The IRS Takes a Bite Out of DOMA, Part 1
Recently, on a panel at a Chicago Bar Association’s Trust Committee meeting, I discussed tax and estate planning issues in light of the U.S. Supreme Court case, U.S. v. Windsor and the new federal agency rules on same-sex married couples. This article is Part 1 of a 4-part series from that discussion. Before Windsor, preparing estate plans for same-sex couples was often complex, especially if the couples were married, in a Civil Union, Registered Domestic Partners, or long-time partners in a substantially similar relationship when compared to opposite-sex married couples. The so-called Defense of Marriage Act (DOMA) compounded the complexity by prohibiting federal agencies from recognizing the couples and spurring states to create mini-DOMAs. The disparate treatment forced same-sex couples with sizable estates to literally give away large portions of their assets, either in the form of charitable donations or tax payments. However, even couples with very modest estates were required to have powers of attorney and related directives prepared with painstaking creativity. Finally, when most couples, despite their estate\’s size, asked why their planning was so complex, they listened to how their families were “different” and warnings, such as “though a valid legal document, don’t use this in Texas,” or “don’t have an accident in Will County.” Generally, creating a joint will for same-sex couples, even those lawfully married, was and still is a risky undertaking because the relationship was not federally recognized and is not recognized by a majority of states. Even in states such as Illinois where Civil Union couples have the same benefits of as opposite-sex married couples, including testamentary benefit, some counties are nonetheless hostile. Thus, a surviving partner presenting a joint will in a probate court of such a county might face an uphill battle. Setting the issue of joint wills aside, but considering will provisions, the unequal treatment of same-sex couples required careful tailoring of what could be boilerplate provisions in wills for opposite-sex married couples. The tailoring and special provisions include: Family Article; A statement of intent; Definitions providing expansive and inclusive meanings for “child,” “partner,” Civil Union, Registered Domestic partner, spouse, next of kin, and marriage; Prospective guardianship and successor guardianship language; A no-contest provision; A pour-over provision; A definitive choice of law statement; A notary seal, though notarizing a will is not required in Illinois; and more. I mentioned the pour-over provision because even if the family is of modest means, contentious behavior from another family member would warrant a trust also be prepared as a second line of defense for fighting contention. This is not the case for married opposite-sex couples because the opposite-sex surviving spouse would, at least initially, have the law squarely on his or her side as a second line of defense. If a same-sex couple of modest means could not afford a trust, and some could not, then they would try to plan for transferring all assets by operation of law and hope that a family member with a small estate affidavit didn’t show up to claim for the forgotten bank account. For the sake of example, let’s say a trust was prepared. One positive sliver for practitioners and our clients was that we didn’t have to worry about the reciprocal trust doctrine or unlimited marital deduction (IRC 2056) issues. But that was just the point: Because of the unfair treatment by the government, our clients could not take advantage of the unlimited marital deduction, federal QTIP elections, gift-splitting, or portability. So provisions had to be drafted carefully to work-around this lack of spousal gifting benefits. Additional provisions and mechanisms for trusts included: Expressly prohibiting a contentious family member from acting in a fiduciary capacity Providing the trustee and successor trustee with HIPAA rights; Providing the trustee with authority to take reasonable steps to ensure transfer of retirement assets to the same-sex spouse or partner result in the least adverse tax implications for the surviving spouse or partner; Using life insurance trusts; and Thoughtfully and diligently considering the “common disaster” provision. As mentioned earlier, other directives, agreements, and documents were and still are critical. These instruments include HIPAA release forms; a hospital visitation authorization form; reciprocal powers of attorney with 2 disinterested witnesses per instrument and with each instrument notarized but with a warning about describing the relationship depending on the county (imagine – having to hide your relationship in case of a medical emergency in order to ensure your spouse’s medical treatment!); reciprocal living wills; and reciprocal Illinois Mental Health Treatment Declarations. Many colleagues might say that possessing all of these documents would be redundant, and they would be correct…with respect to opposite-sex married couples. However, for same-sex married couples possessing all of these documents is evidence that strongly supports the commitment between the 2 individuals and, thus, their testamentary intent. Thankfully, Windsor and the subsequent flurry of guidance from government agencies took a bite out of DOMA; and stay tuned for Part 2 of this series, which will cover that guidance. One nation with justice and liberty for all… The IRS Bites DOMA, Pt 1 | 2 | 3 | 4
The Silver Tsunami Silver Lining, Pt 2: It\’s Never Too Late
