7 Money-Savers before Googling, Binging, or Yahoo!ing \’Wills\’
This sucks as a topic sentence but the truth isn’t always tasty, so here goes: Contemplating death is not something most folks like to think about. Yet, if you want your transition to be as smooth as possible for your loved ones, recognizing the emotional turmoil they will undoubtedly be experiencing, having your affairs in order is a loving and thoughtful way that can prevent further turmoil. However, before you Google “wills,” take the time to consider what you want for your family in the event of an unexpected tragedy or the inevitable. Taking sufficient time to thoughtfully deliberate about your intentions before you meet with an attorney will also save you money on attorneys’ fees, and who doesn’t want to save money these days? Your considerations should probably start with your loved ones: If you have minor children or dependents, then they will need a guardian. If you have a pet or pets, then you should consider who would be best and willing to care for your cockatoo or kitty. If you own a home, then who should pay the mortgage? Are the beneficiary designations on your retirement accounts accurate? What should happen if 1 of your 2 children becomes disabled? Should the distributions still be absolutely equal? What type of gift should you consider for your niece or best friend’s daughter who’s also like a daughter to you but you have 2 other children? Who gets your favorite blue sweater? Many questions that we need to have answers for to get our affairs properly situated, don’t involve money. Still, the sooner we can answer, “What if?” and “Who?” the sooner we can create a sustainable peace of mind over both our financial and personal affairs.
3 Lessons from Summer Disaster Flicks
One hallmark of summertime in the U.S. is the onslaught of disaster movies. For me, there’s nothing like a great “the-world-is-under-attack-so-blow-‘em-up-real-good!” movie. So when temperatures crept into the 80s and trailers for “world under attack” started showing on TV, I couldn’t help but think about the “disaster” provisions in estate planning documents, aka “contingent beneficiary” provisions. Also, while reading a couple of cases and thinking about questions frequently asked by clients, I knew I had a winning screenplay, or a half-way decent blog post. So grab your popcorn and enjoy the move…I mean post. Ornery old Great-Grandma Cornelia Stamper decides to write her will and leaves one of her oil wells to her son, Harry. She names it “Harry Stamper’s Well.” Before she dies, though, Harry marries Anna and he and Anna have a daughter, Grace. Cornelia isn’t so keen on Anna, so she draws up a trust leaving income from the “Family Stamper’s Well” to Harry for his life and upon Harry’s death, the income from the well should be distributed equally among Cornelia’s heirs. Cornelia dies at the grand old age of 98 and Harry then draws up a trust leaving Harry Stamper’s Well to Grace and continues his life’s work – drilling in Alaska. Suddenly one day, Harry learns from his buddies at NASA that an asteroid is headed for Earth. Harry then changes his trust and adds a charitable contribution provision, giving part of the income from Family Stamper’s Well to the Red Cross and Medicins Sans Fronteirs and the rest to his descendants. Also, Grace has a trust created and leaves the income from Family Stamper’s Well to the same 2 charities. Fortunately, Harry’s NASA buddies blow the asteroid up real good and none of the particles cause any damage to Earth. A year later, while drilling near Russia, Harry is told that aliens attacked Earth and wiped out all his relatives including, Grace. Harry’s heart can’t take it and he dies. However, Grace actually escaped the attack but is the only Stamper left. Grace’s friends, David and Steven, however, blow up the alien ship real good and things return to normal – kinda. Half the world’s population is gone, so the Red Cross and Medicins Sans Frontiers have a lot of work to do. They are counting on Harry’s gift and know that the funds are available because the banks were saved. Go figure. Accordingly, they hire a lawyer; lots of us survived. But their meeting with the lawyer didn’t go well. My clients know why because these were their questions: 1. Can income from a life estate be given away by the owner of the life estate? In other words, could Harry bequeath income from Family Stamper’s Well? No. Cornelia left the income to Harry for his life only and then to Cornelia’s heirs. So unless Grace is feeling charitable during her lifetime, the nonprofits are out of luck until Grace dies. 2. What would have happened if Grace died in the alien attack but Family Stamper’s Well had dried up? In other words, what happens when the “gift” is no longer in the estate? If Grace knew the well was drying up and didn’t change her trust to provide for this event, then the gift would be considered “revoked,” or \”adeemed\” in legalese, and the charities out of luck. If Grace didn’t know and say the well was destroyed by the aliens, then the gift is still considered revoked unless she provided in the trust that the loss should be covered by insurance. 3. What would have happened if Grace died and she didn’t name anyone to take the income? That’s the real disaster. With all of the Stamper beneficiaries dead and no charity named, the income and well would probably go to the remaining population – bankers and lawyers.
