Moynihan Lyons PC

Naming Heir to Estate? Consider a Backup

  You may not like considering a back up to your plans for your estate, but it is a good idea.

When you name a heir to your estate, you are most likely not thinking of outliving them. However, it might be a good idea to have a backup plan because no one knows what the future will bring, according to the Carroll County Times in “Legal Matters: If predeceased by an heir in a valid will, what happens with that inheritance?”

It is a good idea to review your will with your estate planning attorney to see if your will has already made a provision for this event. Your will should be reviewed from time to time anyway, especially when there has been a major tax law change. If there is nothing in your will currently addressing this situation, you can change the will to what you would want to happen.

If you don’t make this change and a child predeceases you, the laws of your state will govern what happens.

In Maryland, the law of the Estates and Trusts Code says that your child’s estate will still receive the share you had designed in your will, regardless of whether they died before you. Therefore, whoever is an heir to your child’s estate, will receive what your deceased child was awarded in your will.

The law also states that the legatee—your deceased child—must be identified in the will to receive whatever share of your estate you directed. If you don’t want to leave a portion of your estate to the heirs of your deceased son or daughter, you must specify exactly how you want your estate to be divided, if one of your children should die before you do.

Is it worth getting into these specifics? Yes. For one example, if you’ve had a bitter feud with a son-in-law for decades and you don’t want to leave him anything, then you’ll want to make sure to specify that in your will.

Each state has its own laws governing what occurs when an heir predeceases the parent. For example, in the past in Maryland, a legatee’s right to receive a share of the estate did not enjoy any protection, if he died before the author of the will. If the will did not contain specific directions on how that share should be distributed if the legatee died before the author of the will, the share simply remained in the estate, and the legatee’s heirs did not receive any assets.

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

Reference: Carroll County Times (Dec. 21, 2018) “Legal Matters: If predeceased by an heir in a valid will, what happens with that inheritance?”

Don’t Avoid a Conversation about Growing Older

The talk may be difficult but may turn out to be necessary.

It might not be the easiest conversation you have ever had. However, it is a good idea to have a talk with your loved ones about what steps to take as you go through the aging process, according to The Des Moines Register in “In 2019, resolve to have a difficult conversation.”

The person who is contemplating needing help, may want to start the conversation but the person who may be called on to help may find it too difficult to consider. Who wants to think about their parents getting frail and needing help going to the bathroom? No one.

The person who is starting to feel the impact of aging may already be aware of some limitations. However, talking with their children or potential caregivers, may change the conversation from “someday” to “soon.” The loss of independence is one of the big milestones, just as gaining independence is a milestone earlier in life. That’s a hard thing to accept for both sides.

Those who have lived through this process of needing to become caregivers, say that it would have been easier, if they would have known what their loved ones wanted. So, would have been knowing what kind of help their loved ones could afford. It’s better to have time to research available resources in advance, rather than operating in crisis mode.

This is what your conversations need to address:

• Medications, physical health, emotional well-being and health care providers
• Their wishes, if their health declines slowly or rapidly. Do they want to stay at home? Who would they want to help with daily care?
• Finances: Can they afford to pay for care at home? Has any Medicaid planning been done? What government programs are they eligible for? Do they have a CPA or financial advisor?
• Estate plan: Where is their Last Will and Testament? Is there a Power of Attorney, Living Will or Medical Directive in place? Who is their estate planning attorney?
• Documents, including birth certificates, Social Security, insurance cards, safe deposit box keys, computer passwords, etc.

Seven out of 10 people over age 65 will need help from others at some point. Most will need it for at least three years, so it might be wise to have the conversation before a difficult situation arises.

Reference: The Des Moines Register (Dec. 19, 2018) “In 2019, resolve to have a difficult conversation”

A Good Estate Plan Can Provide Security and Family Peace

Estate problems can sometimes lead to a fractured family.

Family members can end up feeling mistreated by the distribution of an estate. However, a good estate plan can help prevent those hard feelings from developing, according to the Observer-Reporter in “Improper estate planning can lead to familial conflict.”

