New Developments Transform the Role Life Insurance Plays in Your Estate and Financial Planning

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Within the past year, a combination of new legislation and the recent change of leadership in the White House and Congress stands to dramatically increase the taxes your loved ones will have to pay on inherited retirement accounts as well as increasing the taxes you owe on your taxable investments. However, purchasing life insurance may offer you the opportunity to minimize the effect of these developments.

To this end, if you hold assets in a retirement account, you need to review your financial plan and estate plan as soon as possible to determine if investing in life insurance or some other strategy may offer tax-saving benefits for you and your family. To help you with this process, here we’ll discuss how these new developments might affect the taxes owed by you and your heirs, and how investing in life insurance may help offset the tax impact of these new changes.

 

The SECURE Act

At the start of 2020, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) went into effect, and the new law effectively put an end to the so-called “stretch IRA.” Under prior law, beneficiaries of your retirement account could choose to stretch out distributions of an inherited retirement account over their own life expectancy to minimize the income taxes owed on those distributions.

Under the new law, however, most designated beneficiaries of inherited IRAs and similar tax-deferred qualified retirement accounts are now required to withdraw all of the assets from the inherited account—and pay income taxes on those withdrawals—within 10 years of the account owner’s death. Those who fail to withdraw funds within the 10-year window face a 50% tax penalty on the assets remaining in the account.

 

Democrats Take Control

The recent election of Joe Biden as President and subsequent Democratic takeover of the Senate will likely result in the passage of new tax legislation that could have a significant impact on your family’s financial and estate planning considerations.

Specifically, it’s likely that within the next two years Democrats will pass legislation aimed at eliminating many of the tax cuts enacted through the 2017 Tax Cuts and Jobs Act. As part of this legislation, we’re expected to see significantly lower federal estate tax exemptions, the elimination of the step-up in cost basis on inherited assets, as well as an increase in the top personal income and capital-gains tax rates.

One way you may be able to minimize the new taxes on both your tax-deferred retirement accounts and taxable investments is by investing in cash-value life insurance. Let’s break down exactly what this strategy might look like.

 

The New Role of Life Insurance in Your Estate and Financial Planning

Given the new distribution requirements for inherited IRAs, you should consider whether it makes sense to withdraw funds from your retirement account now, pay the tax, and invest the remainder in cash-value life insurance. From there, you can access the accumulated cash-surrender value of the life insurance policy income-tax free during your lifetime via tax-free withdrawals and/or loans. And upon your death, the payout of your life insurance policy would be income-tax free for your heirs.

By annually investing what you would otherwise put into tax-deferred retirement accounts into a cash-value life insurance contract, or by taking taxable withdrawals from your tax-deferred retirement accounts over time and reinvesting them in cash-value life insurance, you can effectively move these funds into a tax-free, rather than tax-deferred, investment vehicle.

This strategy could not only minimize the income taxes you pay over your lifetime, but it could also significantly reduce the tax bill imposed on your designated beneficiaries after your death, since life insurance proceeds are income-tax free.

Additionally, by investing a portion of your investable assets in cash-value life insurance, you can offset the effects of the proposed loss of income tax basis step-up upon your death, which we’re likely to see enacted through Democrat-backed legislation. What’s more, this strategy would also minimize your current income taxes on what otherwise would have been taxable income from your investments, as growth on investments inside a life insurance policy are not subject to income tax, including any capital gains.

Finally, if you stand to be affected by the proposed decrease of the federal estate-tax exemption, which is currently set at $11.7 million, by placing the life insurance policy inside an irrevocable life insurance trust, you can remove the death benefit paid out to your beneficiaries from your taxable estate. In doing so, you would still be able to access the cash value of the insurance policy during your lifetime, either via a so-called “spousal access trust,” if you are married, or via a traditional irrevocable life insurance trust, if you are not married.

 

Rethink Your Planning

Although the SECURE Act and the proposed new legislation stands to have an adverse effect on the tax consequences for your retirement and estate planning, investing in life insurance may offer you a valuable tax-saving opportunity. That said, you can only take advantage of this opportunity if you plan for it.

 

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Moving to A New State? Remember to Review Your Estate Plan

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Moving to a New State? Be Sure to Update Your Estate Plan

Although you likely won’t need to have an entirely new estate plan prepared for you, upon relocating to another state, you should definitely have your existing plan reviewed by an estate planning lawyer who is familiar with your new home state’s laws. Each state has its own laws governing estate planning, and those laws can differ significantly from one location to another.