Debunking Estate Planning Myths & Developing Wealth, Pt 3
In Part 2 of this series, I continued discussing the basic estate planning tools, and addressed life insurance. Another basic tool and necessity that should be in place for loved ones upon your transition is a will. The Shark Free Zone talked about this topic before, but it is so critical that it bears repeating. Having a will in place if you are an unmarried parent or a guardian of a disabled individual – minor or adult – is vital. If you do not have a will in place that designates a guardian for your child and you die, the state, not your brother or your cousin who you told to take care of your child, will decide on the custody of your dependent. The judge will not care about what you said to your brother, all that will matter is what was in the will. If a will is nonexistent, then what will matter is biological parentage. By having a valid will in place with a guardianship provision, you can make a bona fide argument to the court about who should care for your child or dependent when you pass, not the other way around. Let’s look at an example: Bobbi Tina is the minor child of Wilma Dallas and Bobby Black who have been divorced let’s say since before Bobbi Tina’s first birthday. For the sake of this example, let’s say that Bobby Black has substance abuse problems and hasn’t developed any type of relationship, father-daughter bond with Bobbi Tina. Let’s also say that Wilma lived in Illinois and did not designate a guardian for Bobbi Tina.Wilma dies in a swimming pool accident, leaving her fortune to Bobbi, who is only 16 years old. Guess who the courts will likely deem appropriate as a guardian for Bobbi Tina, as long as he’s not a felon? Yep, the hypothetical, substance-abusing, absent father, Bobby Black will be designated guardian and have liberal access to Bobbi Tina’s million dollar money jar. It’s happened before where a mother died intestate and she and the child had been estranged for years from the biological father, but just because there was no will and then no guidance in the will, the child was given to the estranged biological father. Consequently, a will is critical for parents or individuals taking care of the disabled. So answer this question: Who will take care of my child/children/disabled sibling/ if something happened to me tomorrow? A will is also important for individuals in high-risk professions who are more likely to become parties to law suits than other professionals. Why? Because the creditor claim period is only 6 months. Therefore, after the probate estate is open, individuals or entities with a claim against the estate only have 6 months to make that claim. Once the 6 months is over, creditors cannot bring a claim against the estate, despite how large or how valid the claim may be. Their hands just won’t fit the money jar. Finally, like life insurance, another advantage of a will is the peace of mind it brings knowing your loved ones are protected. Part 1 | 2 | 3 | 4 | 5
Dodge Probate and Keep the Car…No Pun Intended
A popular reason people use trusts as estate planning tools instead of wills is because a properly constructed trust will typically avoid probate. As mentioned on my web site, probate can be lengthy, costly, and just plain unpleasant. Still, having a trust prepared, for some individuals, is like taking a bath when all they need to do is wash their hands. So over the next few weeks, I’ll add to last week’s commentary about how to avoid probate using tools other than a trust, which can also be costly. All of us don’t have Warren Buffett’s money and keeping up with the Joneses is getting difficult even for the Joneses. In addition to the Illinois Transfer on Death Instrument, or TODI, another tool that may allow heirs to avoid probate is the Illinois Small Estate Affidavit, established by Article XXV (25) of the Illinois Probate Act. The Small Estate Affidavit allows a decedent’s personal estate to be distributed if certain criteria are met: The estate is no more than $100,000 in total value. No real property is included in the estate. No contested claims exist on the estate. The person filing and completing the affidavit is called an “affiant,” and upon signing the document swears under penalty of perjury that the statements made, boxes checked, or information provided in the affidavit is true. One may still use a small estate affidavit if there is a will; the will simply must be valid. Additionally, the affidavit cannot be used to bypass the terms of the will. It is inadvisable to use a small estate affidavit if one or more of the heirs is a minor or disabled. However, if a person simply needs to retitle Aunt Bee’s Coronado, the Small Estate Affidavit will probably do the trick.