“Dying intestate” is the term used to describe the legal status of someone who has died without a will. The laws of your state will then dictate what happens to your assets. Most of your tangible possessions will be distributed following probate. If your estate is complex, for example, and you own property in more than one state, the process will take a long time and the costs will be high. A will—and an estate plan that is updated regularly—can prevent this and many other scenarios.

Some of your assets do not pass to heirs through a will. This includes retirement accounts, life insurance policies and annuities. All accounts that have named beneficiaries go directly to the people who are named. If they predecease you, then the contingent beneficiary receives the asset.

Reviewing beneficiary designations is as important as reviewing your entire estate plan. If you name only your son as the beneficiary for your insurance policy, then later welcome a daughter into your family by birth or adoption, you’ll want to add her as a named beneficiary as well. Otherwise, when you die, only your son will receive the proceeds.

Anytime a life event occurs—births, deaths, divorces, marriages—is the right time to review your beneficiary designations.

You can make these changes when you are living. When you die, the designation is irrevocable.

Your estate plan also needs to include two different types of Power of Attorney (POA). The first is to make financial decisions if you are incapacitated, and the second is to make health decisions.

The person you give the POA to has authority to make these decisions for you, only while you are alive. The POA terminates upon your death.

Most people name their spouse for their healthcare POA, but if your spouse passes and you have adult children, one of them should be named your healthcare POA. Regulations about healthcare have put medical professionals into a difficult situation when they want to have the family involved but are legally unable to share information.  

Here’s a celebrity story that serves as a perfect example. A famous father made his third wife his executor and gave her total control over his business, despite the fact that his son was equally famous and the top executive in that business, as well as its public face. The son was baffled when he learned that the third wife now controlled the business, including the rights to his own name. When the father died, a long, expensive and unpleasant estate battle began. The son was Dale Earnhardt Jr.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and can help your family to remain together.

Reference: Observer-Reporter (Dec. 12, 2018) “Improper estate planning can lead to familial conflict”

Don’t Let an Inherited IRA End Up Being Handled Poorly

The IRA may be liquidated quickly.

An inherited IRA can provide a lot of security. However, it can also become a problem, if it is not handled correctly, according to CNBC in “Leaving an IRA to a loved one? How to avoid a tax bomb.” You can structure the distribution, so your children or grandchildren receive the best benefits.

Naming a trust as an IRA beneficiary is a good way to protect large IRAs, since it provides some means of control. By naming a trust, you can protect heirs who are minors, vulnerable to creditors, not able to handle large sums of money or disabled. Trusts only need $12,750 of taxable income in 2019 to be subject to the top tax rate of 37%.

If you don’t structure the trust right, you could accelerate the liquidation of the IRA at warp speed.

Most people think of their spouse, when it comes to naming a beneficiary for an IRA. Unless your spouse needs the funds, it’s best to name the next generation. What are the pitfalls? Not all IRA custodians allow you to list a trust on the beneficiary form. The tax code has very specific conditions, when trusts are the beneficiaries of retirement accounts. If you fail to follow the rules, your heirs could face huge tax bills. For a trust to be viable as a designated beneficiary, it must meet a four-step test:

It must be valid under your state’s laws.

It must be an irrevocable trust, or one that will become irrevocable upon your death.

Beneficiaries must be identifiable from the trust document.

The IRA custodian or trust administrator must have received a copy of the trust by October 31 of the year after the death of the IRA’s owner.

The beneficiaries must be people, not charities and not your estate. If your beneficiaries are not people, then your IRA may not have a designated beneficiary. In that case, your heirs can’t stretch the IRA by taking required minimum distribution,s based on the longer life expectancy of a child or a grandchild.

Worse—if your trust fails to meet the test, it is subject to the same rules as if there was no designated beneficiary at all. That means it’ll be depleted faster than you may have wished. If you die before you start taking RMDs (70½) then the IRA must be distributed within five years after death. If you die after you start taking RMDs, then distributions pay out over what would have been your life expectancy.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and can include a trust that works best for you.

Reference: CNBC (Dec. 9, 2018) “Leaving an IRA to a loved one? How to avoid a tax bomb”

Power of Attorney a Permanent Decision?

The position of POA can be revoked.

It would be wise for everyone to have thought things through carefully and chosen a Power of Attorney (POA). It is important to remember that the decision can be changed in the future, according to nwi.com in “Estate Planning: Revoking a power of attorney.”