Given this, you’ll want to make sure your planning documents all comply with the new state’s laws, and the terms of those documents still work as intended. Here, we’ll discuss how differing state laws can affect common planning documents and the steps you might want to take to ensure your documents are properly updated.

 

Last Will and Testament
The good news is, states will generally accept a will that was executed properly under another state’s laws. However, there could be differences in the new state’s laws that make certain provisions in your will invalid. Here are a few of the things you should pay the most attention to in your will when moving:

 

Your executor: Consider whether or not the executor or administrator you’ve chosen will be able to serve in that role in your new location. Every state will allow an out-of-state executor to serve, but some states have special requirements that those executors must meet, such as requiring them to post a bond before serving. Other states require non-resident executors to appoint an agent who lives within the state to accept legal documents on behalf of the estate.

 

Marital property: If you are married, give special consideration to how your new state treats marital property. While a common-law state might treat the property you own in your name alone as yours, community-property states treat all of your property as owned jointly with your spouse. If your new state treats marital property differently, you might need to draft a new will to ensure your wishes are honored.

 

Interested witnesses: Another important role under your will to consider when moving to a new state is an interested witness. An interested witness is someone who was a witness to your will who also receives a gift from your will. Some states allow interested witnesses to receive the gift, while other states do not allow such gifts. And still other states allow such gifts provided the witness is a family member.

 

Revocable Living Trust

A valid revocable living trust from one state should continue to be valid in your new state. However, you need to make certain that you transfer any new assets or property you acquire, such as your new home, to your trust, so that those assets can avoid the need to go through probate before being distributed to your heirs upon your death.

 

Power of Attorney
A valid power of attorney document, such as a durable power of attorney, medical power of attorney, or financial power of attorney, created in one state is likely to be valid in your new state. However, in some cases, banks, financial institutions, and healthcare facilities in your new state may not accept a power of attorney document if it’s unfamiliar to them. Also, simply as a practical matter, it may be a good idea to have your power of attorney agent live in the same state you do, so keep that in mind as well.

 

Beneficiary Designations
If you have accounts with beneficiary designations, such as 401(k)s, life insurance policies, and payable-on-death bank accounts, these should be valid no matter which state you live in. That said, you should still review these documents when you move to ensure that your address and other personal information is updated.

 

Keep Your Plan Current
As with other major life events, such as births, deaths, marriage and divorce, moving to a new state is the ideal time to have your plan reviewed by a professional.

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5 Tips for Keeping Kids Connected With Grandparents During the Pandemic

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Homeschooling Grandchildren (It Can Be Done) – Home Educator

While the quarantines, shutdowns, and social distancing measures related to the pandemic have been difficult for everyone, the elderly have been particularly hard hit. Since seniors face the most health risks from COVID-19, most of them have been careful to avoid close contact with their family members, and this has left many grandparents unable to visit with their grandchildren for close to a year now.

This loss of in-person connection for such an extended period of time can cause people to feel isolated and lonely, which can eventually lead to mental health issues like depression. At the same time, children who are unable to spend time with their grandparents may experience confusion and anxiety over their lost relationship.

 

With this in mind, here are a few tips for helping seniors maintain a connection with their grandchildren during the pandemic using web-based technology like FaceTime, email, and instant messaging (IM). And though video chats, texts, and IMs will never replace in-person visits, they offer one of the most effective ways of keeping those relationships—and everyone’s spirits—as strong as possible during these dark times.

 

  1. Reading Stories

One way for grandparents to feel more connected with their grandkids is to read stories over video chat or smartphone. Choose a favorite book at the grandchild’s reading level, and take turns reading pages. This can give the grandchild the added benefits of improving reading skills, building their vocabulary, and helping them develop their speaking abilities. By picking a regular time to call and read together each week, it can also give both of them something to look forward to.

 

  1. Playing Games

Even though in-person visits are too risky right now, family game night can still happen. Grandparents and grandkids have many options for online gaming, including even classic board games, such as Scrabble, Monopoly, and Clue. Like their traditional counterparts, online games also help children develop math and vocabulary skills while they are having fun.