Last week’s article described The Silver Tsunami and found Grandma Jen in a funky situation: she had become the guardian of 2 girls, Taylor, and Michelle, with insufficient resources left by their parents. This week’s article discusses Jen\’s alternatives. ONE. Jen needs to make sure that she has solid plans in place to provide for herself because if she’s not doing well Taylor and Michelle probably won’t either. These circumstances and Jen’s age, 52, require an estate plan that includes the requisite powers of attorney and a revocable living trust, naming a successor trustee who could step into her shoes were she to become incapacitated. That successor trustee, who should also be Jen\’s property power of attorney agent, should be working with a highly qualified financial planner and CPA, to ensure Jen’s financial needs are met. Under her trust, she should have at least 2 subtrusts, perhaps more, for the children, leaving Jen as Trustee and designating the financial advisor as a successor co-trustee and a trusted friend who would act as a successor co-trustee and successor guardian of the estates of the 2 children. The trust and powers of attorney would help considerably. Yet, additional questions she must consider are complex with serious implications: Who should determine how much of her income should be spent on her care – the trustee, the agent under her property power of attorney, or the agent under her healthcare power of attorney? What if there is not enough to fund Jen’s long-term care and college education for both girls? TWO. Let’s just say that Jen is a healthy, strong, and vibrant 52. She’s also at the younger end of the Boomer generation with at least 13 – 15 years of earning potential left. Thus she must make the best of it. Since estate and financial planning overlap and yours truly works with a number of financial and tax professionals, a financial professional would likely tell Jen to max out her retirement plan contributions, defer taking Social Security until the payout is 100%, and be mindful of the resources needed for Taylor and Michelle for at least 7-9 years after Jen’s retirement. This is also where retirement withdrawal strategies come into play. Let’s also say Jen stays healthy, retires comfortably, the girls graduate college but one flies back to the nest for an indeterminate period, an “Echo Birdie.” Now, in retirement, Jen has an extra adult to feed and shelter, which means she is again incurring additional daily expenses. What would happen if Taylor became seriously ill or injured? Has she done even nominal planning to safeguard her grandmother’s resources? Does Jen have insurance on Taylor? Thus while Jen and her late husband had an estate plan, Chris and Chaz didn’t, which isn’t surprising because 70% of all Americans, including Baby Boomers, haven’t planned or planned adequately for regular situations, not to mention the Silver Tsunami. This is just yet one more example of why estate planning is critical for the 99%rs. For recent information relevant to Baby Boomers, visit our Facebook page. The Silver Tsunami Silver Lining, Pt 1 | The Silver Tsunami Silver Lining, Pt 2
The Silver Tsunami Silver Lining, Pt 1: Minimizing the Wave
Recently, I shared a lovely dinner with a few friends and clients over a discussion about the “Silver Tsunami,” a phrase I’m sure you’ve heard bandied about over the last year of so. Still, just what is this “Silver Tsunami”? The “Silver” is related to the number of Baby Boomers, those of us born in 1946 through 1964, reaching retirement age daily. There’s a whopping 10,000 of us looking at 65 every day and that number isn’t decreasing for at least 10 years. The Silver Tsunami is the combined effect of factors caused by retiring Baby Boomers, the largest concentration of individuals reaching retirement age in U.S. history. The effects involve what happens when millions of people suddenly stop earning what they used to, are staring at potentially a longer lifespan than anyone anticipated, and because of the Great Recession or other factors may have or become non-spousal or partner dependents. But there is a silver lining to the Silver Tsunami and, given the current state of affairs of our government, this information is even more critical for Boomers and their children and parents. Most of us have dependents – minor children, grandchildren, very close nieces, nephews, or even very close minor children of dear friends. If we don’t, we probably have adult dependents. If we don’t have either, we just need to give it about 10 years or so. The point is the dependent wave is the precursor to the tsunami but this wave requires relatively simple preparation to ensure that it doesn’t morph into a tsunami. Chris and Charles’ story helps make the point: Chris and Charles decide to take a vacation without the children, Taylor and Michelle. Chris’s sister, Sarah, usually watches the kids but is working on a major project for her boss during their vacation, so Charles’s brother, James is watching them. The kids love James and he loves them, too, often lavishing them with Cheetohs, fruit punch, and snickers…for breakfast. Chris and Charles are driving along and POW! Pileup! Both sustain injuries that will require 6 months or more of surgeries and then therapy. So who’s going to care for the kids? Who will pay the mortgage? No one knows because Chris and Charles are both incapacitated and they failed to plan adequately. What could they have done to ensure the kids were cared for and the mortgage was paid while they were both unable to work? They could have had solid property powers of attorney, which would allow the right person – probably Sarah – to