August 16, 2018October 10, 2023

Estate Planning with Blended Families Requires a Balance

“If you say “I do” a second time and have children, your partnership acquires new stakeholders—not necessarily willing ones. Adult children have expectations about how much they’ll inherit and how soon. A new spouse scrambles that calculus.

When you marry, you’re entering a partnership that is emotional and financial. When you marry again and when there are children from prior marriages, you are all entering a brave new world. The number one reason that stepparents and stepchildren fight is over money, according to the article “Don’t Split Heirs With Your Estate” from AARP.

If you and your spouse are each financially independent and leave your assets to your heirs, you’ll be less likely to run into the big money issues. However, if one spouse depends on the other for support, assets will be needed for the other spouse’s lifetime. When there’s a big age difference, the children of the older spouse may end up waiting 10 to 15 years for their inheritance.

The couple’s first responsibility should be to their spouses. You can do this through your will, or a prenuptial or a postnuptial agreement. The goal is to make sure that the other spouse has enough money to live on. A surviving spouse does have the right to make a claim to a certain amount of the late spouse’s assets, in the absence of a will or a proper prenup. However, by taking care of this in the will, you can spare each other and your blended family from the time and delay that a claim will take. The award may be large or small, depending upon the laws in your state.

One way to head off some of the anger that may follow a first spouse’s death in a second or subsequent marriage, is to distribute at least a little bit of cash to all of the adult children in equal amounts. It’s not about the amount, but it is a signal that you are aware of them and their needs.

In blended families with good relationships, it would be ideal for children and stepchildren to be treated equally. If there’s a rational reason not to, like younger children who need college education funds, make it clear to all what the thoughts are behind the distribution.

Personal property is another source of conflict within blended families. If first-family heirlooms are claimed by second-family children, the whole family could be headed to court. Create a document that makes your wishes clear about which child should get what possessions and attach it to your will with the help of your estate planning attorney.

If you leave everything to your spouse, there’s no way to be sure your own children will inherit anything. There is a chance that after your death, the ties between children and stepparents could weaken. You may need to leave money for your children in a trust that provides income to the spouse for life.

Discuss your options with an estate planning attorney.

Reference: AARP (July/August 2018)

“Don’t Split Heirs With Your Estate”

August 14, 2018March 22, 2019

Think 61 is Your Golden Retirement Number? Think Again

“There's nothing wrong with looking forward to retirement and even planning an early exit from the workforce. However, Americans may be a bit misguided, when it comes to this particular milestone.”

If you work for a living, chances are good you like to daydream about what your life will be like during retirement. We all do it and so do younger workers who have yet to pay their dues. However, according to a survey from Bankrate, as reported in The Motley Fool’s article titled “Americans’ Ideal Retirement Age–and Why It’s Not Realistic,” adults across the board think that 61 is the ideal age to retire. Is that realistic?

Unless you can live without Social Security during retirement, 61 is not your magic number. Most American retirees can’t live on Social Security alone and those benefits have a major impact on the ability of most retirees to keep up with their bills. However, eligibility doesn’t start until age 62. The people in the survey either didn’t know they can’t collect Social Security until they turn 62 or they are assuming they can get by without it.

The average Social Security benefit check is just more than $1,400, which adds up to about $17,000 a year. If you are among those who have little or no money set aside for retirement, that’s a lifeline.

A large number of working Americans are way behind in their retirement savings. It’s estimated that around 42% have fewer than $10,000 set aside for the future. How will they retire at all, much less retire at age 61?

Even if you can manage to keep working until age 62, filing at that age has its own issues. Today’s workers need to wait until their Full Retirement Age, or FRA, in Social Security’s terms, to receive their full monthly benefit. The difference is large enough to make it worth the wait.

Assume that your full retirement age is 67, but you retire at age 62. Instead of $1,400, your monthly benefit would be $980.

However, what if you are among those who really want to retire at 61? You’ll need to have started with saving and investing for retirement at a relatively young age and have been willing to take a very aggressive position in your investments. If you started at age 26, with a goal of retiring at age 61, and you are employed by a company with an employee sponsored 401(k), you’d have had to contribute $1,500 a month for thirty-five years to amass enough money—if your investments were earning a steady 7%.

If retirement is around the corner, one thing you can do is make sure your estate plan is in place. Therefore, whatever assets you have, will be distributed according to your wishes. Make sure you have also taken care of having a power of attorney and healthcare directive in place. Speak with an estate planning attorney to make sure these documents are prepared correctly.

Reference: The Motley Fool (July 18, 2018) “Americans’ Ideal Retirement Age–and Why It’s Not Realistic”

July 12, 2018

Dodging an Unpopular Tax Provision

The recently passed federal tax overhaul limits deductions for state and local taxes to $10,000. It has not been popular with those affected. Estate planning attorneys might have found a way around it.

The new tax laws that were passed in December of 2017 have been controversial. Some people are very happy with the changes. However, most people have found something they do not like about them. One of the more controversial changes was that the itemized deduction for state and local taxes was limited to $10,000.

