy.”
See also my blog post – Health Care Proxies for Minor Children – from March 2015.
A Living Will is essentially a document whereby you set forth in writing your desire to have, or not have, your life extended by unnatural extraordinary means, such as life support and other extreme medical technologies. For example, if your death is imminent but for the use of respirators, feeding tubes, etc., your substitute decision-maker, as designated in your Health Care Proxy (discussed above), would have the power to instruct the doctors to terminate their efforts.
Adults in New York have the right to accept or refuse medical treatment, including life-sustaining treatment. This means that you have the right to request or consent to treatment, to refuse treatment before it has started, and to have treatment stopped once it has begun. Many patients turn to family members, friends, or caregivers for advice, or want medical decisions ultimately made by them, but sometimes a patient cannot make his or her medical decisions, and has not effectively delegated that decision-making authority to others. For this reason, it is important for you to make your wishes explicitly known, in advance.
Many states have enacted laws that relate to a patient’s right to prolong or terminate his or her own medical treatment, resuscitation efforts, and life-sustaining measures. New York is not one of those states. The common law right to express one’s wishes as to his or her so-called “right to die” is found in the caselaw beginning with In re Westchester County Medical Center, wherein the court established the need for “clear and convincing” evidence of a patient’s wishes and stated that the “ideal situation is one in which the patient’s wishes were expressed in some form of writing, perhaps a ‘living will’.”
There are no formal requirements to the signing of the Living Will. The person signing the Living Will must be in all respects mentally competent. The Living Will must be signed by the patient, dated, and should be witnessed by at least two (2) independent witnesses. The Living Will need not be notarized.
Your attorney should understand that general instructions about refusing treatment, even if written down, may not be effective. Your instructions must clearly cover the treatment decisions that must be made. For example, if a client merely writes down that he or she does not want “heroic measures,” the instructions may not be specific enough for the hospital or health care facility to honor. A Living Will must specify the type of treatment, such as a respirator or chemotherapy, and describe the medical condition(s) when the client would refuse such treatment, such as when the client is terminally ill or permanently unconscious with no hope of recovering normal brain function.
Last Will and Testament.
For many, the Last Will and Testament is an important document within their comprehensive Estate Plan. For some, the Last Will and Testament is important because it converts a deceased’s intestate estate into a testate estate. When a person dies with a Will, he or she is said to have died “testate”. When a person dies without a Will, his or her estate is an “intestate” one.
For a family of moderate means, not having a Will means that the surviving spouse may have to share a small estate with children which may effectively deprive the surviving spouse of property needed for his or her welfare. Moreover, if one or more children are minors, then guardianship may be needed for property passing to the minor child. Similarly, if a beneficiary is disabled and receiving government benefits, a distribution to him or her, without condition, might disqualify that beneficiary for his or her benefits. In these cases, the Last Will and Testament could provide that the surviving spouse receive the full estate, the minor children’s shares be held in trust, thus avoiding the guardianship, and that the disabled beneficiary’s government benefits not be supplanted by the inheritance.
For spouses where there are no children, each spouse might assume that without a Will the surviving spouse would take everything. In that case, they would be wrong. Under Florida law, for example, if the deceased is survived by a spouse and issue of the deceased but not of the surviving spouse, then the surviving spouse’s share is one-half of the intestate estate. The other one-half goes to the surviving issue of the deceased or, if none, then to the deceased’s parents. The devolution of property continues, but the point is made: If the married couple do not have children, then the surviving spouse does not inherit the whole intestate estate. He or she must share it with the parents, and successive generations, of the deceased’s heirs.
The Will also gives the deceased the opportunity to name his or her own Executor or Personal Representative. That person may be different than the person who may want to be the Administrator under the state’s laws in an intestate administration proceeding.
In the 1990s, Prince’s war with his record label was monumental. Prince argued, quite publicly, that his record label owned and controlled his name as well as any music released under that name. Prince passionately believed that artists must remain the owner of their own art. This belief resulted in Prince refusing to use his name in any of his productions, creating the now-infamous “” as his symbol, being referred to as “the Artist Formerly Known as Prince”, writing the word “slave” on his face during shows and appearances, and putting out half-hearted music just to fulfill the terms of his record contract.
In addition, it has been reported that Prince made hundreds of hours of music, which has been described by Rolling Stone magazine as some of Prince’s best work, but, for whatever reason, has never been released by Prince. Prince’s vaults of music also supposedly contain at least 50 fully-produced completed music videos and a documentary about Prince videotaped by Kevin Smith. Prince apparently told Rolling Stone magazine that his vaults contain complete Revolution albums, two Time albums, and one Vanity 6 album.
For whatever reason, Prince did not want this music, or even the videos or documentary, released. If Prince had died with a Will, he could have directed his Executor(s) to never release the contents of his vaults, or at least instruct his Executor(s) on what to do with the contents of his vaults. Yet, without a Will, there is no such instruction or prohibition.
