Moynihan Lyons PC

Take a Fresh Look at Estate Plan If You Relocate

An estate planning attorney in your new state of residence should go over your estate plan.

Many people choose to relocate for retirement and often relocate to a warm, sunny state. If you decide to relocate, it would be a good idea to have an estate planning attorney review your estate plan, according to TC Palm in “Should new Florida residents update their out-of-state estate planning documents?”

An example of why it’s a good idea to have an estate plan review is that in the state of Florida, as long as your will from another state is valid under that state’s law, it will be honored in Florida.

However, there may be laws in Florida that could cause some problems with the out-of-state will. That applies to other states as well.

Here’s a good example. Let’s say you now own a home–known in Florida as a “homestead”—and your out-of-state will transfers your residence at the time of your death to a trust for the benefit of your spouse and your children.

The only person who can receive a homestead in Florida is the spouse. If your will from out-of-state was used, the house would result in a life estate going to the spouse with a vested remainder to your children. This doesn’t achieve the result you wanted: to have the property controlled by a trustee and not your spouse and children. If this was a second marriage, the potential could be a family blow up, even litigation. Even in a first marriage, if the children and their mother differ on what should happen to the family homestead, there would be trouble ahead.

Taking that example further: What if your out-of-state will directs the sale of your home in Florida and distribution of proceeds in equal shares to your children? If you die with creditor claims, you lose the homestead exemption for creditor protection purposes. Your children’s inheritances could then be at risk.

More food for thought: if your out-of-state will appoints a non-relative who is a resident of the state where your will was originally executed to serve as your personal representative, they won’t be able to do much in Florida. That’s because they are not eligible to serve as a personal representative under Florida law, which only allows a nonrelative to serve, if they are a Florida resident.

Every state has its own laws, and while some issues are fairly consistent from state-to-state, that is not always the case.

If you decide to relocate it would be a good idea to meet with an estate planning attorney, in case your current plan has some areas that should be updated to meet any new state laws.

Reference: TC Palm (Nov. 14, 2018) “Should new Florida residents update their out-of-state estate planning documents?”

An Estate Plan Is Not Just a Will

A will is a good place to start. However, there are other things to take into consideration.

People often think of creating a will, when they hear the words estate plan. However, a will is by no means the only document needed to distribute assets and prepare for both incapacity and death, according to The Island Now in “Five things that will impact your will.”

How are your bank accounts structured? If you have a bank account set up as “joint with right of survivorship,” when one of the owners dies, the other owner automatically inherits the whole account. Remember that this will occur, no matter what is stated in the will. If you have added a child to that account for convenience, is it your wish that the child should inherit the entire account? That’s exactly what will happen. You may be better off letting a child help you, using Power of Attorney rather than structuring the account that way.

When was the last time you reviewed beneficiary designations? Like titling bank accounts, as explained above, the beneficiary designation takes precedence over anything in your will. If you opened an IRA at your first job and now two decades—and two marriages—have passed, that IRA will still be passed on to the person who you named two decades ago, unless you have updated the beneficiary name. Accounts that often pass directly to beneficiaries include life insurance, annuities, 401(k), 403(b), brokerage accounts and some bank accounts.

Each asset that has a beneficiary, should also have a contingency beneficiary in the chance that the primary predeceases you or does not wish to receive the asset.

Are you prepared for the cost of a health crisis? The cost of a health crisis can, and often does, wipe out a family’s years of retirement savings. There are several strategies that an estate planning attorney can help you with to plan in advance for this. Long-term care insurance may be an option and placing assets in an irrevocable trust may be another, depending on your situation. There is a five-year look-back for any Medicaid benefits, so planning in advance is critical.

For many families, placing their primary residence into a trust while retaining the right to live in the home, retaining any STAR or Veteran’s exemptions and possibly even securing capital gains advantages for heirs is a possibility but requires the help of a skilled estate planning attorney.

Is gifting part of your estate plan? Most people know about the annual exclusion gift, which allows anyone to make a gift in the amount of $15,000 per year to a beneficiary with no gift tax consequences. However, if you need to apply for Medicaid coverage within a five-year period, any gift will trigger a waiting period before you can be eligible for Medicaid. Therefore, you can make a gift for tax purposes but it’s not something you can do for Medicaid planning. This is an expensive mistake. Talk with an estate planning attorney to make sure you get this one right.

Who is your Power of Attorney? Everyone should have a Power of Attorney. This is a person who is your legal representative if you become incapacitated. The durable power of attorney gives your agent the authority to handle banking matters, real estate transactions and other financial matters. You’ll also need a health care proxy and a living will.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances.