People who own expensive property in high tax states are not happy that as it will increase their taxes, in many cases. Initially, some state governments tried to figure out a way around the limit for their citizens, but the IRS shot most of those down. Some estate planning attorneys might have found a solution though, as Bloomberg reports in "How the Rich Can Dodge Trump's Property Tax Hike."

The idea is to first create an LLC in a non-tax state such as Delaware or Alaska. Real estate ownership is then transferred to the LLC. After that, several non-grantor trusts are created. Ownership of the LLC is then divided up and transferred to the new trusts. When tax time comes around, each non-grantor trust can take a $10,000 deduction for any property taxes that were paid by the LLC. Effectively, the new deduction limit can be rendered moot. Ask your local estate planning attorney about this practice.

The IRS could issue a new regulation against this practice. However, estate planners think it will work.

Reference: Bloomberg (June 15, 2018) "How the Rich Can Dodge Trump's Property Tax Hike."

July 9, 2018September 15, 2022

Estate Planning for the Separated

Two recent celebrity deaths highlight a potential issue in estate planning. What happens when a couple does not get divorced but separates amicably?

The recent deaths of fashion designer Kate Spade and celebrity chef Anthony Bourdain have elicited an outpouring of grief. They both committed suicide, which came as a shock to friends, family and fans. However, they both also share something else in common.

At the time of their passing, they were both separated from their spouses. That highlights a peculiar issue in estate law as Forbes discusses in “Kate Spade, Anthony Bourdain And Estate Planning When You Are Separated.”

If Spade and Bourdain had gotten divorces, then their spouses would not be entitled to any portion of their estates. If the spouses were included in the estate plan, they would be constructively written out by a court. However, that does not happen when a couple is separated.

The spouse of the deceased retains full rights to the estate. That means if there is no estate plan, the spouse will normally receive the entire estate through the laws of intestate succession. If there is an estate plan, then the spouse receives anything the plan says he or she gets. If the spouse does not receive enough of the total assets of the estate, then the spouse can elect to take his or her spousal elective share (the amount of which varies between states).

Of course, both Spade and Bourdain might have been perfectly fine with their spouses receiving their assets. They did after all choose not to divorce, but instead to separate.

Reference: Forbes (June 12, 2018) “Kate Spade, Anthony Bourdain And Estate Planning When You Are Separated.”

June 25, 2018

Michael Jackson Estate Sues Disney

The Michael Jackson estate has seen so much litigation that it should probably get bulk discounts for court and lawyer's fees. The latest litigation has the estate suing the Walt Disney Company.

There might never have been a more contentious estate than that of Michael Jackson. Every few months, just when it seems things have died down, the estate is back in the news because it has been sued or is suing someone itself.

The latest case is over a documentary produced by the Walt Disney Company. In the documentary, footage of Jackson's children was used and short clips of two of his songs were also included. The estate claims this is copyright infringement and that Disney did not even ask permission to use the material.

Disney claims it did not need permission, because it was making a documentary. TMZ reported on this case in "Michael Jackson Estate Sues The Walt Disney Co. You've Got Balls For Exploiting MJ's Kids!!"

The estate does have a duty to protect any copyrights entrusted to it. If someone were to make a movie and use an entire Michael Jackson song in it, then the estate would need to file a lawsuit, if the song had been used without permission. However, in this case the estate might be a little overzealous.

Copyright does allow for the use of material without permission, if that use falls under the fair use doctrine. Doctrine normally does allow for short clips of material to be used and more material can be used, if it is done for educational purposes.

Reference: TMZ (May 30, 2018) "Michael Jackson Estate Sues The Walt Disney Co. You've Got Balls For Exploiting MJ's Kids!!"

June 14, 2018

What are Digital Assets?

It is important to include your digital assets in your estate plan. However, you need to know what they are.

In the last few years, digital assets have received considerable attention in estate planning. There have been lawsuits filed over access to them, after someone passes away. There have also been legislative attempts to provide greater access to them for estate administrators.

Estate plans now almost have to include plans for what to do with digital assets. However, many people are still confused about what digital assets even are. There are actually four different basic categories of digital assets people might need to consider, as the Xenia Daily Gazette points out in "Estate Planning and Digital Assets," including:

Things that exist only digitally but that have some monetary value. This can include things like domain names for websites and cryptocurrencies.
Another category includes digital accounts that provide access to things that have value in the real world. If you access your bank account online, the information about that access is a digital asset.
Another potential asset includes messages meant to communicate digitally with others, including emails or social media posts.
Finally, there is another category of digital assets that includes things like photos and videos stored digitally.

Reference: Xenia Daily Gazette (May 21, 2018) "Estate Planning and Digital Assets."

June 13, 2018

Your Executor Is Important

One of the simplest things that you can do to help prevent your estate from facing difficulties, is to make the right choice about who your executor should be.

People who get wills, normally put a lot of thought into how they would like their property to be distributed after they pass away. It is very important to them, that their wishes are carried out and everything goes to the appropriate heirs. However, often relatively little thought is put into who should make sure it all happens.