Instead, with the federal government wanting its taxes, and the lawyers and accountants wanting their fees, and the eventual inheritor(s) (whether it be his child(ren) or his siblings) wanting the rest, everyone is going to want to make sure that his estate makes as much money as possible. Even if that means releasing the music, the videos, the documentary, and whatever else is contained in the vaults, which is likely not what Prince would have wanted.
The real tragedy of Prince’s death is that for someone who so passionately believed that an artist should control the fate of his own art, by not signing a Will, or in any other way protecting his estate, Prince left the fate of his own music and productions to the whim of financially-motivated people who may not have ever really cared about him.
Prince’s legacy will certainly continue, but not according to Prince’s wishes.
A man, born in Minnesota in the 1980s, claims he is a child of Prince. This man, who remains unnamed, claims that he was born as a result of a “fling”. But, whether that “fling” turns into a $300-plus million dollar inheritance will be determined by DNA tests. Heir Hunters International, a Los Angeles based company, is helping this man pursue his claim.
Under Minnesota law, if this man is truly Prince’s child, then he (and any other child(ren)) will be the sole inheritor of Prince’s estate. Prince’s sister, Tyka Nelson, who has filed papers to be the administrator of Prince’s estate, and Prince’s half-siblings, Omarr Baker, Alfred Nelson, John Nelson, Norrine Nelson, and Sharon Nelson, and Prince’s grandniece, Victoria Nelson (granddaughter of Prince’s predeceased half-brother, Duane Nelson), will inherit nothing.
So, the interesting question is whether or not this unnamed love child is, in fact, Prince’s son. DNA tests have been ordered and, I would imagine, everyone in that family is awaiting the results.
Under Minnesota law, if Prince died without a spouse (and we are not certain, at this time, that he was not married at the time of his death), then his estate would pass to his children. While we know that Prince had a son who died shortly after birth, we do not know, for sure, that Prince did not have any other children. But, assuming that Prince did not have any other children, then Prince’s estate would pass to his parent(s). If a parent is not living, then Prince’s estate would pass to his siblings (including half-siblings).
If, on the other hand, Prince died with a Will, then the terms of the Will would govern.
Whether you are called an executor or administrator, or anything in-between, your job is relatively the same. Marshal the assets of the estate, pay the legitimate claims of the decedent, dispose of the illegitimate claims against the decedent, distribute the net estate pursuant to the terms of the dispositive instrument and/or state law, as the case may be, prepare the necessary estate tax return(s), and file an inventory with the court.
1.Marshaling the assets of the estate.This entails:
a.notifying the decedent’s asset companies – banks, credit unions, brokerage companies, financial institutions, etc. – of the decedent’s death.
b.opening a checking account in the name of the estate – e.g., “Estate of John Doe” – so that you will have access to estate money to pay the estate expenses. You will need the Taxpayer Identification Number to open accounts in the name of the estate.
c.liquidating assets for deposit into the estate checking account or determining whether assets can be re-titled into the name of the decedent’s estate;
d.notifying the decedent’s income sources. If the decedent was working, contacting HR at the decedent’s employment to arrange for back pay and future pay.
e.contacting benefits companies – retirement accounts, annuities, life insurance, etc. – and receiving the forms. If the decedent/estate is not the beneficiary of these accounts, the asset company will likely not talk to you. In that case, you merely should inform the beneficiaries of the existence of the account and who to contact to get the proper form(s).
To locate decedent’s assets, you should get and thoroughly review the decedent’s:
ii.financial statements, including premium statements (e.g., insurance policies, annuity contracts, etc.);
iii.checkbooks and passbooks;
iv.safe deposit boxes;
v.income tax returns (speak with the decedent’s accountant or use Form 4506-T to get a copy of the decedent’s income tax returns);
vii.unclaimed funds in the states where the decedent lived.
2.Pay the legitimate claims against the decedent.This entails:
a.contacting the decedent’s credit card companies, notifying them of the decedent’s death, and determining how much is owed.
b.canceling the decedent’s expense accounts (e.g., utilities, credit cards, cable, cell phone, subject to the needs of the family).
c.determining if the decedent had any private debt (e.g., private loans, IOUs, etc.
d.identifying the decedent’s real property and determining the proper debt of the property – e.g., mortgage payments, real estate taxes, co-op maintenance, homeowner association dues, etc.
e.making arrangements to pay the legitimate, unavoidable debt.
f.Weeding out the illegitimate claims and/or determining which debt will not have to be paid back.