JD, CPA, CFP – What\’s with the Estate Planning Alphabet Soup
When designing an estate plan for a new client, I usually ask if the client has a financial “team.” “A team?” you may wonder or say to yourself, “I don’t need a team because I don’t even have an estate! I just need a will, if that.” On the contrary, as mentioned in a previous post, you probably do have an estate and it’s likely larger than you think. So yes, you probably need a team. Consider this analogy: To maintain overall good physical health, you need a primary doctor, a dentist, and, if you’re female, a gynecologist. Now these providers may only consult with each other once, if then, but they are certainly aware of the other\’s existence because your good health requires it. An estate planning team works in a similar way, albeit a little closer, and is essential, especially if you have loved ones you want to protect. So here\’s the line-up: Estate planning attorney: Does more than draw up a will or a trust, and while online DIY services offer estate planning, if you use one, be sure there\’s a review by an attorney who understands the probate, trust, and tax laws in your state. In addition to the many laws, an estate planning attorney must also have a good command of the various, related documents needed to protect you and your family now and in the future. He or she should also possess, at least, a basic understanding of the federal and state tax implications of the distributions and powers designated within the documents, near-term financial planning, and retirement planning. Certified Public Accountant (CPA): Must take a licensing exam, work for as an accountant for about 5 years, and take continuing education courses to retain certification. Accordingly, a CPA’s knowledge base is deeper than a non-certified accountant. A CPA whose specialty is estate and income taxation typically consults with your estate planning attorney to ensure that the tax implications for you and your beneficiaries are minimized. Certified Financial Planner (CFP): While not required for CFAs, a CFP must take extensive exams in financial planning, taxes, insurance, estate planning, and retirement. He or she must also take continual financial planning courses to maintain their certification. A CFP performs the research needed to help determine how best to allocate funds to reach your personal goals and the goals of your family and consults with the estate planning attorney to ensure beneficiary designations are accurate and that allocations and distributions are aligned with your goals and unique investment style. In a nutshell, your estate planning team is a group of capable and highly qualified individuals who, together, help to ensure that: The intentions underlying your financial and personal interests are legal and accomplished during and after your lifetime; The tax implications of those interests are minimized; and The financial interests are secured and grown if possible. *Note: Different states have different rules on fee-splitting arrangements, but typically attorneys cannot accept fees from non-attorneys, at least in Illinois, which is a healthy check-and-balance on your team.