step into their shoes and help ensure their financial stability. In this case as in many, a property power of attorney isn\’t about helping someone out until death; it\’s about protecting what they\’ve got until they can get back on their very much alive feet. What about the money, though? Neither one will be working for at least 3 months. Any financial advisor worth his or her salt will tell you that’s why you must save at least 6 months of emergency living expenses while you’re also socking away your retirement. But let’s just say the money is there. What we don’t want is someone running away with the money, which is why choosing a trustworthy power of attorney agent is critical. What if there were no siblings but only Chris’ parents left to care for the kids? Then the waves may come crashing down on the children and definitely on the parents’ retirement goals. A recent study indicates that approximately 2/3 of Baby Boomers are unsure about their retirement resources. If Chris and Charles were only survived by the girls and Chris’ parents – Rob and Jen, then Rob and Jen were, of course, going to care for Taylor and Michelle. However, that loving obligation could surely cause waves to crash against the retirement shores. Since estate planners love killing folks off to get our points across, for purposes of our story, let’s just say that Rob didn’t last long after Chris and Charles, so only Jen – age 52, Taylor age 6, and Michelle age 8 survive. Rob left Jen comfortable, but Chris and Charles, as mentioned earlier, had not planned adequately. They did what most young couples do, bought reciprocal life insurance policies with a death benefit of $50,000.00 each, naming Taylor and Michelle as contingent beneficiaries. At the time of their deaths, the projected cost of a college education for one child at Taylor’s age was $180,000.00 and the cost to raise one child to 18 years of age, $215,000.00. Accordingly Grandma Jen would need an additional $500,000.00 to see the girls through college. That\’s a tsunami headache. What can she do? The Silver Tsunami Silver Lining, Pt 1 | The Silver Tsunami Silver Lining, Pt 2
Talk Tips You Need for Aging Loved Ones Who Need Planning
Well, it starts like this… About a month ago, a friend’s husband came home from his evening workout at the gym with a look that wasn’t his usual “victory!” or “whipped puppy” face. She told me he looked deeply distraught, so she patted the area next to her on the sofa, turned off the TV, and asked, “What’s wrong?” He then told her about how one of our nicest neighbors, who was only 48 years old and in outwardly good health, bicycled to the gym that morning for his usual work out and minutes later collapsed from a heart attack and died right there. Our neighbor had a lovely wife and son who was a high school senior. At 48, he was assuredly looking forward to more graduations and maybe grandchildren. But for him it wasn’t to be and 48 is not old. I have more tragic stories but will stop this one here and say that this is a good place to start “the conversation” with parents or loved ones who you know need planning. Also, you should plan to have more than one of these conversations if you really want to see the most positive results – a plan prepared that brings peace of mind to your loved ones now and later. So that’s how you start the conversation – with a scary story. Mom has the velvet hammer. The next question is who do you start the conversation with? Let’s say both parents are living and still together; well, you start with the parent or family member who is most persuasive in obtaining results that affect the entire family. Dad, can you pass me the embalming fluid? You must also decide when the conversation should take place. I wouldn’t suggest having a discussion about death at the dinner table. Nor would I suggest entering into it like an intervention. This is a difficult topic already, so don’t make it more difficult. Start the sharing when you usually share stories about your day or your friends’ days but away from the dinner table. What if you never really shared before? Write a letter then start sharing. Planting the seed. When you do share a scary story, one of 2 things will happen: Either your loved one will want to know more or he or she will express sympathy and change the subject. If Mom or Dad wants to know more, then pick the tone up with whatever positive note you know, such as, “Yes it’s sad, but at least he had life insurance and a will.” Then stop. Of course, the logical progression is, “So Dad, do you have a will?” But by stopping and changing the subject yourself, you’ve done what my mother calls, “planted the seed.” Now Mom or Dad may want to continue the conversation, which is what we really want. But if he or she doesn’t, we must let it be. The seed has been planted. Next, it simply needs nurturing. Mom, meet The Joneses. We nurture the seed by watering the soil and waiting about a week or 2. After that time has passed, we bring up a related topic about one of their close friends or relatives who is in a comparable financial situation. This presumes that we know something about the friend’s or relative’s financial situation. It could be something similar to, “I ran into Ms. Jones the other day and she told me about the vacation home she and Mr. Jones just bought.” Then continue talking about how their children really enjoy being able to have a nice place to stay when they want to enjoy their “down time.” If the Joneses don’t nudge them into further conversation, somebody will – maybe you. Parents are proud when their children achieve more than they, but parents also want to