Reference: The Island Now (Nov. 12, 1018) “Five things that will impact your will”

Making Sure You Have the Final Authority

Perhaps your own personal funeral representative can ward off family strife.

Making sure you have a clear plan on your final wishes for a funeral and disposal of remains, can eliminate the chances of some potentially strong disagreements when that time comes, according to the Detroit Free Press in “Law helps ensure your family follows your funeral wishes in Michigan.”

A fairly new state law in Michigan is working to let you have the final say in that state about your funeral plans and what happens to your remains, even after you have died, by appointing a funeral representative who will be in charge of your funeral arrangements, including your final resting place.

A focus of the article is the family battle going on with a Michigan funeral home that is trying, unsuccessfully, to return the cremated remains to family members of the decedent. Some family members say they would have claimed the remains earlier, but they were not next of kin. Another big issue that this would solve: family battles over where loved ones are ultimately buried.

In this example, a man wanted to be buried next to his deceased wife. However, the second spouse wanted him to be buried in another cemetery. When the second wife’s wishes prevailed, the family and the children from the first marriage were not happy.

This law, which actually took effect in 2016, gives a representative the authority to make decisions about your funeral and resting place and can sort out confusion and minimize the unpleasantness among surviving family members.

Here are some additional facts about being a funeral representative:

The funeral representative is designated to have the right and power to make decisions about funeral arrangements and handling, deposition or disinterment of a decedent’s body, including the right to possess the cremated remains.

Here’s the order in which a funeral representative is selected if no one is named: a person designed under federal law, usually if the person is serving in the military; the designated funeral representative; a surviving spouse; adult children; adult grandchildren; parent; grandparents and siblings.

You can name a funeral representative in Michigan in your will, by power of attorney, or a separate document that has two witnesses and is notarized.

Some people cannot serve as a funeral representative: a licensed health professional, an employee of a health or veterans’ facility that provided care, an officer or employee of a funeral home, crematory or cemetery providing services. Anyone who has been charged with murdering you, may not serve.

The role of a funeral representative can be revoked at any time, in the same manner that it is given, with a notarized written notice that has been witnessed by two people. The law also automatically revokes the power to a named ex-spouse.

Reference: Detroit Free Press (Nov. 2, 2018) “Law helps ensure your family follows your funeral wishes in Michigan”

Splitting Up Money Is Easy but Not So Easy with Objects

Careful estate planning can reduce chances of strife developing in the family.

There is a lot of assets that are going to change hands, as the baby boomers age and pass on. One of the key things to consider is the careful consideration needed to successfully pass on “hard” assets in comparison to money, according to Kiplinger in “Estate Planning Answers for ‘Hard’ Assets Like Art, Heirlooms.”

It’s one thing to transfer stocks, bonds, cash, and other assets that are generally considered “liquid.” However, it is different when the assets are “hard,” like real estate, art, and jewelry. Most families don’t keep a comprehensive inventory of these assets, their value may be unknown, and chances are good family members have different ideas regarding how they want to have them distributed.

If all of this is not enough, what about the difficulty of talking about what the current owner would like to see happen to the asset. So, what happens? In many cases, these hard assets end up being overlooked and sometimes undervalued.

A better solution would be to create a formal plan that begins with the owners, the family advisors and depending on the nature of the asset, professional appraisers.

Here are three key questions to keep in mind:

What’s it worth? You need to establish any asset’s fair market value. That number needs to be appraised by an objective and properly credentialed appraiser, who is knowledgeable in their area. For instance, a jewelry collection that has grown from its original value when first acquired, may have doubled in value over the decades. Select an appraiser who is certified by an accredited organization.

Who wants what? You may be emotionally vested in an heirloom that came to you from your great grandfather, but your children may be more attached to the family home. If more than one sibling wants an asset, you’ll need to figure out a way to share it. If one child insists on keeping the family vacation home, for instance, but the other two aren’t interested, you might need to set up an equitable buyout solution.

If the asset is artwork or a collectible, remember that these items are often cyclical in popularity and so is their value. One individual who inherited a collection from his parents, knew that the artist was a family friend, but had no idea of the value, if any, of the collection. His timing was sheer luck—he wanted to sell, exactly when this artist was popular. Three years later, he may not have been so well rewarded.

Can it be passed on to the next generation? An estate planning attorney will be able to assist you with the best way to pass on illiquid assets. They may be put into a trust, a family partnership or an LLC, and the transfer of ownership can be done in a tax-efficient way. If you really don’t think your heirs appreciate the asset, then you can sell it for a fair price, pay the necessary taxes and gift the tax.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include some “hard” assets.