There are three basic ways that a Power of Attorney can be terminated and the first is the date and time that it specifies, if it contains such language. POAs rarely have termination dates, because they are intended to be “durable” over an extended period of time. However, in certain circumstances, they can have a termination date.

The second way a POA terminates, is at the death of the principal. Once the person in the POA dies, the attorney-in-fact authority ends, with the possible exceptions of making anatomical gifts on behalf of the principal, or the authority to make final arrangements or the authority to request autopsy. Except for these unusual exceptions, the POA ends when the principal dies.

The third way a POA terminates, is when the principal executes a written revocation identifying the POA. For it to be effective, the attorney-in-fact has to receive actual knowledge of the revocation. Until they receive that actual knowledge, the POA revocation is not effective.

To ensure that this is done properly, it is recommended that an estate planning attorney be involved, just to make sure there are no mistakes. A letter informing the POA of the revocation must be sent via certified mail, return receipt requested, using U.S. first-class mail. An email and a text follow up could take place, and a phone call would be a good idea.

To make sure there are no deliberate misunderstandings, send a copy of the revocation to institutions that would be potentially targeted by the now former POA—if that is a concern. This includes the bank, financial advisor or any institution that is of particular concern. You want to make sure that these institutions are notified that the POA is no longer in effect.

If the person refuses to sign the certified letter, you will need to prove that notice was given and that the person refused to sign for it. Refusing mail is not a persuasive argument to prove lack of notice.

Once the person has been notified of the revocation, it is a violation of law to exercise any authority under it, and the person has liability, if they do so.

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

Reference: nwi.com (Dec. 9, 2018) “Estate Planning: Revoking a power of attorney”

Guardianships, Conservatorships? Take a Look at All the Options

Some of the options are less intrusive than a guardianship or a conservatorship.

Sometimes guardianships and conservatorships are necessary, when some members of a family believe a loved one is becoming mentally or physically incapacitated. However, there are other options, according to On Common Ground News in the article “Alternatives to guardianship and conservatorship.”

 What is the difference between the two? A guardianship takes away a person’s right to consent to medical treatment, establish a residence, sign a contract or even to marry. A conservatorship lets the appointee manage their ward’s finances and assets, buy and sell businesses and enter into commercial transactions.

One is a petition for a temporary medical consent guardian. Based on the facts in the petition, the court can determine whether there is cause, to believe the proposed medical consent ward needs a temporary medical consent guardian immediately. This occurs after all the preliminary steps have been taken, which includes a hearing. That temporary guardianship terminates, when either the court removes it, if a permanent guardian is appointed, when the hospitalization or stay in another healthcare facility ends or sixty days after the appointment is made.

An alternative option to conservatorship is the Durable Power of Attorney (DPA), which permits a competent individual to name another person as their legal representative regarding finances and other matters. There can be specific instructions, and this also can include an agent who is named to make health care decisions. A DPA is broader in power than a living will and applies any time the individual becomes incapable of either making or communicating health care decisions on their own behalf.

If you are a resident of Georgia, the state’s Advance Directives for Health Care combines the living will and health care power of attorney into one document. This gives instructions regarding how the person wants medical decisions to be made. Note that every state has its own laws and processes for these documents.

A Special Needs Trust (SNT) is a trust that can be established for a person with a disability and the assets can be used in specific ways. This kind of trust permits a person with a disability to have access to funds that might make them ineligible for certain types of programs funded by the state or federal government. The SNT allows for much more flexibility than a conservatorship and should be considered for a special needs individual first.

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

Reference: On Common Ground News (Nov. 29, 2018) “Alternatives to guardianship and conservatorship”

When Should You Consider Incompetency?

The path from competent to incompetent can be slow and difficult to analyze.

As your parents age, there may be times that you question if they are still competent, because you wonder about some decision, such as money use or decisions about friends. Bringing up that question can be a difficult challenge, as Forbes discusses in the article in “Aging Parents at The In-Between Stage: Partially Competent and Partially Not.”