Heading to the Mall for a Gift and a … Will
An interesting concept that has already been established abroad is the ability to purchase testamentary documents at malls. Capitalizing on the concept and holiday traffic, during this past festive season, a couple of attorneys in Florida set up a legal services kiosk offering various legal services including \”basic estate planning.\” This set up involves dynamics that are both troubling and admirable. Estate planning is a complex practice, especially if you\’re approaching it from the perspective where your main focus is individuals with relatively large estates who want to protect their families but also seek to minimize taxes. Plus, considering the newer comprehensive approach, which incorporates using other financial professionals, estate planning is a relatively complex practice. This approach requires a more than basic familiarity with a number of disciplines because this approach uses a \”team\” of advisors, with the attorney at the top of a pyramid, with a financial planner and an independent CPA at the base. Finally, needless to say but I\’ll say it anyway – the tax laws are always changing. Still, it\’s doubtful that individuals with large estates who are mindful about the fees they pay will consider a kiosk; that\’s just not how they do business. On the other hand, a demographic does exist that needs testamentary documents to just protect family members in the event of a death or incapacity. The \”basic\” will and power of attorney would likely be applicable in this situation. Yet, I am troubled by lawyers who don\’t use these documents regularly and understand how they intersect with other law and regulations, especially powers of attorney and health care directives but offer them with a little counseling as a holiday special. If a gay or cohabiting couple approach these attorneys for wills or estate planning, there\’s no 15 minute answer. Finally, the middle class is struggling as it is; it cannot afford planning mistakes with the small amount of resources it has managed to maintain during the financial crisis. I absolutely agree that trying to help the middle class is admirable, but this setup may cause more harm than good. If the motive is helping the middle class, they could offer documents and a free review without the 15-minute time constraint? But the question then becomes do the attorneys have the requisite experience to know what to look for during the review.
Estate Planning Tools to Keep Lex-the-Ex Away
Outside of food and clothing, 2 of the most critical matters parents manage for their children are education and housing. Single parents are typically even more concerned with managing these issues because ultimately the responsibility falls on the primary custodial parent. Divorcees may breathe a little easier because of settlement and child custody agreements, but not necessarily. Family courts around the country are filled with defendants and plaintiffs arguing over alleged breaches of such agreements. Consequently, as a single parent, the burden is heavier. Managing housing and educational issues can be made easier with proper estate planning tools. An earlier blog post addresses basic estate planning instruments parents should have in place. This post discusses some of those instruments in more detail. Property Power of Attorney. As mentioned here, this authority, which you to give to another person, allows that person to make and carry out financial decisions for you when you are physically incapacitated. Thus, if you’re ill for a long time and need someone to pay the rent, mortgage or any other expenses associated with your family’s home, you should designate a trusted agent under a property power of attorney. Guardian of the Estate. A will allows parents to designate who should care for their children in the event of a parent’s death – a guardian. This is critical to single parents. However, in Illinois, there are 2 types of guardians: a “guardian of the estate” and a “guardian of the person.” A guardian of the estate status allows the guardian to manage the financial affairs of the minor, e.g., gifts received under a will or trust. This makes sense because sometimes the person you would trust to raise your children may not be as financially well informed as needed to manage large sums of money. So I typically advise clients to consider guardianship from both “personal values” and “financial expertise” perspectives. Trustee. In a vein similar to a guardian of the estate, a trustee is the person, or entity, you authorize to administer, preserve, protect, and grow trust assets. Note: Many people think they’re not personally wealthy enough to require a trust; many are mistaken in this thinking. Example: Sharon is the single mom of a 14 year-old daughter and has a home valued at $150,000 with a mortgage balance of $30,000. She has about $100,000 in a retirement account, and $500,000 in life insurance. Additionally, Sharon keeps approximately $1,000 in her checking account and $2,000 in her savings. She doesn’t feel like she’s wealthy, but if Sharon were to pass away today, her estate would be valued at $723,000. She would have died almost a millionaire! An important and related consideration is that unless other designations are made, life insurance and retirement account proceeds may be paid out to a very young adult, e.g., an 18 year old. How many 18 year olds do you know who are mature enough to manage receiving a lump sum of $600,000? Returning to Sharon’s scenario, where her daughter is a minor: If Sharon didn’t designate a guardian or trustee, but Sharon’s ex-husband, Lex, is lurking around, guess who would likely obtain control over the $600,000 – yep, Lex the ex. Life Insurance. Typically, life insurance is a death benefit and can be used to pay off mortgages and for other housing expenses. An Irrevocable Life Insurance Trust (“ILIT”) is a time-honored estate planning tool and excellent for providing for education and housing costs, especially if one does not intend to benefit from a policy otherwise. Transfer the policy in a trust where someone other than yourself is trustee and your child’s education is relatively secure. Securing the hearth and educational future of children is critical, so review your policies and plans today and get a good night’s sleep going into the New Year. Well…after midnight anyway. Your comments are welcomed as always!