Reference: Kiplinger (Nov. 5, 2018) “Estate Planning Answers for ‘Hard’ Assets Like Art, Heirlooms”

Retirement Comes before School Loans

There are options to borrow for college but few, if any, to borrow for retirement.

School loan? Yes! Retirement loans? No! Since that is the way of the world, it is most likely best to focus on saving for retirement and keeping those savings in your retirement account, according to the Star Tribune in “Do your kids a favor: Pick retirement savings over tuition.”

The number of people who are using retirement savings as a backup for paying for education are on the decline. The 2016 edition of that survey is down from 39%. It’s good that more parents are thinking twice about making this financial mistake.

Paying for college expenses from a tax-advantaged employer retirement account, like a 401(k), can become very costly. Here’s why:

• How does a 10% tax penalty on early withdrawals, if you’re under 59½ sound? Not good.
• The money you withdraw is taxed as income.
• You’re losing the tax-free growth of your savings. Remember, these retirement accounts grow tax-free.
• You lose the benefit of compounding, so your growth potential is losing ground.

The “least worst” option, say experts, is to fund a Roth IRA. Unlike qualifying contributions to a 401(k) or traditional IRA, the Roth IRA contributions are not tax-exempt. As a result, there are fewer restrictions on early withdrawals.

However, you’re still losing out in many ways. This includes when you get further along into your retirement years and you don’t have enough money to support yourself. Take a very long-term perspective on what will happen in the future.

Parents must understand that while it’s nice that they want to sacrifice to help their children through college, they may actually be generating far more stress for their children when the kids have to help Mom and Dad during retirement years. That’s likely when their kids are having children of their own, paying a mortgage and saving for their own children’s college expenses.

One last major consideration is: college aid. Your withdrawals from retirement funds will be counted by financial aid offices as ordinary income. If it pushes your total wages up too high, your college-bound student may not qualify for assistance.

Your best bet is to continue to fund retirement accounts because they are not taken into consideration, if your student qualifies for financial aid.

Reference: Star Tribune (Nov. 6, 2018) “Do your kids a favor: Pick retirement savings over tuition”

A Checklist Can Make Estate Planning Easier

Beneficiary designations are one of the keys to making estate planning easier.

Estate planning can become easier, if you follow a checklist, plan carefully and focus on beneficiary designations, according to InsuranceNewsNet.com in “A simple way to simplify estate planning.”

Beneficiary designations are primarily used on the following types of accounts:

• Employer-sponsored retirement plans, like 401(k)s
• IRAs
• Life insurance policies
• Annuities
• Transfer on death investment accounts
• Pay-on-death bank accounts
• Stock options
• Executive deferred compensation plans

Making sure to keep track of the person who has been named the beneficiary and keeping that information up to date is extremely important. It’s not always done correctly. The consequences of having the wrong person named on the asset can be infuriating and, unfortunately, permanent.

The importance of the beneficiary designation means you’ll want to:

• Remember who you have named a beneficiary of what account. People usually name their spouse as a primary and a child as a contingent. If you only have a primary, consider a charity that has meaning to you as the contingent beneficiary.
• Update your beneficiary designations, as life events occur. That includes births, deaths, marriages, divorces, etc.
• Read the instructions on the beneficiary designation. Not all forms are alike.
• Don’t name your estate as a beneficiary.
• Understand the tax implications of naming the beneficiaries. Not every asset has the same tax treatment.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and aligns your estate plan and beneficiary designations.

Reference: InsuranceNewsNet.com (Nov. 2, 2018) “A simple way to simplify estate planning”

Your Estate Plan Should Include the Right Documents

Your estate plan can be flexible but don’t leave out the key documents.

There are some important documents that should always be in your estate plan to protect your family. However, some people still leave them out, according to Consumer Reports in “8 Essential Steps for Estate Planning.”

A survey from Caring.com showed that as many as 60% of adults don’t have estate planning documents. When they asked families with young children, fewer than one in ten have even designated a guardian to take care of their children, if both parents should die.

What happens when there’s no planning in place? Even the simplest things become more complicated, and complicated things become financial and legal nightmares. When there’s an emergency and decisions need to be made, the entire family is subjected to more stress and costs than would otherwise be necessary.