3.Dispose of the illegitimate claims against the decedent.This entails:
a.Deciphering the real debt versus the fake debt.
b.What to do when you receive a claim against the estate? A claim filed against an estate does not, on its face, mean anything. You need to determine whether the claim is legitimate or illegitimate. If illegitimate, you do not need to respond. It is not your duty to perfect the creditor’s claim. A claim ignored is a claim rejected. If rejected, the creditor will have to bring a proceeding, typically an accounting proceeding, to prove the claim is legitimate. Regardless, however, you are precluded from distributing the net estate (see Paragraph 4(a) below) until the claim is disposed of, or, at least, leave enough cash in the estate to pay the claim, if necessary.
4.Distribute the net estate pursuant to the terms of the dispositive instrument and/or state law, as the case may be.
a.A creditor of the decedent has seven (7) months from the date Letters are issued (or, on or before the date fixed in the published notice to creditors) to file a claim against the estate. That does not mean the creditor is necessarily out-of-luck if a claim is filed against the estate after the seven (7) months, if there is value left in the estate. In other words, you should not distribute anything from the estate until the expiration of the seven (7) months. If you make a distribution from the estate before the expiration of the seven (7) months, and if the claim against the estate is legitimate, then you will have to get back enough from the beneficiaries to pay the claim. If you are is unable to get back enough from the beneficiaries to pay the claim, then you may be personally liable for the claim. If, however, you make a distribution from the estate after the expiration of the seven (7) months but before a claim against the estate is filed, then you do not have to get anything back from the beneficiaries. The onus is on the creditor to file his, her, or its claim within the seven (7) months. If, on the third hand, the creditor files a claim against the estate after the expiration of the seven (7) months but before you distribute the estate, the creditor can have his, her, or its claim (if a legitimate claim) paid out of the estate (or whatever is left of the estate).
b.Once the assets of the estate have been marshaled, the legitimate claims of the decedent paid, the illegitimate claims against the decedent disposed of, you can distribute the net estate pursuant to the terms of the dispositive instrument and/or state law, as the case may be. If a testamentary trust(s) is created under the terms of the Will, then you will create the trust account and hand the assets of the trust over to the trustees of the trust. If distributions to the beneficiary(ies) are outright under the terms of the Will, then you will make arrangements with the beneficiary(ies) to take possession of the assets.
5.Prepare the necessary estate tax returns.Currently, the NYS estate tax exemption amount is $4,187,500. The federal estate tax exemption amount is $5,450,000. If the decedent’s taxable estate (as opposed to probate estate) is greater than $4,187,500, then you must prepare and file the decedent’s NYS estate tax return and pay whatever NYS estate tax is due. If the decedent’s taxable estate is greater than $5,450,000, then you must prepare and file the decedent’s NYS estate tax return and federal estate tax return and pay whatever NYS and/or federal estate taxes are due. Federal and NYS estate tax exemption amounts will increase until 2019, at which time it is expected that the two rates will become equal.
6.File an inventory with the court.Once the assets of the estate have been marshaled, the legitimate claims of the decedent paid, the illegitimate claims against the decedent disposed of, and the net estate has been distributed pursuant to the terms of the dispositive instrument and/or state law, as the case may be, you must file an inventory of assets with the court. You cannot be discharged from your duties without filing an inventory of assets and failure to file an inventory of assets will (eventually) lead to revocation of Letters. If an estate tax return was filed for the decedent’s estate, you can attach the estate tax return to the Inventory of Assets without having to complete the entire form for the Inventory of Assets.
Top Mistakes Fiduciaries Make (Liability Landmines).
1.The common (but not small) mistakes:
a.Not marshaling all of the assets.
b.Not determining all of the debt.
c.Not disposing of all of the debt.
d.Not paying the expenses on time, including the estate taxes owed by the decedent’s estate.
e.Making distributions prior to the seven (7) months.
f.Paying the decedent’s creditors without confirming the claim(s).
g.Not listening to the beneficiary(ies) of the estate.
h.Not heeding the concerns or needs of the beneficiary(ies) of the estate.
2.The subtle mistakes:
a.Not investing the assets of the decedent’s estate properly.
b.Not continuing or winding down the decedent’s business.
c.Taking too long to administer the decedent’s estate.
3.The BIG mistakes:
a.Wasting (or acting negligently with) the assets of the estate.
c.Self-dealing with the assets of the estate.
d.Embezzling the assets of the estate.
When navigating through estate and trust administration, the good fiduciary must be aware of his or her role, as well as his or her duties to the decedent, the decedent’s estate, and the beneficiaries of the decedent’s estate. Estate, Will, and trust conflicts will arise even in the best of estate plans. A fiduciary should not compound the problem by creating further conflict, or being the reason for the conflict.
If you would like to discuss your role as fiduciary of the estate, or need assistance in representing an estate, call us at (877) 207-6803.
Question: Can I use an online form for estate planning?
Answer: You could, but you should not.