Pumpkinheads Afoot in Estate Planning
Wills, trusts and estate planning is a great subject for Halloween because of the trick or treat nature of the area. The treats are significant: peace of mind, retirement, healthcare, education, and family harmony. However, the tricks can quickly eliminate all or almost all of the treats for most parties involved. Because so many people know someone who has a will and have at least heard of trusts and estate planning, many people know just enough to sound knowledgeable. Yet, many individuals also lack just enough knowledge to cause schisms if their advice is actually heeded. So how can we be tricked? Let me count the ways: A living will is just as good as a healthcare power of attorney. Trick: A living will is subordinate to a healthcare power of attorney, unless the person holding the living will has a terminal illness or is in a basically vegetative state. My dad’s house is only worth $50,000, so I can file a small estate affidavit and skip probate. Trick: Sure. You can skip probate, if the house is in an Illinois land trust and let’s hope that Dad didn’t take out a second mortgage that the house is still subject to. If the house is still subject to a mortgage, you may have problems trying to sell it. Estate planning is only for the rich. Trick: I\’m not sure who invented this one…maybe the Boyz on Wall Street. Nevertheless, please read this. After 7 years of living with my man, I can finally be put into his will as his wife and our child can inherit, too. Trick: Someone has put something in your water. Illinois hasn’t recognized common law marriages for decades, and your child…the inheritance issue is an even bigger trick in this regard. A trust will keep my creditors and the repo man away from my door. Trick: Not really. The repo man is coming and a trust will generally keep creditors away only if you don\’t own anything, i.e., you are not the trustee nor are you the beneficiary of the trust assets. I won’t have to pay taxes if I put my assets in a trust. Trick or treat: If your assets are instruments that appreciate in a tax-deferred manner, then you may not have to pay estate taxes but you may have to pay income taxes. Trick: Depending on how the trust is structured and the relationships of the beneficiaries to you and each other, your beneficiaries may have to pay estate taxes. A will is less expensive than a trust. Trick or treat: If litigation is involved because of a will contest or claims are placed on the estate that need to be answered, that statement could be the costliest trick of all of the above, except maybe number 4. Money saver tip: Be patient; your debt wasn’t created in a day so unless you win the lottery, it’s not going to go away in a day either.
Money-Saving Tips with Estate Planning
This may sound counterintuitive coming from a lawyer, but my practice is purposely designed around protecting families and loving interests and saving my clients money. Yes, and I am a lawyer and said, “I want to save folks money.” So for the next few months, the focal point of my blog posts will be how you can save money through estate planning. Of course, I’ll digress occasionally, but I’ll return to the course in due time. Sometimes the discussion will be about how certain estate planning processes clients experience may be costly or inexpensive depending on the approach. Other times, the discussion will address decisions that may be costly or may save you a bundle depending on various considerations and scenarios. So let’s get started and today’s piece will cover very basic ways to save with wills or, more accurately, the lack of one or keeping the cost of probate down if the estate requires one. Money Saver Tips: In Illinois, if the estate is less than or equal to $100,000.00, probate and its accompanying court costs may not be necessary. If at any time your estate grows to more than $100,000.00, a valid will that is kept current may save your heirs thousands in having to open a significant estate where there is no will or the will is invalid. A valid will has 2 witnesses and is not handwritten. Save some money and don’t get it notarized. Wills in Illinois do not require notarization. When calculating the size of your estate for probate purposes, do not include life insurance; life insurance and retirement plans are not part of the probate estate. So if all you have is a $50,000 home and no creditors, see Money Saver Tip #1. If your estate is more than $100,000.00 and you aren’t completely sure about how to distribute your assets, don’t use a DIY program or a Big Box Store will-in-a-box. Refer to Money Saver Tip #2 for the possible consequences. Tune in next week for money-saving tips with estate planning.
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.