Here are the eight steps you need to take, right now, to protect your family:

1. Get the professional help you need. The change to the tax law may or may not impact your family and your estate plan, but you won’t know until you sit down with an estate planning attorney. Trying to do this online, may seem like a simpler way, but you will not have the same peace of mind as when you sit down with an experienced attorney—and one who knows your state’s laws.
2. Create a will. This is a legal document that explains how you want your assets to be distributed after you die. It names an executor to carry out your instructions. If you have minor children, this is an especially important document, since it is used to name their guardian. If you have no will when you die (called dying “intestate”), then the laws of your state determine how your assets are distributed and who rears your children. Depending on where you live, your spouse might not automatically inherit everything.
3. Discuss whether you need a Revocable Living Trust. In most states, when you pass away, your estate goes through a process called “probate.” The courts basically review your estate plan and determine whether everything looks right. The problem is that your will becomes a public document—and so does information about your assets. Some people prefer to keep their lives private by transferring assets to a revocable living trust, which distributes assets according to your instructions at your death. Titles to the assets must be changed so they are “owned” by the trust. This is known as “funding” the trust. You still retain complete control of your assets, since you are the trustee. However, if you fail to retitle assets, the estate goes through probate. You will also still need a will to protect your minor children.
4. Review your beneficiaries. Whether you remember it or not, when you open many different kinds of accounts—banking, investment—you assign a beneficiary to receive the assets upon your death. Your will does not override the beneficiary designation. Therefore, if you haven’t changed your life insurance beneficiary, for instance, and your ex-wife is still named on the document, she’ll get the entire proceeds of the life insurance policy when you die. This is a very important task.
5. Have a Durable Power of Attorney (DPOA) created. This is something that protects you, while you are living. If you should become incapacitated, having a durable power of attorney in place will allow that person to manage your financial affairs. Make sure the institutions that have your accounts accept your attorneys’ POA form; you may need to get the one that the institution uses.
6. Don’t forget the Advance Directive. This is also known as a Living Will. It explains your wishes for medical procedures if you are unable to communicate and explains what you want for end-of-life care. Make sure that your family members know that you have such a document and keep it accessible in case of an emergency.
7. Pick a Healthcare Proxy. The Healthcare Proxy, also known as the Durable Power of Attorney for Healthcare, names someone to convey your healthcare wishes. It should include a HIPAA release clause. This allows medical personnel to release your medical records and speak with the named person about your care.
8. Get it all organized. Think of this step as creating a user’s manual for yourself. All these plans won’t do any good, unless your loved ones know they exist and know where to locate them. Don’t put your estate planning documents and records in a bank safe deposit box, in case it is sealed on death. Your attorney will likely have an original, and you should have your original in a fire-proof safe in a secure location in your home.

Reference: Consumer Reports (Oct. 24, 2018) “8 Essential Steps for Estate Planning”

Estate Planning Can Be Emotional but It Is Necessary

T he decision on your assets is better made by you than state law.

The key to estate planning is it is better to plan your own and have a say in where your assets end up, rather than let the state make the decisions, according to Kiplinger in “Estate Planning: A Family Affair.”

If it helps to get you to move on this, consider that if you don’t have a will, the decisions about what will happen to your property–and if you are a parent of minor children, what will happen to your kids—will be decided by the laws of your state and the courts. That should be enough to get you to overcome the fear of mortality, that often keeps people from moving their estate planning forward.

Don’t have a will yet? You need to do that right away. If you have an estate plan, but haven’t reviewed it in a while, and your life has become more complex, it’s time for a review. By the way, just because you review your plan does not necessitate an overhaul. However, laws and lives do change and the same goals your will and estate plan addressed four years or 14 years ago, may not be the same as they are now.

Every five or six years or whenever there is a major change in your life, such as a divorce, inheritance, financial loss, birth or a change in estate laws, it’s time for a review. Reviews should take place more often, when you are in your 50s or 60s. At that time, your assets may have grown, your children may have children of their own and your goals may have changed.

Your focus may have switched from protecting your children in the event of a premature death of a parent, to transferring wealth from one generation to the next.

The large changes to the tax law may mean that you no longer need some of the tax planning strategies you put into place prior to 2017. Several states have made major changes to their own estate tax laws. New Jersey eliminated its estate tax in 2018 and New York boosted its state estate tax exemption to $5.25 million that same year. Delaware eliminated its estate tax at the end of 2017.

One couple looked at their estate plans from almost 20 years ago, before two of their children were even born. They realized that the plan was out of date, their estate had become much larger, more complicated and they wanted to build in significant charitable giving.

The first task: updating their wills, health care proxies and advance directives for end-of-life care. They created a trust that will donate 11% of their estate to a charity that matters to them. Trusts were set up that will pay out a certain percentage to their children at ages 30, 35 and 40, rather than giving their kids lump sums. They set up a plan whereby a trustee has the discretionary ability to make payments for education, health care, emergencies and even a down payment on a house, which will be subtracted from the child’s future distribution.

An additional benefit: Because of their use of trusts, their distribution of assets will be private.