The person in charge is the executor. Instead of thinking about whether the person they are choosing is the right person, many people just pick a close friend or relative. This can be a very big mistake, if the person does not know what they are doing, as Forbes points out in "Choosing an Executor for Your Estate."

The executor of your estate will have a lot of work to do. There are often important tax decisions that need to be made quickly. The executor needs to determine what assets you have at the time you pass away. However, they cannot just give those assets to the people you want to have them.

First, they need to go to probate court and be officially appointed to administer the estate. They will then need to determine, if you had any debt when you passed away. That debt normally needs to be paid out of your assets, before any property can be distributed.

Your executor needs to be someone who not only has the time to serve in the capacity, but also can handle administrative and financial tasks well. Put some thought into this important decision.

Reference: Forbes (May 16, 2018) "Choosing an Executor for Your Estate."

June 12, 2018October 25, 2023

Why You Need an Estate Plan

If you think that you do not need an estate plan because you do not have very many assets, then you do not understand that estate planning is not just about your property.

There are millions of Americans who do not have very many assets that need to be distributed after they pass away. It is not the case that they are all poor. Many of them are just younger people who have not yet lived long enough to accumulate assets.

People often think they do not really need estate plans, if they are young and with limited assets. In some sense they are correct. If people do not own any real estate and do not have any other valuable property, it will not be too difficult for their families to handle their estates. However, estate planning is about more than that, as the Times Herald-Record discusses in “Everyone can benefit from an estate plan.”

Almost all estate plans today also include some legal documents that are traditionally considered elder law documents. Despite the term “elder law”, even young people need these documents because they are really about planning for disability.

That is planning for the possibility that you could have an accident or illness that does not kill you. However, it can leave you legally incapacitated, even if it is only on a temporary basis. These documents include a health care power of attorney, so someone else has the authority to make health care decisions on your behalf. It also includes a general durable power of attorney, so someone else can handle your finances, if you are unable to do so.

Reference: Times Herald-Record (May 17, 2018) “Everyone can benefit from an estate plan.”

May 2, 2018

Tell Someone about Your Advanced Medical Directives

If you have a health care power of attorney and living will, you should make sure that someone you trust knows where to find them.

It is very easy to get advanced medical directives today. You can often get living wills and health care powers of attorney as part of the process of admission to a hospital. If you tell a doctor about your wishes, it is often good enough for the doctor to make a note of them in his or her notes. However, getting those documents at a hospital or by telling a doctor can be a problem.

The system of medical records used in the U.S. does not make it easy for doctors to know that you have expressed your wishes ahead of time, especially when they actually need the information as The New York Times reports in "You've Detailed Your Last Wishes, but Doctors May Not See Them."

There is a potential way to mitigate the possibility that this problem will happen to you. Get your living will and your health care power of attorney ahead of time, by going to an estate planning attorney. These documents are routinely created as part of the estate planning process.

Once you have created the documents, you should store them in a secure place. However, do not stop there. Make sure that someone you trust knows where to find the documents. That person can then get them when needed, to the doctors providing care for you.

This is not a perfect plan that will work all of the time, but it is better than relying on the current system of medical records.

Reference: New York Times (March 27, 2018) "You've Detailed Your Last Wishes, but Doctors May Not See Them."

May 1, 2018

Digital Asset Availability Limitations

Gaining access to the digital accounts of deceased loved ones is slowly becoming easier. That means that people need to think about what type of access they want to grant as part of their estate planning.

Even just a few years ago, it was almost impossible to gain access to the digital accounts of the deceased. Even when ordered to allow access by judges, tech companies would point to their terms of service and deny that access. This created many problems for families and estate administrators who needed access to those accounts for a variety of reasons. In Maryland, the legislature passed a law which became effective on October 1, 2016. The law allows Maryland residents to name a fiduciary, during incapacity and upon death, to access the resident's online accounts. DC has not yet enacted such legislation. For details on how to manage your digital assets, see an estate attorney.

In response to this problem, state legislators have slowly been passing new laws to gain access to digital accounts. As a result, some tech companies are beginning to change their policies to account for this. However, when it comes to your estate planning, do you want someone to have access to your digital accounts after you pass away? If yes, for how long should they have that access?

This subject was recently considered by the Wills, Trusts & Estates Prof Blog in "Digital Assets Estate Planning — Alternatives to Perpetual Access."

The problem? The longer a digital account remains open without someone monitoring it, the more likely it is to be hacked by someone who can use the information in it for criminal, fraudulent or other nefarious purposes. Cases of this happening are becoming much more frequent. It sometimes means that estate administrators must deal with all of the problems associated with identity theft in addition to their more traditional duties.

Given these potential abuses, you might want to direct in your estate planning that your accounts be closed completely, after the period of time necessary to wrap up your affairs.

Reference: Wills, Trusts & Estates Prof Blog (April 6, 2018) "Digital Assets Estate Planning — Alternatives to Perpetual Access."

Building Legacies that Last Estate Planning and Elder Law

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