 

  1. Emailing, Texting, and Instant Messaging

Texts, emails, and IMs sent to one another on a regular basis can help grandparents stay connected and up-to-date with the latest developments in their grandkids’ lives. To catch up with one another, seniors can talk about what is happening in their lives and ask the grandkids to discuss the latest events in their own lives. When grandchildren use texts and emails, it also helps them practice writing out their thoughts and work on their spelling and grammar.

 

  1. Mailing Letters or Postcards

These days, letter writing almost seems like lost art. But sending personal letters and postcards is a great way for grandparents and grandchildren to connect with one another. Handwritten letters and postcards can also be prized keepsakes that will help grandchildren remember their grandparents long after they are gone. When possible, children should be encouraged to hand-write letters and postcards instead of typing and printing them out. They can also decorate their letters or postcards with drawings and art.

 

  1. Group Video Chats and Phone Calls

Tech-savvy grandparents can use video chat apps like Skype, FaceTime, and Google Duo to visit with the grandkids in a group setting, where everyone can see and interact with one another. Even extremely young children like toddlers can participate in video chats, which can help them bond with their senior loved ones, even across vast distances. And if video chats aren’t something a senior feels comfortable with, a similar experience can be achieved simply by using a phone. Even short, 15 to 20-minute calls made on a regular basis can help grandparents and grandkids feel more connected and less isolated.

 

For the Love of Your Family

With coronavirus infections and deaths currently surging to record levels, it’s more critical than ever for parents and grandparents to ensure their estate planning is complete and up-to-date, including naming both short and long-term guardians for your minor children. If you’ve yet to name guardians for your kids, you should do so immediately.

 

In addition to ensuring your kids will be protected and provided for no matter what, the estate planning process itself can offer a unique opportunity to enhance your connection with your children and grandchildren. Communicating clearly about what you want to happen in the event of your death or incapacity (and talking with your kids about what they want) can foster a deep bond and sense of intimacy.

 

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Prop 19 Effects Property Tax Reassessments on Inherited Real Estate

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Californians Approve Prop. 19; Ending Major Property Tax Exemption – Linkenheimer LLP CPAs & Advisors

Proposition 19 changes the way real estate may be passed down from parents to children in California. Here are 6 key things you should know about this new law:

  1. Prop 19 eliminates the ability for children to receive property from their parents without a property tax reassessment unless (adult) children use the property as their own primary residence andthe property has gained less than one million in value over the original assessed value.
  2. Previously, a parent could transfer their primary residence and up to one million of assessed value of other real estate (residential and commercial) to their children without reassessment. Please note that Prop 19 does notimpact capital gains taxes or eliminate the step up in basis for inherited properties – it only affects property tax reassessments.
  3. Prop 19 goes into effect on February 16, 2021 and will impact properties transferred after that date. Because of holidays, however, the transfers must be recorded by February 11, 2021 to meet the deadline.
  4. There is special Prop 19 planning available to avoid the consequences of Prop 19. This Special Prop 19 planning consists of transferring the property to an irrevocable trust before the deadline to preserve the lower property tax basis.
  5. This special Prop 19 planning is best suited for those (a) who own a property with a high current market value and a low property tax assessed value, and (b) who plan to gift that property to their children upon death, and (c) whose children intend to keep the property for a rental, vacation home, or commercial building.
  6. This special Prop 19 planning is not for everyone. There are many drawbacks and unknowns (the legislature has yet to write the details so there is much yet still to be determined) with this planning. For example, it would require you to give up all rights and use of your primary residence from now on, meaning your children could potentially kick you out of the home. For commercial properties, you would have to give up all rights to the rental income and principal now, meaning your children would receive it from this point forward. Also, please be aware, properties with a mortgage generally will not qualify for this special Prop 19 planning because lenders often legally prohibit these types of property transfers. Finally, if the transfer is allowed, there is added expense in creating the irrevocable trust now and administering it into the future.

If you would like to discuss whether Prop 19 planning is appropriate for you, please call CaliLaw at 626.355.4000 to schedule a phone call with a member of our team.

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5 Questions to Ask Before Hiring An Estate Planning Lawyer -Part 2

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5 Questions To Ask Before Hiring An Estate Planning Lawyer—Part 1 | Cava & Faulkner

Since you’ll be discussing topics like death, incapacity, and other frightening life events, hiring an estate planning lawyer may feel intimidating or morbid. But it doesn’t have to be that way.

