Team Estrogen Needs to Plan Now for Now … and Then
For my male readers, I’m shouting one out for the estrogen team, today. You\’re more than welcomed to stay and share this post with the hub of your life, but I’ll return to the neutral zone with the next post. Recently, I shared a number of articles via Twitter and LinkedIn about the supposed trepidation women have when it comes to estate planning, particularly managing their financial affairs. As a female lawyer in a practice area traditionally held by men, I must admit those articles ruffled my feathers. I contend that women are not afraid of talking about money or estate planning matters, we often just don’t think we have the time. The role of the female is still that of the family hub– mother, daughter, spouse, partner, sister. Being the family hub requires a great deal of time and effort. Add to that our occupational responsibilities and community obligations and it’s perfectly understandable why we focus on the “now” and not the “then.” Yes, we are fully aware of the fact that if we take some time now, we could make “then” better. However, as a single parent when: a presentation to a major client is due on Monday, the kids have to be taken to gymnastics and birthday parties and Sunday school, Mom needs help with her new ottoman, Sis wants a review of the web site of your annual “sisterhood vacation” hotel, as chair of the silent auction committee you have to complete the donations list by Friday night, and you still have to exercise, cook, and pick up the cleaning (housekeeper not in the budget), “converting my 401(k) into …” doesn’t really make it to the top of the list. Next, is the fact that we know we’re the hub and the emotional gravity accompanying that realization. I don’t know too many women who readily give thought to when they won’t be around to see their grandchildren, nieces’ weddings, or best friend’s daughter’s college graduation. It is a very painful and counterintuitive thought for women. Fear has little to do with it. We simply love our families and friends and cannot fathom not being there for them. Nevertheless, Ladies, as painful, counterintuitive, and time consuming as it may be, we owe it to our families and ourselves to sacrifice a manicure, to miss a committee meeting, to reschedule a conference call, to say a prayer and let Sis choose the hotel, so we can take care of “now” and “then” now. The list of reasons for doing this is not exhaustive and are compelling: Your retirement savings may be dwindling unnecessarily; Your widowed father living a few states away may have a new BFF with less than charitable thoughts about Dad’s annuity; An in-state college may not afford your son the best educational opportunity for his mechanical engineering career; You might be able to withdraw income now from grandma’s IRA (progressive grandma!); Your current income may be beneficial for a retirement vehicle that may not be as readily available when your income rises past a certain point; You may want to go on sabbatical but, who’s going to mind the store, literally; Instead of a place where Mom will be bored silly playing checkers, you may want to send her cruising 6 months a year; and You want your partner to be able to visit you immediately after major surgery. Minding our retirement and estate matters now actually makes us, the family hub, stronger. If you want, I’ll take notes at your next committee meeting, so you can meet with a reputable CFP.
Eyebrow Raising ILITs
I’ve mentioned before in this blog that many people who are employed are wealthier than they believe themselves to be. One reason for this is because certain assets are unused during the purchaser\’s lifetime and are subsequently overlooked when that individual creates his or her estate plan. The most popular of these instruments is life insurance. If you’ve something other than term life insurance, your life insurance policy, in addition to other benefits, if placed inside a trust may be used to even the distribution between your beneficiaries if your assets are difficult to divide. For example, let’s say you own a home valued at $300,000 and about $50,000 in cash. Let’s also say you have 2 daughters, Ivory and Jade. Ivory loves the house, lives there with you now, and wants to remain in it, whereas Jade doesn’t want to have anything to do with it. Well, if you sell the house and split the proceeds, that’s not being very nice to Ivory. On the other hand, if you give the house to Ivory and only leave the $50,000 to Jade, that’s not being very nice to Ivory. Moreover, leaving the decision to your two gems to battle out after you’ve passed away is just plain mean. This is where life insurance may be beneficial. If, using the above example, you’ve a policy that’s worth at least $250,000, you could use that to even the distribution. Of course, to keep the example simple, we’ve not accounted for real estate taxes, mortgage payments, and so forth. However, a good estate planning team should be able to assist you in dividing the assets so that everyone is relatively satisfied. Furthermore, if additional nuances are involved, a trust can also be the owner of a life insurance policy known as an Irrevocable Life Insurance Trust (ILIT). However, the trust must be drafted properly, taking into account how the premiums are paid, and how the beneficiaries are notified of the funding of the trust for premium payments by way of “Crummey Letters.” Other components of your estate plan must also be considered, such as retirement and public benefit plans. Still, using life insurance and a trust generally provides a number of benefits if properly implemented. The proceeds are removed from your estate, which may reduce your gift and lifetime estate taxes, the distributions to your beneficiaries are generally income tax free. Also, these types of trust may act as a credit shelter. Finally, because a trust is involved, typically probate is avoided. So if your spouse jokes around like mine does, about being worth more dead than alive, just do what I do: grin and raise an eyebrow.