In this example, the aging parent presents well to the outside world, socializes well and seems to have all his faculties. The problem is, the children who know him see changes and worry about what might happen in the near future. Their father had always handled his own finances, and now he’s giving money away to anyone who asks for it. He is going through his accounts at a surprising rate, unlike his lifetime behavior of being an extremely careful money manager.

The first step for this family: a meeting with all the adult children and the estate attorney. They start with a review of the legal documents that had been prepared previously by the attorney. A Durable Power of Attorney had been put in place, when the oldest child had been appointed as his agent, with unrestricted powers. She had the legal authority to take over the management of her father’s accounts.

By using the Durable Power of Attorney, she was able to gain online access to all her father’s accounts to see what was actually going on. It was worse than the family expected. He had given money away to charities and to strangers. Armed with this information, she had to speak with her father. He bristled, but she persisted, knowing that she had the legal right to do this and the support of her siblings.

She suggested that she visit him to help out. It took several weeks of suggesting it, but at last he relented. On his desk, she found collection notices and a cancellation notice from his car insurance company for failure to make payments. By presenting the prospect of not being able to drive because of a lack of insurance, she got his attention to the seriousness of the matter.

Next, his assets were moved out of accounts where he had access. He continued to give away his money, but she controlled how much damage he could do.

This family was able to protect their father from a free-fall into poverty and dependency, because proper estate planning had been done well in advance.

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

Reference: Forbes (Dec. 3, 2018) “Aging Parents at The In-Between Stage: Partially Competent and Partially Not”

Estate Plan Isn’t Finished until the Very End

Put away the estate plan when it is completed. However, take a good look at it frequently.

There are many reasons why an estate plan needs changing, because your life changes as do your goals, according to the Times Herald-Record in “5 steps to securing your elder estate plan.”

What might be some of those changes? It could include your divorce, your marriage or even the marriage or divorce of your children. It can also be that your financial situation has changed, and you need to make changes.

The process of review may seem challenging but here are some steps to consider:

Step One: gather up all your documents, which may take some time. This includes your will, powers of attorney, health care proxies, living wills, any trusts and any other documents.

For clarity, here are some definitions. A will is the document that states where you want your assets to go when you die. It is reviewed by the court in a proceeding called probate, but only after your death. Assets in a living trust (or other types of trusts, depending on your situation) do not go through this process. Creating a trust results in a legal entity that owns the assets it contains. The trust assets go to beneficiaries upon death, as directed by you to the trustee. In many instances, trusts save time, money and avoid litigation over inheritances.

Powers of attorney name the person you appoint to make any legal, business or financial decisions for you, should you become incapacitated. A health-care proxy names the person to make your medical decisions, if you are unable to do so. Living wills are used to express your wishes for end-of-life care.

Step Two: review your documents. Make sure that everything is signed. You would be surprised how many important documents aren’t signed. Read the documents to see who was named as the executor of your will and who is the trustee of your trusts. Are those people still able to undertake these responsibilities? Do you still want them making decisions for you?

Step Three: make a list of all of your assets. Note how they are titled—what names are on the accounts—and what are the values of each. Include retirement accounts like IRAs, 401(k)s, insurance policies and annuities and check to see if you named a beneficiary. Do you still want that person to be the recipient of the asset? Make sure that you have also named a contingency beneficiary.

Step Four: what information would your loved ones need should you become unable to communicate? They’ll need information about your medications, the name and contact information for your primary care physician, your estate planning attorney, your CPA and your financial advisor. You may want to arrange for a “family meeting” with your healthcare team and your legal and financial team (two separate meetings), so everyone in your family is familiar with your professional teams. A list of where your documents can be found and who you want to receive personal items, may also be helpful.

Step Five: don’t forget to tell your trusted family members where your important information is located and what lists exist. You don’t have to review everything with them, but they should know where things are.

Reference: Times Herald-Record (Dec. 1, 2018) “5 steps to securing your elder estate plan”

Large Transfer of U.S. Farmland on the Horizon

  It is not just the Baby Boomers who will pass on wealth to the next generation. Farmers and ranchers are in a similar situation.

As the present ownership ages, approximately 10% of the 100 millions acres of agriculture land in the U.S. will change hands, as the next generation obtains the property from their parents, according to Agweek in “Ranching and retirement: Succession planning becomes vital.”