Instead, it can be the most empowering decision you ever make for yourself and your loved ones. The key to transforming the experience of hiring a lawyer from one that you dread into one that empowers you is to educate yourself first. This is the person who is going to be there for your family when you can’t be, so you want to really understand who the lawyer is as a human, not just an attorney. Of course, you’ll also want to find out the kind of services the lawyer offers and how they run their business.

To gather this information and get a better feel for who the individual is at the human level, we suggest you ask the prospective lawyer five key questions. Last week in part one https://www.calilaw.com/5-questions-to-ask-before-hiring-an-estate-planning-lawyer-part-1/, we listed the first two of these questions, and here, we cover the final three.

  1. How will you proactively communicate with me on an ongoing basis?

The sad truth is most lawyers do a terrible job of staying in regular communication with their clients. Unfortunately, most lawyers don’t have their business systems set up for ongoing, proactive communication, and they don’t have the time to really get to know you or your family.

If you work with a lawyer who doesn’t have systems in place to keep your plan updated, ensure your assets are owned in the right way (throughout your life), and communicate with you regularly, your estate plan may be worth little more than one you could create for yourself online—and it’s likely to fail when your family needs it most.

Think of it this way: Yes, your estate plan is a set of documents. But more importantly, it’s who and what your family will turn to when something happens to you. You want to work with a lawyer who has systems in place to keep your documents up to date and to ensure your assets are owned in the right way throughout your lifetime. Ideally, the lawyer should get to know you and your family over time, so when something happens, your lawyer can be there for the people you love, and there will already be an underlying relationship and trust.

  1. Can I call about any legal problem I have, or just about matters within your specialty?

Given the complexity of today’s legal world, lawyers must have specialized training in one or more specific practice areas, such as divorce, bankruptcy, wills and trusts, personal injury, business, criminal matters, or employment law. You definitely do NOT want to work with a lawyer who professes to be an expert in whatever random legal issue walks through the door.

That said, you do want your personal lawyer to have broad enough expertise that you can consult with him or her about all sorts of different legal and financial issues that may come up in your life—and trust he or she will be able to offer you sound guidance. Moreover, while your lawyer may not be able to advise you on all legal matters, he or she should at least be able to refer to you to another trusted professional who can help you.

Trust me, you wouldn’t want the lawyer who designed your estate plan to also handle your personal injury claim, settle a dispute with your employee, and advise you on your divorce. But you do want him or her to be there to hear your story, refer you to a highly qualified lawyer who specializes in that area, and overall, serve as your go-to legal consultant.

  1. What happens if you die or retire?

This is a critically important—and often overlooked—question to ask not only your lawyer, but any service professional before beginning a relationship. Sure, it may be uncomfortable to ask, but a truly excellent, client-centered professional will have a plan in place to ensure their clients are taken care of no matter what happens to the individual lawyer managing your plan.

Look for a lawyer who has their own detailed plan in place that will ensure that someone warm and caring will take over your planning without any interruption of service. If your lawyer prepared a will, trust, and other estate planning documents for you, or if you are in the middle of a divorce or lawsuit, you want to make certain your lawyer has such a contingency plan in place, so you won’t be forced to start over from scratch should your lawyer die, retire, or become otherwise unavailable.

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5 Questions to Ask Before Hiring An Estate Planning Lawyer – Part 1

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7 QUESTIONS TO ASK BEFORE HIRING A LAWYER – Metro Law and Mediation

Since you’ll be discussing topics like death, incapacity, and other frightening life events, hiring an estate planning lawyer may feel intimidating or even morbid. But it doesn’t have to be that way.
Instead, it can be the most empowering decision you ever make for yourself and your loved ones. The key to transforming the experience of hiring a lawyer from one that you dread into one that empowers you is to educate yourself first. This is the person who is going to be there for your family when you can’t be, so you want to really understand who the lawyer is as a human, not just an attorney. Of course, you’ll also want to find out the kind of services your potential lawyer offers and how they run their business.
To this end, here are five questions to ask to ensure you don’t end up paying for legal services that you don’t need, expect, or want. Once you know exactly what you should be looking for when choosing a planning professional, you’ll be much better positioned to hire an attorney who will provide the kind of love, attention, care, and trust your family deserves.

   1. How do you bill for your services?

There’s no reason you should be afraid to ask a lawyer how he or she bills for the work they do on your behalf. In fact, questions about billing and payment should be thoroughly discussed before you engage any lawyer to represent you. No one wants surprises, especially when it comes to legal fees.