The problem with online forms, and whatever other form of online estate planning DIY, is that (a) they are not likely prepared with the review of a qualified estate planning attorney, and (b) they are not likely state-specific. Each state has its own idea what a Will looks like, or a Health Care Proxy, or a Power of Attorney. If you are going to sign one of these forms, or any other form for estate planning, within your home state, then you should make sure the form you sign is valid in your home state. These online forms, or estate planning DIY websites, are not always prepared with the state-specific rules in mind. Nor are they prepared with a state-specific attorney’s guidance and review. Most times, these online forms or estate planning DIY websites are made universal because the company thinks the form could be used in any state.
New York, for example, has very specific rules about what a Health Care Proxy looks like and how it is signed. The same goes for a Power of Attorney. In fact, New York has a whole form of a Power of Attorney in the NYS law that MUST be followed. If certain things are left out of the form you sign, then it is invalid. There are instances where people have downloaded forms of a Power of Attorney, signed them, and tried to use them after their loved one became incapacitated, only to find out that the state-specific form was not used. In those instances, the NYS law is clear that there is no way to fix the form. In those instances, you need to start all over again. But what if you can’t? What if your loved one no longer has the capacity to sign such a form? In those instances, you are stuck without a proper form.
Which leads me to the other problem with online forms: you won’t know if your form is executed properly. With these online forms and estate planning DIY websites and kits, there is no way of knowing if you are doing things right until it’s too late and then there is nothing you, your family, or your friends can do about it. Without getting the relevant, specific, information and form from a qualified estate planning attorney, you will probably leave your family and friends with a complete mess.
What would happen if you download a Will, fill it out, and sign it, only for your family to learn (after you are gone) that the form is wrong for NY and the document was not signed in accordance with NY law? A big mess is what would happen.
I know the point is to save money. But, in the end, if the online form is improper or invalid, you will likely cost your family and friends more money. You are better off seeking out a qualified estate planning attorney from the beginning, ensuring things are done correctly, and making sure the attorney tries to work with you regarding fees. You’ll save yourself and your loved ones money in the long run.
Your home may be hiding a significant amount of cash that could otherwise be used to pay for such things as household expenses, renovations, travel, or retirement expenses. A Reverse Mortgage allows a homeowner to convert the available equity in the home to cash. The cash from a Reverse Mortgage could also be used to pay for long-term care.
To qualify for a Reverse Mortgage, the homeowner(s) must be at least 62 years old, and must reside in the home. The Reverse Mortgage typically does not have to be repaid until the last homeowner dies, sells the home, or moves out of the home.
With a Reverse Mortgage, the homeowner(s) receives a lump sum of money from the lender. The amount received by the homeowner(s) is based on the value of the home, the age of the homeowner(s), and current interest rates.
For a client in need of quick cash to finance long-term care, a Reverse Mortgage may be a great idea. However, for those clients that wish to pass on their home to their loved ones, it probably will not be. With a Reverse Mortgage, there is no obligation on the homeowner(s) to make monthly payments. Interest on the loan is tacked onto the outstanding balance of the loan. At the time the loan becomes due (e.g., when the last homeowner dies, sells the home, or moves out of the home) the lender gets paid the original amount borrowed plus all of the accrued interest. The potential for exposure is if the house value is out-stripped by the outstanding balance on the loan. However, Reverse Mortgages are non-recourse loans. This means that the homeowner(s) is not responsible for the unpaid balance of the loan if there is not enough value in the home to satisfy the outstanding balance. So, even though the homeowner(s) would not be able to pass the home onto his or her loved ones, the homeowner’s(s’) loved ones are not obligated to make the lender whole.
Disadvantages of the Reverse Mortgage include the possibility that the homeowner will not be able to pass the home onto loved ones; the forced sale of the home in the event the homeowner moves out (e.g., into a nursing home); and the closing costs – which are higher than normal closing costs on conventional mortgages/home equity loans. Reverse Mortgages are usually offered by commercial financial institutions. The typical Reverse Mortgage is offered as a line of credit, but it is not required. This means that the Reverse Mortgage proceeds, although still offered as a lump sum, are instead deposited into the financial institution’s account for the homeowner. When the homeowner needs money from the account, the line of credit dispenses the amount. One of the advantages of this program is that the money is protected, even invested for the homeowner, and the homeowner does not incur interest on the amount borrowed until actually received by him or her. However, one of the disadvantages of this program is that the homeowner does not receive his or her financing right away but has to set up a system with the financial institution whereby the homeowner can make withdrawals from the line of credit account. Plus, because the closing costs are paid out of the loan proceeds, the homeowner already has an amount outstanding from day one. Many times, the homeowner is unaware that he or she is already accruing interest on this amount, especially when the homeowner does not withdraw any money from the line of credit.