According to the article, the average age of U.S. farmers and ranchers is 58.3 years old, while 30 years ago the average age was 50.5 years old. Agriculture is in a transition phase and families need to focus on succession planning.

Farmers and ranchers, referred to as “producers,” often say that they’ll stop farming, when there’s a funeral date on the calendar. That attitude may be changing, as second, third, and even fourth generation farms are evolving. There are new leaders for the next generation who have new ideas about how farms can be run. Many older producers are getting ready to pass the reins along and retire.

The focus on succession planning used to leave the older producers and their retirement plan as an add-on, something that got addressed, when the division of the farm and assets was completed. In many cases, it got left out altogether. However, questions about how they will live in retirement are now coming to the forefront.

Producers who begin planning on succession, understand that their plan must include their retirement and how they’ll support themselves in what could be a two or three decade-long retirement. How can the family continue to operate the farm, grow it to support the generations, but also provide the oldest members of the family with a comfortable retirement?

Cash flow for retirement is the first focus. The families need to determine how they can generate passive income. Some families put the operation into an LLC or general partnership, so that business assets and income flows through that entity. This also creates a smoother path to ownership for the next generation. The land can’t be rented to the farmer directly, but it can be rented to the LLC, which generates cash flow. It is passive income, so it won’t make the farmer ineligible for Social Security and is not subject to the self-employment tax.

Families need to determine the true value of the farm and if it can produce income for another family, while supporting the older generation. This takes planning, and considerable discussion. The family must also work through what their strategy and vision is for the land and the families.

Farm and ranch families face some challenges. Once the family has a clear vision of the future, they should meet with an estate planning attorney, who can advise them in creating an estate plan that fits their unique circumstances.

Reference: Agweek (Dec. 3, 208) “Ranching and retirement: Succession planning becomes vital”

Your Will Is Not the Only ‘Must-Have’ in Estate Planning

A will is a good place to start. However, it is best to create a complete protection.

So, you have a will. Is that the end of your estate planning? Not by a long shot because a will is only one tool that is needed to create an estate plan that protects you and your loved ones, according to the Augusta Free Press in “5 estate planning must-haves.”

1—Wills and Trusts. Your will directs the distribution of your assets. Without a will, the court will determine who gets your possessions, real property and any other assets, following the laws of your state. Depending on your situation, you and your heirs may benefit from setting up trusts to protect your assets from the probate process, maintain your privacy and possibly avoid some taxes. Keep in mind that if the will or trust is not created properly or doesn’t follow your state’s laws, it could be challenged or deemed invalid. Work with an experienced estate planning attorney to protect your family.

2—Beneficiaries. Many of your accounts—bank accounts, investment accounts, retirement accounts, insurance policies—may already have a named beneficiary, who will inherit the account upon your death. However, if you have not updated those names recently, you may find the wrong person inheriting your assets. Once that occurs, there is no legal means of transferring the assets to another person. If there is no contingent beneficiary, the court may make that decision.

3—Letter of Intent. It must be said that this is not a legally binding document. However, the information it could provide to your loved ones might be very helpful as they move through the process of settling your estate. It can explain why you structured your asset distribution the way you did, why you would want a given family heirloom passed to a specific family member, or what you would like to have happen at your funeral. If you are not able to discuss these matters in a face-to-face conversation with your loved ones, this is a useful alternative.

4—Power of Attorney. Planning for incapacity is an important part of estate planning. If you become incapacitated, you’ll need to have already given someone the power to manage your financial affairs. If you do not have a power of attorney, your family will need to turn to the court system, which will create delays and added stress. You’ll also want to have a healthcare power of attorney in place.

5—Legal Advice. Estate planning laws are governed by your state of residence. Your best option is to make an appointment with a local estate planning attorney to learn whether there are any other documents and plans you need to put into place. Some law firms provide a means of documenting assets to ensure that, at the time of death, your family is not embarking on a scavenger hunt to identify assets. In certain states, you can assign a funeral representative to make sure your funeral, burial or cremation and memorial service wishes are carried out. Your attorney will know what you and your family need.

Reference: Augusta Free Press (Nov. 27, 2018) “5 estate planning must-haves”