Find an estate planning lawyer who bills for their services on a flat-fee, no surprises, basis—and not on an hourly basis—unless it’s required for limited purposes. And ideally, you want a lawyer who will guide you through a process of discovery in which they learn about your family dynamics, your assets, and they educate you about what would happen for your family and to your assets if and when something happens to you, and then support you in choosing the right plan for you that meets your budget and your desired outcomes.

  1. How will you respond to my needs on an ongoing basis?

One of the biggest complaints people have about working with lawyers is that they are notoriously unresponsive. Indeed, I’ve heard of cases in which clients went weeks without getting a call back from their lawyer. This is all too common, but totally unacceptable, especially when you’re paying them big bucks.

That said, in most cases, these lawyers aren’t blowing you off—they simply don’t have enough support or the systems in place to be able to be responsive. Far too many lawyers believe they can take care of everything themselves. From paperwork and client meetings to scheduling and returning phone calls to connecting their clients with other advisors, there are just too many responsibilities for one person to manage all on their own.

Ask them how quickly calls are typically returned in their office, ask them if there will be someone on-hand to answer quick questions, and ask them how they will support you to keep your plan up to date on an ongoing basis and be there for your loved one’s when you can’t be.

A great way to test this is to call your prospective lawyer’s office and ask for him or her. If you get put through right away—or even worse, your call gets sent to a full voicemail—think twice about hiring this lawyer. This means they don’t have effective systems in place for managing and responding to calls or answering quick questions.

Instead, what you want is for the person who answers the phone—or another team member—to offer to help you. And if that individual cannot help you, then he or she should schedule a call for you to talk with your lawyer at a future date and time. Ideally, all calls with your lawyer should be pre-scheduled with a clear agenda, so you both can be ready to focus on your specific needs.

Next week in part two, we’ll talk more about the ways in which your attorney should communicate with you and list the remaining three questions to ask before hiring your estate planning lawyer.

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Remarrying in Midlife? Avoid Accidently Disinheriting Your Loved Ones

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Don't Think of Remarrying Until You Read This - MM #108 - Marriage Missions International

Today, we’re seeing more and more people getting divorced in middle age and beyond. In fact, roughly one in four divorces involve those over 50, and divorce rates for this demographic have doubled in the past 30 years, according to the study Gray Divorce Revolution. For those over age 65, divorce rates have tripled.

With divorce coming so late in life, the financial fallout can be quite devastating. Indeed, Bloomberg.com found that the standard of living for women who divorce after age 50 drops by some 45%, while it falls roughly 21% for men. Given the significant decrease in income and the fact people are living longer than ever, it’s no surprise that many of these folks also choose to get remarried.

And those who do get remarried frequently bring one or more children from previous marriages into the new union, which gives rise to an increasing number of blended families. Regardless of age or marital status, all adults over age 18 should have some basic estate planning in place, but for those with blended families, estate planning is particularly vital.

Here, we’ll use three different hypothetical scenarios to discuss how a failure to update your estate plan after a midlife remarriage has the potential to accidently disinherit your closest family members, as well as deplete your assets down to virtually nothing. From there, we’ll look at how these negative outcomes can be easily avoided using a variety of different planning solutions.

Scenario #1: Accidentally disinheriting your children from a previous marriage

John has two adult children, David and Alexis, from a prior marriage. He marries Moira, who has one adult child, Patrick. The blended family gets along well, and because he trusts Moira will take care of his children in the event of his death, John’s estate plan leaves everything to Moira.

After just two years being married, John dies suddenly of a heart attack, and his nearly $1.4 million in assets go to Moira. Moira is extremely distraught following John’s death, and although she wants to update her plan to include David and Alexis, she never gets around to it, and dies just a year after John. Upon her death, all of the assets she brought into the marriage, along with all of John’s assets, pass to Moira’s son Patrick, while David and Alexis receive nothing.

There are several planning options John could’ve used to avoid this outcome. He could have created a revocable living trust that named an independent successor trustee to manage the distribution of his assets upon his death to ensure a more equitable division of his estate between his spouse and children. Or, he could have created two separate trusts, one for Moira and one for his children, in which John specified exactly what assets each individual received. He might have also taken advantage of tax-free gifts to his two children during his lifetime.