Another disadvantage is the treatment of Reverse Mortgages for government benefit purposes. For most Medicaid applicants/recipients, Reverse Mortgages are disregarded as income but countable as a resource if the proceeds from the Reverse Mortgage are kept beyond the month received, but this may be inconsistent with state law. However, if the Reverse Mortgage is in the form of an annuity, then the annuity payments are unearned income in the month received and a resource thereafter.
If you would like to learn more about reverse mortgages, and how the Law Offices of Jeffrey A. Asher, PLLC, can help you, please contact us at (877) 207-6803 or firstname.lastname@example.org.
Question: What role does life insurance play in estate planning?
Answer: Life insurance can play a tremendous role in estate planning. For example, life insurance can provide liquidity to pay off the mortgage after the death of one of the spouses. Sometimes called “mortgage insurance”, life insurance can help ensure that the surviving spouse won’t have to deal with the mortgage, or other expenses, following the death of a spouse.
When a family has young, school-age children, life insurance can help the working spouse pay for help with the children and the house in the event the stay-at-home spouse dies. In reality, the working spouse would not be able to quit his/her job and take care of the family at the death of the stay-at-home spouse. In that instance, life insurance can help pay for a caregiver, nanny, or other help, for the children and the house, allowing the working spouse to keep his/her job.
Life insurance can also provide liquidity to pay estate taxes for an estate that is cash poor. For example: an estate is comprised of valuable real estate, a business, other tangible personal property, but very little in bank accounts, etc. If there is an estate tax to pay, the family might have to sell the real estate or the business or some of the tangible personal property. But, if there is a life insurance policy, the family could use that money to pay the estate taxes.
Life insurance can also ensure that children and grandchildren have money set aside for school, weddings, the purchase of a first home, or other big expenses. As an investment for future generations, life insurance can provide a very large return on investment, when you accept the fact that someone else is going to be the beneficiary of that return.
In sum, life insurance can play an important role in estate planning. But, that means you must plan for your life insurance. You may not have known it until now, but the value of life insurance may be included in your taxable estate, thus included in the calculation of estate taxes. This means that buying life insurance to pay for eventual estate taxes may, in fact, increase those estate taxes. However, if you create a proper “life insurance trust” and own your life insurance within the “life insurance trust”, your life insurance will not be included in your taxable estate. Thus, potentially saving thousands of dollars in estate taxes. That is why it is important to discuss your estate planning, and your life insurance planning, with a qualified estate planning attorney.
Question: Whom should I appoint as my agent for my Power of Attorney?
Answer: The agent under your Power of Attorney is a Very Important Person. His/her job is to make your financial decisions in the event you are unable to make your own financial decisions because of an incapacity or otherwise. Your agent may be the person who has to pay your bills in the event of your absence or your incapacity, make financial decisions and/or transactions, sell property, if it is in your best interest, and/or perform estate planning or elder law planning, if necessary. Your agent under your Power of Attorney should be (a) someone you trust to make your financial decisions, (b) someone who will work with and treat your family with honesty, respect, compassion, and financial reasonableness, assuming he/she will act for you in connection with bills to pay, gifts, investments, etc., (c) someone who is financially smart or, at least, able to identify the need to be financially smart and will use smart financial advisors, and (d) someone who will work well with others, if you choose to appoint more than one agent under your Power of Attorney.
When choosing an agent under your Power of Attorney, do not be limited by geographic location, age, or relationship. An agent can be anyone, of any age, anywhere. With today’s technology, many financial decisions/transactions can be performed via email, telephone, fax, or by the mail/overnight delivery, so where a person lives has little to do with whether or not he/she can do a good job. And, age should never be a factor in ruling someone out as a possible agent. The question is whether that person can do the job. But, if you are concerned about the age of the potential agent (assuming the person is older), then make sure you appoint successor(s) to act if necessary.
No matter whom you appoint, in addition to the appointment of your agent under your Power of Attorney, you should consider naming additional agents (as successor(s)) in the event the initial agent is unable or unwilling to do the job.
Question: I would like to prepare my estate plan by myself. How will I know if my plan is executed well after I am gone?
Answer: Unfortunately, if you are preparing your estate plan by yourself, without any review by a qualified attorney, then you won’t know if your plan is executed well. You will probably leave your family and friends with a complete mess. That is most often the problem with these Estate Planning DIY websites and kits. There is no way of knowing if you are doing things right until it’s too late and then there is nothing you, your family, and friends, can do about it. I know the intention behind preparing your own estate plan is to save money, but, in the end, you will likely cost your family and friends more money fixing what needs to be fixed. You are better off seeking out a qualified estate planning attorney from the beginning, ensuring things are done correctly, and making sure the attorney tries to work with you regarding fees. You’ll save yourself and your loved ones money in the long run.