Trusts are considered the “work horses” of estate planning, because they can be used to accomplish so many different tasks within an estate. However, it is important to note that there is no one-size-fits-all trust. An estate planning attorney should review your situation and then will be able to recommend what trusts, if any, will be most useful for you and your family.

Don’t forget to have the talk. Sit down with your family members and tell them, to the extent you are comfortable, what you have decided. You don’t have to discuss numbers. However, your family will appreciate being part of the conversation, so they understand the reasoning behind your decisions.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances.

Reference: Kiplinger (Nov. 1, 2018) “Estate Planning: A Family Affair”

Next Year Your Retirement? Get Started Now!

An important consideration when looking toward retirement, is the less debt the better.

It is always a good idea to be planning for your retirement but if you feel that 2019 is the year for you than it would be best to get moving on it now, according to CNBC in “If you’re planning to retire in 2019, here’s how to make sure you’re prepared.”

The main thing is if you are planning retirement, working while retired or still thinking about it, then you want to begin the preparation as soon as possible and right now would be a really good time.

While we hope your retirement was planned, many of the people who retire—60%—do so because of health issues or because they were laid off and could not get another job. Others have continued to work long after they expected to, sometimes because they don’t see a reason to not keep working.

Whatever category you fall into, your first look should be at your finances.

Do you know what your expenses are? You can’t know how much you’ll need for retirement, unless you know what you are spending right now. Maybe you won’t be buying expensive suits for a sales career but you’re still going to need to buy clothing. If you are like most retirees, you’ll want to fill your free time with all of the recreational pursuits you couldn’t do when you were working. That may include travelling, entertainment, sports and other activities—all of which cost money.

Pay off any debt you can. The less debt, the better.

Healthcare is one of the most overlooked costs for retirees. Once you reach 65, you’re eligible for Medicare. If you retire at or past that age, the program is available to you. However, it does not cover everything. The single most expensive item not covered: long-term care. Dental, vision and hearing care are not covered either.

You will also need a Social Security strategy. You can file for benefits any time after age 62, but you’ll increase your benefits by some 6% to 8% every year if you delay filing up to age 70. We don’t see those kinds of returns too often. If you work part time, you’ll need to find out how that income impacts your monthly benefits.

Even though you’re retired, you have to pay taxes. Your taxes will depend on what kind of retirement accounts you have: traditional IRAs, 401(k)s, Roth IRAs, etc. Not all sources of income are taxed the same way.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances. If you already have an estate plan, it would be wise to consider taking a fresh look at it, because life changes can also change your circumstances and intentions.

Reference: CNBC (Nov. 4, 2018) “If you’re planning to retire in 2019, here’s how to make sure you’re prepared.”

Does POA Have Right to Delegate Authority?

A trusted person, such as a family member or a friend, is a good place to start looking, when considering choices for a power of attorney.

The key to naming someone as your power of attorney, is realizing it is a significant decision where you have approved someone to act in your behalf, if you are unable to do so, but things can go wrong, according to My San Antonio Life in “Substitution of Agent and Delegation of Authority.”

Where can things go wrong? Well, for example, a man’s father signed a durable power of attorney a decade ago, naming his son as his agent in preparation for the possibility that the time would come when he could no longer make decisions on his own. He is now living in a nursing home and is not always clear in his mind. His son wishes to sell his father’s car. However, the car dealership is not accepting the power of attorney.

Here’s the twist: the dealership wants the son to assign one of its employees as the father’s agent, so they can sign papers for the elderly man relating to the sale of the car.

That’s a big red flag. First, the son is unlikely to have the right to assign a different person to have the power to represent his father.

The statute behind the durable power of authority does not authorize delegation of authority.

The authority granted to the son is personal—meaning it was intended for his own personal judgment and discretion be used to represent his father, not someone else.

The legal concept of substitution is not used very often. In Texas, a court case dates back to 1866, Smith v. Sublett, that holds that the “the doctrine in relation to substitution is, that the authority is exclusively personal, unless from the express language used, or from their presumption growing out of the particular transactions, or of the usage of trade, a broader power was to be conferred upon the agent.”

In other words, unless the language in the power of attorney said the person could substitute someone else in a specific transaction, the power rests solely with the person named.

There was a change to the law in Texas in 2017, and it introduced two important concepts.

The third party must either accept the durable power of attorney or have valid grounds for refusing it, and the person naming the agent (in this case, the father) must have authorized the agent (the son) to delegate various actions to others.

An estate planning attorney can advise you on naming a power of attorney and would be a good place to turn, if the POA has questions, such as the sale of a car.

Reference: My San Antonio Life (Oct. 30, 2018) “Substitution of Agent and Delegation of Authority.”