Scenario #2: Accidentally disinheriting your spouse

Mark was married to Gwen for 30 years, and they had three children together, all of whom are now adults. When their kids were young, Mark and Gwen both created wills, in which they named each other as their sole beneficiaries. When they were both in their 50s, and their kids had grown, Bob and Gwen divorced.

Several years later, at age 60, Bob married Veronica, a widow with no children of her own. Bob was very healthy, so he didn’t make updating his estate plan a priority. But within a year of his new marriage, Bob died in a car accident.

Bob’s estate plan, written several decades ago, leaves all of his assets to ex-wife Gwen, or, if she is not living at the time of his death, to his children. State law presumes that Gwen has predeceased Bob because they divorced after the will was enacted. Thus, all of Bob’s assets, including the house he and Veronica were living in, pass to his children. Veronica receives nothing, and is forced out of her home when Bob’s children sell it.

By failing to update his estate plan to reflect his current situation, Bob unintentionally disinherited Veronica and forced her into a precarious financial position just as she was entering retirement. If Bob had worked with an estate planning attorney to create a living trust, he could have arranged his assets so they would go to, and work for, exactly the people he wanted them to benefit.

Scenario #3: Allowing Assets to Become Depleted

Steve is a divorcee in his early 60s with two adult children when he marries Susan. Steve has an estate valued at around $850,000, and he has told his kids that after he passes away, he hopes they will use the money that’s left to fund college accounts for their own children. But he also wants to ensure Susan is cared for, so he establishes a living trust in which he leaves all his assets to Susan, and upon her death, the remainder to his two children.

Yet, soon after Steve dies, Susan suffers a debilitating stroke. She requires round-the-clock in-home care for several decades, which is paid for by Steve’s trust. When she does pass away, the trust has been almost totally depleted, and Steve’s children inherit virtually nothing.

An experienced estate planning attorney could have helped Steve avoid this unfortunate outcome. Steve could have stipulated in his living trust that a certain portion of his assets must go to his children upon his death, while the remainder passed to Susan.

Bringing families together
Along with other major life events like births, deaths, and divorce, entering into a second (or more) marriage requires you to review and rework your estate plan. And updating your plan is exponentially more important when there are children involved.

 

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6 Things You Should NOT Include in Your Will

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Writing a Will: Avoid these 8 mistakes while writing a will to ensure your assets are passed onto your heirs

 

A will is one of the most basic estate planning tools. While relying solely on a will is not a suitable option for most people, just about every estate plan includes this key document in one form or another.

A will is used to designate how you want your assets distributed to your surviving loved ones upon your death. If you die without a will, state law governs how your assets are distributed, which may or may not be in line with your wishes.

That said, not all assets can (or should) be included in your will. For this reason, it’s important to understand which assets you should put in your will and which assets you should include in other planning documents like trusts.

While you should always consult with an experienced planning professional when creating your will, here are a few of the different types of assets that should not be included in your will.

      1. Assets with a right of survivorship: A will only covers assets solely owned in your name. Therefore, property held in joint tenancy, tenancy by the entirety, and community property with the right of survivorship, bypass your will. These types of assets                 automatically pass to the surviving co-owner(s) when you die, so leaving your share to someone else in your will would have no effect. If you want someone other than your co-owner to receive your share of the asset upon your death, you will need to change             title to the asset as part of your estate planning process.

  1. Assets held in a trust: Assets held by a trust automatically pass to the named beneficiary upon your death or incapacity and cannot be passed through your will. This includes assets held by both revocable “living” trusts and irrevocable trusts.In contrast, assets included in a will must first pass through the court process known as probate before they can be transferred to the intended beneficiaries. To avoid the time, expense, and potential conflict associated with probate, trusts are typically a more effective way to pass assets to your loved ones compared to wills.

However, because it can be difficult to transfer all of your assets into a trust before your death, even if your plan includes a trust, you’ll still need to create what’s known as a “pour-over” will. With a pour-over will in place, all assets not held by the trust upon your death are transferred, or “poured,” into your trust through the probate process.