Health Care Proxies for minor children
As thoughts of the long winter leave us and as the weather outside turns nice, some may begin to think about travel. Whether it is day trips, going away over a long weekend, or full blown vacations, one thing people rarely think of is health care decision-making for minor children. But, maybe you should.
A few years ago, my wife and I were away for a short vacation. Our children – our daughter, 7, and our son, 3 – were staying with my parents. During their stay, our daughter had a very minor health scare and my parents took her to the ER. The admissions nurse took down my parents’ information, but because they were the grandparents, the admissions nurse questioned what authority they had to make health care decisions.
That’s a typical scenario – and maybe a scary one. Especially if the parents are away and not able to be reached quickly. Or, if the health scare was something worse. Lucky for us, the health scare was minor AND my wife and I had signed a Health Care Proxy appointing my parents as health care decisions makers while we were on vacation. So, when the admissions nurse asked what authority my parents had to make health care decisions for their granddaughter, my parents were able to show her the Health Care Proxy we had signed and there were no further issues.
Granted, we were in constant communication with my parents and were rushing back home to be there. But, what if we could not be there quickly? What if the doctor’s office could not reach us? What if my parents did not have the Health Care Proxy form? Likely, the hospital would have still cared for our daughter, but there would have been a lot of uncertainty, a lot of stress, and a lot of anxiety as we made our way to the hospital.
The point is that it was a simple document that saved hours of aggravation. When we arrived at the hospital, our daughter was being cared for, my parents were fully in charge, but we were able to take over now that we were there.
That’s the kind of Protection, Security, and Peace of Mind proper estate planning gives you.
Question: My mom’s health is failing rapidly. What should I do to get ready to handle her decisions in the event she becomes mentally incapacitated?
Answer: The best thing to have in these situations is both a Health Care Proxy and a Power of Attorney. A Health Care Proxy is a legal document signed by an individual (called, the “Principal”) that appoints another individual (called, the “Agent”) to make medical, health care, and/or long-term care decisions for the Principal if and when the Principal cannot make his or her own medical, health care, or long-term care decisions.
A Power of Attorney is a legal document signed by an individual (called, the “Principal”) that appoints another individual (called, the “Agent”) to make financial decisions for the Principal. That authority may be effective the moment the Power of Attorney is signed, in what is called a general Power of Attorney. Or, it can be effective in a particular event or for a particular purpose, in what is called a limited Power of Attorney. Or, it can be effective upon the triggering of a certain event, such as the mental incapacity of the Principal, in what is called a springing Power of Attorney.
So, while an Agent under a Health Care Proxy cannot make health care decisions for the Principal if the Principal is able to make his or her own health care decisions, an Agent under a general Power of Attorney can make financial decisions for the Principal even if the Principal is perfectly capable of making of his or her own financial decisions. So, it is important to get the right advice when preparing a Health Care Proxy and/or Power of Attorney. Plus, state laws may govern what a Health Care Proxy and/or Power of Attorney look like, or how each is signed. So, again, it is important to get the right advice from a qualified Estate Planning or Elder Law attorney to help with these forms.
But, for the parent (or other loved one) whose health is failing rapidly, a Health Care Proxy will allow the child (or other Agent) to make medical, health care, and/or long-term care decisions. And, a Power of Attorney will allow the child (or other Agent) (it does not have to be the same child or Agent) to make financial decisions. In the event the parent (or other loved one) does not have the requisite mental capacity to sign a Health Care Proxy or Power of Attorney, then a guardianship may be the only solution. A guardianship is a legal process by which the parent’s (or other loved one’s) incapacity is determined and declared by the Court and a person is appointed by the Court to act as Guardian of the Person and/or the Guardian of the Property. A guardianship is a public proceeding, which may be both time consuming and expensive. So, for these reasons, in most situations, it is preferable to have a Health Care Proxy and/or Power of Attorney executed.
Once an individual is appointed – as Agent under the Health Care Proxy, or Agent under the Power of Attorney, or Guardian, as the case may be – that individual would be able to help the parent (or other loved one) get the medical and/or long-term care help the person may need in the event of their incapacity, but also do the necessary and appropriate asset planning to qualify for government benefits to help pay for such medical and/or long-term care help.
In all cases, and all types of planning, it is important that you get the right advice from a qualified Estate Planning or Elder Law attorney.
If you would like to learn more, and how the Law Offices of Jeffrey A. Asher, PLLC, can help you, please contact us at (877) 207-6803 or email@example.com.
Question: What are estate taxes?
Answer: Estate taxes, or what are sometimes called death taxes, or inheritance taxes, are generally owed and paid on the value of property in someone’s estate when they die. There is a federal estate tax and there are states that impose state estate taxes, although not every state has an estate tax. Some states don’t have an estate tax, but have an inheritance tax, which taxes the beneficiaries of the deceased person for the value of property inherited by them. Some states, like New Jersey, have an estate tax and an inheritance tax. This means that New Jersey potentially taxes the estate of someone who has died (through the estate tax) and the beneficiaries of the deceased person for the value of property inherited by them (through the inheritance tax).