be recognized for “knowing” or “experiencing” more along the lines of wisdom. So if you, his or her “child” has enough about herself to have a solid power of attorney, then surely “the tree will ensure that this document is in place so as to affirm the apple’s lineage.” Thus, as I said, having the conversation actually means having a series of conversations. This allows you to gently uncover any uneasiness and fears in a comfortable and safe environment. However, what if time is of the essence? Mom or Dad’s health is declining and action is needed sooner rather than later. We must then step out of ourselves and, as is often said by professional caregivers, “meet them where they are.” You can do this by imagining yourself at 75 or 85 years of age. You’re not as strong; you’re not as fast; and your income potential is 1/10th of what it once was. Friends and family members are dying and it is becoming more and more difficult to hide all the silver strands on your body. By earnestly stepping into the shoes of our aging loved ones, we realize the competing interests that come into play for them. On one hand there is the rational acknowledgment and desire to plan and on the other hand is denial based on fears caused by the ultimate lack of control over their mortality and that they will run out of money. Losing control is fundamentally a trust issue. And if loved ones don’t trust you, establishing that trust when they are vulnerable is going to be very difficult. This is where we must “meet them where they are.” Control isn’t just about money, either; also, it’s about dignity. This encompasses bodily integrity, mobility, and ownership and usability of their “stuff.” Here every person is different and respecting what our aging loved ones need to retain a feeling of dignity will, yes, lead to getting them to plan and sign papers. But first thing’s first. Address the issue of their need to control – to feel independent, to maintain their human dignity. Explain why you’re suggesting a caregiver once weekly, or a cane, or a
Wealth Preservation: When Your Pocket Shouldn\’t Be the Payroll
People often confuse estate planning with wealth preservation, aka “asset protection.” The confusion is understandable for 2 reasons. First, estate planning and wealth preservation have overlapping areas and considerations. Second, and probably the most popular reason is that legalese is confusing when it refers to almost everything. Estate planning, while it involves planning for asset maintenance during your lifetime, that planning typically addresses emergencies. Accordingly, the documents needed are powers of attorney and medical release forms. Some trusts may also assist in asset maintenance, such as Qualified Personal Residence Trusts (QPRTs) and even revocable living trusts that provide income during the life of the beneficiary/trustee. However, estate plans generally address the transfer of assets to loved ones upon death. Wealth preservation, conversely, addresses the issue of keeping and enjoying the fruits of your labor during your lifetime and, most importantly, keeping it out of the reach of others. Many individuals think that the big other is Uncle Sam. The contrary is true. Most lawyers who prepare wealth preservation plans repel the idea of tax evasion; it’s against the law. Do we use the law to help minimize tax burdens? Yes. But the operative phrase is “use the law” not evade the law. Thus, we only work with clients who are willing to comply with tax laws and if potential clients don’t like the sound of that, those of us who want to keep our licenses, gently tell those potential clients to seek counsel elsewhere. The “others” we really want to keep away from your “fruits” are menacing, frivolous plaintiffs. These plaintiffs are individuals who believe that because you work in a particular profession, that they should be on payroll even though they don’t deserve a penny of your earnings. Usually, the clients who confront menacing plaintiffs are either business owner or those in “high risk professions” that attract unwarranted lawsuits – doctors, lawyers, architects, engineers, and hazardous chemical delivery. Occasionally the lawsuits are valid and settlements are reasonable and on other occasions, the lawsuits are unwarranted or the settlements are egregiously large, causing the defendant to lose everything. To prevent financial disasters such as this, clients seek the services of attorneys who provide wealth preservation services that include a number of strategies: Liability insurance in the millions of dollars. A Limited Liability Company (LLC) or a Family Limited Partnership (FLP) and if one is nearing retirement, we look to maximize retirement earnings being mindful however, that retirement vehicles are often emptied in large risk events such as a litigation settlement; A Domestic Asset Protection Trust (DAPT) in a state that allows DAPTs and to ensure that you have a substantial relationship to that state. FYI – Illinois is not a DAPT state; and An international trip to a jurisdiction that allow offshore trusts whereby the financial institution is the trustee and you are the beneficiary. Admittedly, many individuals don’t like the idea of living in one country while most of their assets are in another but when they learn of the thousands of frivolous lawsuits that are filed because a plaintiff thinks they should have a payday of which they are non-deserving, some change their mind. Hopefully, you found this helpful and have started planning for both your today and tomorrow, as well as the tomorrow of your loved ones, and the plan isn\’t being an unwarranted payroll.