 

  1. Assets with a designated beneficiary: Several different types of assets allow you to name a beneficiary to inherit the asset upon your death. In these cases, when you die, the asset passes directly to the individual, organization, or institution you designated as beneficiary, without the need for any additional planning.The following are some of the most common assets with beneficiary designations, and therefore, such assets should not be included in your will:
  • Retirement accounts, IRAs, 401(k)s, and pensions
  • Life insurance or annuity proceeds
  • Payable-on-death bank accounts
  • Transfer-on-death property, such as bonds, stocks, vehicles, and real estate
  1. Certain types of digital assets: Given the unique nature of digital assets, you’ll need to make special plans for your digital assets outside of your will. Indeed, a will may not be the best option for passing certain digital assets to your heirs. And in some cases—including Kindle e-books and iTunes music files—it may not even be legally possible to transfer the asset via a will, because you never actually owned the asset in the first place—you merely owned a license to use it.What’s more, some types of social media, such as Facebook and Instagram, have special functions that allow you to grant certain individuals access and/or control of your account upon your death, so a will wouldn’t be of any use. Always check the terms of service for the company’s specific guidelines for managing your account upon your death.

Regardless of the type of digital asset involved, NEVER include the account numbers, logins, or passwords in your will, which becomes public record upon your death and can be easily read by others. Instead, keep this information in a separate, secure location, and provide your fiduciary with instructions about how to access it.

       5. Your pet and money for its care: Because animals are considered personal property under the law, you cannot name a pet as a beneficiary in your will. If you do, whatever money you leave it would go to your residuary beneficiary (the individual who                   gets everything not specifically left to your other named beneficiaries), who would have no obligation to care for your pet.

It’s also not a good idea to use your will to leave your pet and money for its care to a future caregiver. That’s because the person you name as beneficiary would have no legal obligation to use the funds to care for your pet. In fact, your pet’s new owner could legally keep all of the money and drop off your furry friend at the local shelter.

The best way to ensure your pet gets the love and attention it deserves following your death or incapacity is by creating a pet trust. A good estate planning attorney can help you set up, fund, and maintain such a trust, so your furry family member will be properly cared for when you’re gone.

  1. Money for the care of a person with special needs: There are a number of unique considerations that must be taken into account when planning for the care of an individual with special needs. In fact, you can easily disqualify someone with special needs for much-needed government benefits if you don’t use the proper planning strategies. To this end, a will is not a suitable way to pass on money for the care of a person with special needs.If you want to provide for the care of your child or another loved one with special needs, you must create a special needs trust. Given these are extremely technical, you should always work with an experienced planning lawyer to create a special needs trust.

Don’t take any chances
Although creating a will may seem fairly simple, it’s always best to consult with an experienced planning professional to ensure the document is properly created, executed, and maintained. And as we’ve seen here, there are also many scenarios in which a will won’t be the right planning option, nor would a will keep your family and assets out of court

 

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Getting Divorced? Don’t Overlook These 4 Updates to Your Estate Plan- Part 1

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How Divorce Affects Your Estate Plan | legalzoom.com

Going through divorce can be an overwhelming experience that impacts nearly every facet of your life, including estate planning. Yet, with so much to deal with during the divorce process, many people forget to update their plan or put it off until it’s too late.

Failing to update your plan for divorce can have a number of potentially tragic consequences, some of which you’ve likely not considered—and in most cases, you can’t rely on your divorce lawyer to bring them up. If you are in the midst of a divorce, and your divorce lawyer has not brought up estate planning, there are several things you need to know. First off, you need to update your estate plan, not only after your divorce is final, but as soon as you know a split is inevitable.

Here’s why: until your divorce is final, your marriage is legally in full effect. This means if you die or become incapacitated while your divorce is ongoing and haven’t updated your estate plan, your soon-to-be ex-spouse could end up with complete control over your life and assets. And that’s generally not a good idea, nor what you would want.

Given that you’re ending the relationship, you probably wouldn’t want him or her having that much power, and if that’s the case, you must take action. While state laws can limit your ability to make certain changes to your estate plan once your divorce has been filed, here are a few of the most important updates you should consider making as soon as divorce is on the horizon.

1. Update your power of attorney documents
If you were to become incapacitated by illness or injury during your divorce, the very person you are paying big money to legally remove from your life would be granted complete authority over all of your legal, financial, and medical decisions. Given this, it’s vital that you update your power of attorney documents as soon as you know divorce is coming.

Your estate plan should include both a durable financial power of attorney and a medical power of attorney. A durable financial power of attorney allows you to grant an individual of your choice the legal authority to make financial and legal decisions on your behalf should you become unable to make such decisions for yourself. Similarly, a medical power of attorney grants someone the legal authority to make your healthcare decisions in the event of your incapacity.