The estate tax (or the inheritance tax) is generally calculated on the date of death values of property owned by the decedent (or inherited by the beneficiaries), although that calculation may be affected by deductions, credits, and/or adjustments in valuation.
The federal government allows an exemption from the federal estate tax. Every US citizen is entitled to an estate and/or gift tax exemption of up to $5,250,000 (in 2013). That means a person can die with property valued at up to $5,250,000 (in 2013) and not pay federal estate taxes. Those states that have an estate tax generally have their own state-level exemption, or they accept what the federal government assumes the state-level exemption should be (called the state death tax deduction). For example, New York State’s estate tax exemption is currently $1,000,000. This means a person who has an estate worth $4,000,000 would not have a federal estate tax (because the estate is less than $5,250,000) but would have a New York State estate tax (because the estate is more than $1,000,000). New Jersey’s estate tax exemption is currently $675,000. There is no exemption from the New Jersey inheritance tax, but certain classes of beneficiaries (such as, spouse and children) are exempt. North Carolina, for example, has a state estate tax, but the exemption mirrors the federal exemption. The federal exemption of $5,250,000, currently, is a lifetime exemption that can be used during life or at death. In other words, a US citizen may make gifts during life of up to $5,250,000, currently, without paying federal gift tax. However, having used the exemption during life there will be nothing left of the exemption at death. Connecticut is the only state that has a gift tax.
The federal estate tax return is due nine months following the person’s death, although extensions may be applied for. However, an extension of time to file the return does not mean also an extension of time to pay the estate tax. Penalties and interest will be owed on the unpaid amount of federal estate taxes. States’ estate tax and inheritance tax returns have their own deadlines. For example, the deadline to file a New York State estate tax return is nine months, unless extended. The deadline to file a New Jersey estate tax return is also nine months, but the deadline to file a New Jersey inheritance tax return is only 8 months. The deadline to file a Connecticut estate tax return is six months, unless extended.
As you can see, the road to navigate between and amongst the federal estate tax, state estate taxes, state inheritance taxes, gift taxes, filing deadlines, etc., is a winding and bumpy one. It is best to seek out a qualified Trusts and Estates Attorney to help you steer the course.”
The need for legal advice and estate planning for same-sex couples is more critical now after the Supreme Court’s recent decision striking down DOMA.
The Supreme Court’s recent decision in United States v. Windsor struck down the Defense of Marriage Act of 1996 (DOMA), the federal law that prohibited the federal government from recognizing same-sex marriages legalized by the states, and which allowed states to refuse to recognize same-sex marriages performed under the laws of other states.
DOMA contained two operative provisions: Section 2 of DOMA allows states to refuse to recognize same-sex marriages performed under the laws of other states. Section 3, which was the subject of the challenge before the Supreme Court, defined “marriage” and “spouse” as excluding same-sex partners.
While DOMA did not, by its terms, forbid states from enacting laws permitting same-sex marriages or civil unions or providing state benefits to residents in that status, its definition of marriage for purposes of more than 1,000 federal laws, regulations, and/or directives effectively denied federal benefits to same-sex married couples.
The Supreme Court’s decision in Windsor held that DOMA’s operation in practice created two different classes of married couples in states that allow same-sex marriage. As the Court said, “same-sex couples were forced to live as married for the purpose of state law but unmarried for the purpose of federal law,” thus diminishing the stability and predictability of a basic personal relationship the state found proper to acknowledge and protect. And because DOMA’s principal purpose and practical effect was to create inequality amongst state-sanctioned marriages whereby federal law is normally supposed to create equality amongst US citizens, the Supreme Court struck down DOMA as unconstitutional.
This means that for the first time, same-sex married couples, and their families, are entitled to various federal benefits they otherwise were denied because of DOMA. For example, same-sex spouses of government employees are now entitled to government healthcare benefits without additional costs and taxes. Same-sex married couples are now able to file jointly on their federal income tax returns – no longer forced to file state income tax returns one way and federal income tax returns another. Same-sex married couples are now able to inherit federal pensions and retirement accounts the same way opposite-sex married couples can. Same-sex married couples may now be buried together in veterans’ cemeteries. Same-sex married couples are now entitled to the Bankruptcy Code’s special protections for domestic-support obligations.
The Supreme Court’s decision in Windsor also guarantees Social Security benefits to families upon the loss of a spouse and parent, benefits that were previously denied because of DOMA’s far-reaching effects. It also serves to resolve problems in immigration cases where same-sex couples may have been legally married but the federal government, through DOMA, refused to acknowledge the marriage.