Dueling Executors
Frequently, I answer questions on Avvo about estate planning and related topics. A little while ago, someone asked a question about the validity of a will that was “poorly written” and disputes between co-executors. This article expands on that answer. A will is considered invalid if its \”formalities\” are not followed. The formalities are that the will be signed by 2 credible witnesses while in the presence of a legally sound adult testator (person who makes the will) when he or she signed the will. So, Skyping or video signings are not allowed, at least in Illinois. In addition to being credible, witnesses must also be adults and “disinterested.” A disinterested witness is one who is not a beneficiary, either primary or contingent, under the will. If a potential beneficiary or the spouse of a potential beneficiary acts as a witness, then 3 witnesses should be used. Sometimes it is difficult to equally divide estate assets to an exact amount, which is why attorneys use \”substantially equal\” or \”as equal as possible\” with respect to distribution language. Presuming a disputing co-executor has a copy of the will, the will’s terms should define how disputes between co-executors should be handled. If the will is silent on that issue, then a case of breach of fiduciary duty may exist because an executor, even if also a beneficiary, has an obligation to all of the beneficiaries, not just himself of herself. However, Illinois courts have started looking very closely at the terms of the instrument and the facts surrounding disputes. Additionally, courts are interpreting wills and trusts from a contractual perspective, going so far as to state one executor did not have a fiduciary duty. Thus, breach of fiduciary duty may now be a very difficult claim to successfully make. A will is typically invalidated on grounds of undue influence, i.e., someone took advantage of the testator’s mindset while he or she was making the will, or other similar grounds. A validly executed but poorly written will is not a reason to invalidate the will as a whole. Even if a provision of a will is deemed invalid, a court will likely strike the provision as invalid but maintain the validity of the rest of the instrument. Feel free to check out my Avvo answers on our website.
The IRS Recognizes Your Marriage Even if Your State Won\’t
Last week, in the wake of Windsor v. U.S., the IRS issued Revenue Ruling 2013-17. A Revenue Ruling, or “Rev. Rule,” is similar to a court opinion; it\’s just IRS law instead of case law. Thus, Rev. Rule 2013-17 mandated equal tax treatment for all lawfully married same-sex couples in ALL of the United States of America. As discussed here previously, in Windsor, the Supreme Court struck down Section 3 of the so-called Defense of Marriage Act (DOMA), which provided that the definition of marriage for purposes of rules, regulations, and laws promulgated through the federal government was the legal union of one man and one woman as husband and wife. The Windsor decision was a great step forward in ending discrimination against a segment of the U.S. population; however the decision was incomplete because it left standing DOMA\’s Section 2 that provides that states do not have to recognize same-sex marriages. As a result, Windsor v. U.S. left an even messier patchwork of laws for states and the federal government to wrestle with in regards to marriage equality. The question in Windsor was whether the IRS wrongfully denied issuing an estate tax refund requested by the surviving spouse of a married same-sex couple. The IRS lost in the lower court and SCOTUS affirmed that court\’s decision by striking Section 3. Having not prevailed, the IRS then had to determine how to comply with the Court Order. Had the IRS decided that tax return filings were to be based on domicile, then it would have been aligned with Section 2 of DOMA. Same-sex married couples residing in “unfriendly” states would have had to ignore the fact that they were legally married and file as “single.” So the IRS could still have chosen a less than friendly route for same-sex marrieds. However, recognizing the spirit of Windsor, Rev. Rule 2013-17 mandated equal treatment of married same-sex couples by basing the filing of returns on place of solemnization: \”For Federal tax purposes, the [IRS] adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals o the same sex even if the married couple is domiciled in a state that does not recognize the validity of that same-sex marriage.\” (Emphasis added.) What exactly does this mean overall? It means that lawfully married same-sex couples can live in unfriendly states and file taxes for the federal government using “married filing jointly” or “married filing separately.” Unfortunately, they still must abide by state tax return rules but at least they don’t have to move. What does this mean for same-sex couples in Illinois? If you were legally married elsewhere, e.g., Iowa, but reside in Illinois, you can file federal and state taxes using your legal relationship status and file “married filing jointly” or “married filing separately.” If you are in a Civil Union, you can\’t file your federal taxes as a married couple but you can file your state taxes as a married couple. Agreed: Illinois needs to get with the program and provide marriage equality. Summarily? While SCOTUS purportedly left the issue of validating same-sex marriage to the states, at least some federal agencies, such as the IRS, that actually must perform the work SCOTUS decisions create, recognize the \”United\” in U.S.A. and are willing to pass laws accordingly.