Thanks But No Thanks: The Benefits of Disclaiming Aunt Val\’s Gift
Occasionally, a person may receive a gift under a will or a trust that they think would be more appropriate for their descendants. In these situations – and if the trust is drafted appropriately – the person usually has a legal right to say, “Thanks, but no thanks,” to the gift. At that point, the gift then “passes” to the person’s descendant(s) or beneficiary(ies). This means that the law will consider that initial recipient dead, i.e., having “predeceased” the testator, with respect to that particular gift and, as a result, the proposed recipient’s descendants take the gift. Why would you disclaim a gift? You don’t need the gift but your descendants might. For example, if Grandpa passes away leaving his house to your father, but Dad has his own home and a retirement condo, Dad may decide that you – a young professional with student loans – may benefit from owning the home more than Dad. So, Dad says in a writing that appropriately describes the gift and is delivered to the appropriate party, “Thanks, but no thanks. I, Dad, am unequivocally and expressly refusing the house … bequeathed to me by my father …” Once Dad’s disclaimer is accepted, if you\’re the only child, then you get the house. If you have siblings, then, generally, you will need to determine with your siblings how best to divide the interest in the house. You can’t afford the responsibility. If you and your partner are urbane empty-nesters, perfectly content with your 2-bedroom city dwelling, do you want the 4-bedroom home in the suburbs that Aunt Val left you with all the maintenance and tax bills that come with it? Probably not. However, your adopted daughter who now has newborn twins and a 3-year-old could probably use the extra space. So you say in writing, “Thanks but no thanks” to Aunt Val’s lush suburban family home. You want to avoid creditors. If you refuse a gift, a creditor claim cannot attach to your interest in the gift because under the law you never had any interest in the gift once your disclaimer is accepted. However, the area of the law using disclaimers as a way to avoid creditors is rapidly closing this loophole, so creditor claim avoidance probably isn’t the most prudent use of this testamentary mechanism. Disclaimers, simple at first blush, are like most legal tools – devilish in the details. If you’re considering disclaiming a gift, below are a few points to discuss with your attorney: Whether or not the property will be completely yours if it is currently held in joint tenancy with you and 2 other tenants; The irrevocability of disclaiming; Your action to date regarding the interest in the property; and Tax implications, which should be considered sooner rather than later. In the world of wills, trusts, and estate planning, the intent of the testator is a cardinal rule. Yet, sometimes the intent of the testator and the needs of the heirs conflict. Using a disclaimer may help resolve that conflict.
The 3 Tenancies and Your Planning: It’s Not about Rent
In the legal field, we use and create terms and phrases that sound familiar to non-legal professionals, but are strangers when a legal professional provides the actual definition. Take, for example the term, “tenancy.” It sounds like it’s related to renting property, and it is – sort of, sometimes as when you’re discussing leases. However, when discussing legacy planning, it’s a much larger animal. In legacy planning, lawyers primarily discuss 3 tenancies, most of which involve real property or bank account ownership, not renting. Tenancy in common is the most basic type of tenancy ownership. A tenants in common relationship between 2 people over a house, for example, means that one party controls interest in one half of the house, and the other party controls interest over the other half. Either party can sell, lease, mortgage, or devise their interest in half of the property. However, if the other party passes away, generally the surviving party does not get the other half of the property; the survivor is left with his or her interest alone. The remaining half is either bequeathed or passed to the decedent’s heirs via state law.People are rarely tenants in common with respect to bank accounts; this type of arrangement is usually crafted for prenuptial agreements or settlement agreements and, then, the focus is often the parties’ contribution to the account. Joint tenancy with rights of survivorship, on the other hand, allows the surviving party in the above example with the house to own the whole house. Joint accounts are also very common with respect to bank accounts, checking or saving. So, if Grandpa has a bank account and you are on the account as a joint holder, when Grandpa passes away, all of the funds in that account become yours, under most circumstances.However, joint tenancy is the animal that can become a beast for parents trying to leave property for children. Placing a house in joint tenancy with right of survivorship to a child could trigger a taxable event for the child. Additionally, suppose you have 2 children, the house, and life insurance. The house is worth $200,000 and the life insurance benefit is $200,000. You might think that leaving the house to one child and designating the other as beneficiary on the life insurance policy would be an even split. Yet, the child with the house may have to pay estate or gift taxes on the home, leaving the gifts to your children unequal. Tenancy by the entirety is joint tenancy for married couples. This may seem straightforward because most people know that transfers between husband and wife are not taxable events. But, what if the transfer was from husband to husband or wife to wife? Because the IRS doesn’t recognize husband to husband or wife to wife transfers, the survivor of the couple may be facing a taxable event like the child with the house. So when thinking about gifts or transfers of property, careful planning is needed to avoid these non-rental sticky wickets.
Taking the \”Estate\” Out of \”Estate Planning\”
People hearing the term, “estate planning” or even “legacy planning,” often wince, squirm, and cringe unless they are within a very fortunate income tax bracket. However, not one to be deterred, when I receive the rolling eyes or blank stare, I reach into my “unraveling legalese” briefcase and offer the following clarification: Your “estate” is anything you own. It doesn’t have to be a million-dollar home or a 1967 Aston Martin. It can include the 150 classic jazz LPs that belonged to your father, your grandmother’s wedding ring, or you and your spouse’s stubs to the Blackhawks 2010 championship. The goodwill created in your small business is also part of your estate, your legacy. Additionally, included are contracts in which you’ve assigned rights to be effectuated at a certain time, i.e., life insurance. Note, however, that though life insurance is a component of your entire estate, it is not part of your probate estate. Estate planning is the process by which everything you own and will likely own or inherit, as well as your liabilities and obligations, is considered to determine how best to transfer your possessions to your heirs and/or intended beneficiaries. If you own a home, a retirement account, life insurance, have one or more dependents and a dog, deciding on who gets what and why is the process of estate planning. Estate planning is not limited to considering how beneficiaries can inherit tax-free or how one can use the current state and federal tax laws to the advantage of your living trust beneficiaries. Estate planning also includes anticipating scenarios such as ensuring that the needs of dependents or a partner with special challenges is provided for and providing for special beneficiaries who may not yet be born. Hence, estate planning is just planning for your future. It is not a tool merely for the wealthy; estate planning is a tool for the wise.