Without such planning documents in place, your spouse has priority to make financial and legal decisions for you. And since most people typically name their spouse as their decision maker in these documents, it’s critical to take action—even before you begin the divorce process—and grant this authority to someone else, especially if things are anything less than amicable between the two of you.

2. Update your beneficiary designations
As soon as you know you are getting divorced, update beneficiary designations for assets that do not pass through a will or trust, such as bank accounts, life insurance policies, and retirement plans. Failing to change your beneficiaries can cause serious trouble down the road.

For example, if you get remarried following your divorce, but haven’t changed the beneficiary of your 401(k) plan to name your new spouse, the ex you divorced 15 years ago could end up with your retirement account upon your death. And due to restrictions on changing beneficiary designations after a divorce is filed, the timing of your beneficiary change is particularly critical.

In California, once either spouse files divorce papers with the court, neither party can legally make changes to non-probate transfers without the consent of their soon to be ex-spouse. This means you can make a new will (since that’s a probate transfer) but you cannot change your trust, IRA, 401k or life insurance beneficiaries. With this in mind, if you’re anticipating a divorce, you may want to consider changing your beneficiaries prior to filing divorce papers, and then post-divorce you can always change them again to match whatever is determined in the divorce settlement.

 

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Will Your Estate Plan Actually Work When Your Family Needs It?

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Revocable Living Trust | Your Estate Plan Can Protect You in Many Ways

November 6, 2020 is “National Love Your Lawyer Day,” which started in 2001 as a way to celebrate lawyers for their positive contributions and encourage the public to view lawyers in a more favorable light. As your Personal Family Lawyer®, we’re dedicated to improving the public’s perception of lawyers by offering family-centered legal services specifically tailored to provide our clients with the kind of love, attention, and trust we’d want for our own loved ones. With that in mind, this post gives some insight into how this vision for a new law business model first came about.
If you’re like most people, you likely think estate planning is just one more task to check off of your life’s endless “to-do” list.

You may shop around and find a lawyer to create planning documents for you, or you might try creating your own DIY plan using online documents. Then, you’ll put those documents into a drawer, mentally check estate planning off your to-do list, and forget about them.

The problem is, estate planning is not a one-and-done type of deal.

In fact, if it’s not regularly updated when your assets, family situation, and the laws change, your plan will likely be worthless when it’s needed most. What’s more, failing to update your plan can create its own set of problems that can leave your family worse off than if you’d never created a plan at all.

The following true story illustrates the consequences of not updating your plan, and it happened to a friend of mine who also happens to be an estate planning lawyer.

A game-changing realization

When my friend was in law school, her father-in-law died. He’d done his estate planning—or at least thought he had. He paid a law firm roughly $3000 to prepare an estate plan for him, so his family wouldn’t be stuck dealing with the hassles and expense of probate court or drawn into needless conflict with his ex-wife.

And yet, after his death, that’s exactly what did happen. His family was forced to go to court in order to claim assets that were supposed to pass directly to them. And on top of that, they had to deal with his ex-wife and her attorneys in the process.

As my friend tells it, she was totally perplexed. If her father-in-law paid $3,000 for an estate plan, why were his loved ones dealing with the court and his ex-wife? It turned out that not only had his planning documents not been updated, but his assets were never properly titled.

Her father-in-law created a trust, so that when he died, his assets would pass directly to his family, and they wouldn’t have to endure probate. But some of his assets had never been transferred into the name of his trust from the beginning. And since there was no updated inventory of his assets, there was no way for his family to even confirm everything he had when he died. To this day the family doesn’t know if they uncovered all of his assets.

Will your plan work when your family needs it?

We hear similar stories from our clients all the time. In fact, outside of not creating any plan at all, one of the most common planning mistakes we encounter is when we get called by the loved ones of someone who has become incapacitated or died with a plan that no longer works. Yet by that point, it’s too late, and the loved ones are forced to deal with the mess left behind.

We recommend you review your plan at least every three years to make sure it’s up to date, and immediately amend your plan following events like divorce, deaths, births, and inheritances. This is so important, we’ve created proprietary systems designed to ensure these updates are made for all of our clients, so you don’t need to worry about whether you’ve overlooked anything as your family, the law, and your assets change over time.

 

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