The Unintended Beneficiary You Should Guard Against
Because approximately 70% of Americans die intestate, that is without a will or some form of legal instrument transferring their estate assets, the probate courts are busy, at least in Illinois. Also busy are folks who want a piece of the pie but are not legally entitled to the smallest crumb of crust. Yet, courts are busy because these folks have misrepresented themselves and rightful heirs must prove their relationships. Worse are situations where heirs don’t have the means to claim their inheritances through the court system and, thus, must relinquish assets that might have been helpful to them or their families. This is the thorny bush that members of blended families and other non-traditional families often experience. So, below are a few primary estate planning documents and ways to prevent assets from falling into the no-good-son-in-law’s or dastardly step-daughter\’s hands. Power of attorney for property Problem: The designated agent can empty your bank accounts before you die. Answer: Name an intended beneficiary under your will as agent and provide explicit instructions in the power of attorney narrowing the agent\’s authority to access the accounts strictly for your benefit, e.g., pay your bills and daily living expenses. Furthermore, provide that the agent can only deplete all resources if it is absolutely necessary for your health or well-being. Use clear, explicit, unambiguous, plain language. If you must name someone who is not an intended beneficiary under your will or trust, make sure that an intended beneficiary has a copy of the power of attorney and narrow the authority more, providing that the agent cannot withdraw more than a particular percentage unless your health and well-being will be jeopardized and that the withdrawal information is shared with intended beneficiaries of your will. Will this stop someone from taking your account to zero if he or she really wants to? No, but it will give intended beneficiaries evidence for court. Power of attorney for healthcare Problem: With the right amount of authority, the designated agent can kill you. Answer: Enough said. Will Problem: The wrong person might inherit your estate. Answer: Explicitly state who will inherit what. Having a trust prepared is even better because then you don’t have to state your intentions explicitly in your will. However, make sure that powers of appointment, i.e., the authority to bequest your gifts to others, are limited in the manner you intend your gifts to be distributed. For example, if you die, leaving a great deal of wealth to your loving step-daughter whose husband is a sloth unworthy of an earwig’s toenail, you probably want language in your will or trust to prevent the sloth from inheriting your assets through your step-daughter in case she dies before they divorce. Revocable Living Trust Problem: The wrong person might inherit your estate and cause probate anyway. Answer: The primary reason for preparing a trust is to prevent your heirs from having to probate your estate. However, if you don’t want to cause your intended beneficiaries to lose some or all of their inheritance in litigation proving their relationship and proving the disinherited was, in fact, soundly and legally disinherited, see the above, \”Will,\” have an in terrorem provision, and, while you\’re lucid, write a letter to the disinherited spendthrift stating your reasons for disinheriting him or her. Upon your death, leave instructions for the trustee to deliver the letter with a copy of the in terrorem provision. You might want to have co-trustees in this case: one who’s a family member and one who is a disinterested party. Probate courts and lawyers are often unintended third party beneficiaries to wills or trusts, but they don’t have to be if estate planning documents are prepared with cautious forethought and care.