The Supreme Court’s decision also allows same-sex married couples the benefit of the federal marital deduction, thus potentially saving millions of dollars in federal estate and gift taxes.
Federal estate and gift tax law enables married couples who are US citizens to make both lifetime gifts and testamentary bequests to one another entirely tax free. These gifts may be made in unlimited amounts and may be made outright or in trust, all because of the federal dollar-for-dollar marital deduction. However, the marital deduction requires that the spouses be legally married. Prior to the Supreme Court’s decision in Windsor, same-sex couples were not entitled to the federal unlimited marital deduction because they were not legally married in the eyes of the federal government. However, with the demise of DOMA, a same-sex married couple would be entitled to the same federal marital deduction as an opposite-sex married couple, thus paving the way for same-sex married couples to properly and effectively plan their estates to save as much in federal estate and gift taxes as opposite-sex married couples already do.
So, if you, or a loved one, need our guidance and support to know what you or they are entitled to, now that DOMA is no more, please call us. Whether it is a new Will to make sure the federal marital deduction is applied, or new trusts to ensure more effective and comprehensive estate tax savings, it is time to take advantage of the tried and true estate planning techniques that, until the Supreme Court’s decision in Windsor, have only been available to opposite-sex married couples.
If you would like more information on how the Law Offices of Jeffrey A. Asher, PLLC, can help you, please contact us at (877) 207-6803 or at firstname.lastname@example.org.
Generally, transfers between spouses are free of federal estate and gift taxes, provided that the recipient-spouse is a U.S. citizen. These tax-free transfers are authorized under the so-called “marital deduction” regulations of the applicable federal gift and estate tax laws.
Where the recipient-spouse is not a U.S. citizen, the marital deduction for estate and gift taxes is eliminated. The deceased spouse’s estate will be taxed on the value of property left to a non-U.S. citizen spouse in excess of the deceased spouse’s available estate tax exemption, unless special language is included in the deceased spouse’s Last Will and Testament or Revocable Living Trust or a special tax election is made at the deceased US citizen spouse’s death.
For example, Husband (H) and Wife (W) are a married couple. H is a U.S. citizen. H leaves all of his property that he owns at his death to W. If W is a U.S. citizen, then H’s estate is not liable for any estate taxes. However, if W is not a U.S. citizen, H’s estate will be responsible for the estate taxes imposed on the value of the property passing to W in excess of the estate tax exemption amount.
In the case of lifetime transfers to a non-citizen spouse, the normally unlimited marital deduction is restricted for federal gift tax purposes. In that case, an individual may transfer up to $133,000 annually (as of 2009) to a non-citizen spouse without gift taxes being imposed, provided the gift would otherwise qualify for the marital deduction (for example, a gift of a future interest in property would not qualify).
For example, in 2009 H transfers property valued at $500,000 to his wife, W, a non-U.S. citizen. The transfer to W is fully reported on H’s 2009 gift tax return. However, gift taxes are only paid on $367,000 – the portion that exceeds the $133,000 exemption.
The conclusion, as it pertains to many of our clients, is that there may be significant consequences of giving property to a non-citizen spouse, both at death and during life. If you are, or are married to, a non-U.S. citizen spouse, then special estate planning is needed to minimize the estate and gift taxes your estates will pay.
Issues Facing Clients with Real Estate in More Than One State
If you own real estate in more than one state (New York and Florida, for example) you may need to probate your Will or administer your estates in each state. And while we may be able to represent you in our state, depending on the state, we may need to hire a local attorney to help us with the probate in the “other” state.
When a person owns real estate in his or her sole individual name (i.e., the deed is titled in the individual name of the owner), the real property has no direction and no instruction on how to be distributed to the next owner. To give you an idea, real property owned by husband and wife, as “joint tenants with right of survivorship”, passes to one or the other by operation of law upon the death of one owner. This is because the title on the deed contains the instruction that the surviving joint owner becomes the sole owner of the property following the death of the other joint owner.
However, what happens when the real property is only owned by one person, or by multiple people as “tenants in common” (i.e., not as joint owners)? In that case, there is no instruction written into the deed registration like there is with “joint” property. The deceased person’s ownership interest passes to his or her heirs at law. As such, the local court must get involved. That means time and money to the estate.
This predicament can be resolved with proper asset ownership (e.g., joint ownership versus individual ownership), an enlightened and educated family, or with the use of certain types of trusts the most popular of which is the Revocable Living Trust.
The language of the Revocable Living Trust agreement itself directs who gets the real property, and does not typically need the involvement of the local court or the hiring of local counsel. Because the Revocable Living Trust agreement, rather than a Will, owns your assets and directs how those assets will be distributed, you can avoid probate. As you can see, your loved ones will receive their inheritances faster, and won’t have to pay all of the costs associated with probate.