3 Reasons to Be Stingy
The primary problem with financial accounts held jointly is that one cannot predict the financial outlook of another person. These days, we can barely predict our own financial future, let alone anybody else’s, even if that person is a spouse. People still, however, assume that married couples are safe when they join finances, but let’s look at Keith and Richard. As newlyweds, Keith and Richard were head over heels in love. So when the CPA suggested that they keep their own separate accounts and establish a joint account for household expenditures, they smiled and told her she didn’t understand how they wanted to share everything. Ms. CPA just politely smiled back. Several months later, Keith phoned her to find out how to recover money from long overdue child support payments that were taken out of his and Richard’s joint account by Richard’s former partner who lived across country and was the mother of his child. The CPA recommended that Keith contact a lawyer who specialized in child support issues. However, the damage was done; even if the lawyer could recover what was withdrawn, Keith still had to pay the lawyer. So Keith also started thinking about calling another different kind of lawyer. Next: It\’s typical and, at first glance, reasonable for a senior loved one to place a younger family member on the senior’s account jointly. Grandma Adams may say to her granddaughter, “Liz, if I get sick, I want someone to be able to pay my bills and take care of me.” Liz says, “OK, Grandma.” Liz has the best intentions in the world because she has a nice job and doesn’t need Grandma’s money. However, what Grandma and Liz don’t know is that Liz is about to be laid off because her company just lost its best an only client and, as a result, must shut its doors. Liz has a car note, insurance, credit cards, and charge cards. Even if Liz doesn’t touch Grandma’s money, Liz’s creditors can if she stops making payments. Elderly parents, like grandparents and for the same reasons, also consider it a good idea to allow children to be on their account jointly, even if the parents have more than one child. Yet, what if the parent wanted the children to split everything equally upon the parent’s death? Do we really believe that Chloe isn’t going to keep all of the remaining money in the account to herself and not split it with her brother? The best way for an elder to manage this issue is to designate someone as an agent under a property power of attorney. That way, he or she must comply with a higher standard of legal ethics, must keep detailed records, and the agent\’s creditors cannot touch the principal’s funds.
7 Deadly Estate Planning Don\’ts
Experience and observation often has me shaking my head as I assist families in correcting mishaps by well-intended loved ones. This article is about some of what those families have learned. Don’t designate minors as primary beneficiaries on anything. Imagine being a divorcee with Peter Pan as an ex-spouse and play-date dad. The unthinkable happens but you’ve left a life insurance policy naming your 12 year-old son as primary beneficiary. Guess who may control the proceeds of that policy? Don’t designate adult children who cannot manage personal finances well (aka “spendthrifts”) as primary beneficiaries on anything either. Imagine leaving $250,000.00 to your daughter who blows it in one year on my favorites – Ralph Lauren, Rancho Mirage, Peach Champagne, Anne Fontaine, Jimmy Choo, and Paris. Note: I’m working my way up to Anne Fontaine. Don’t assume a will does the trick if you’re cohabiting. The potential of inheriting even modest sums of money does strange things to the affinity family members have for each other, let alone what family members may have felt for non-blood-related members. Family members will try to kick a cohabiting partner to the curb so fast, the engraving on the headstone won’t be finished yet. Don’t depend on a will if you and your spouse or partner have children from previous relationships. What do you think will happen if the step-children who you adored and treated so generously during the 15 years of your marriage to their father realize that you’re leaving everything to your children? More importantly, what do you think your kids will do if they realize that you’ve left a substantial portion to the step-kids? Ahhh…the privacy of trusts. Don’t ignore documents with beneficiary designations if you’re recently divorced. Imagine winning a handsome settlement because Peter Pan was also Mr. Gigolo and then, the unthinkable happens, and you didn’t change the designations on your will and life insurance? Antacids don’t work for the dearly departed. Don’t ignore planning if you’re recently married, especially if a prenuptial agreement is involved. And for goodness sake, ensure that your attorney takes care to explicitly define certain items, such as the marital residence, but is not so explicit as in providing the exact address. What if years later, you divorce and the prenupt states you get the house on Rosemary Lane no matter what but your spouse convinced you to sell the house on Rosemary Lane but your will states that in the event of a divorce, the terms of the prenupt govern the property that shall be considered your estate? Don’t ignore planning if you’ve more than one intended beneficiary. Beneficiaries will fight over pennies, over tattered recliners, over cats, over who gets to be administrator. Maybe you’ll enjoy the bickering in the karmic impish sense, but do you really want your estate to pay lawyers’ fees to straighten this out because that’s who will pay, if at all possible, not the beneficiaries, but you and you’ll be dead!