Can I Keep a Loved One’s Inheritance From Their Spouse?

A recent nj.com article asks, “How do I protect my niece’s inheritance from her husband?” The article asks about a scenario where someone plans to leave most of her estate to her niece but wants to keep the niece’s estranged husband from getting his hands on the money. Although the default laws may vary state by state, no matter where she resides, she must be proactive and intentional about her gifting to make sure the funds go where she intends them to go.

First, there are tax consequences to consider and keep in mind. In states like New Jersey, the money may be subject to the New Jersey inheritance tax, which is assessed if the decedent is a New Jersey resident, regardless of where the beneficiary resides. The tax is levied based on the relationship of the deceased to the beneficiary. In this case, the niece’s inheritance would be subject to an inheritance tax of 15 to 16%.

Next, the aunt needs to decide the manner in which she wants to leave the assets. One option is for the aunt to leave the assets to the niece outright.

The laws in many states, like Missouri, South Carolina, and New Jersey, say that unless the parties otherwise agree, upon divorce there will be equitable distribution of their marital property. Marital property generally doesn’t include the property received by gift or inheritance, as long as that person didn’t commingle it (in other words, mix it up and combine it) with the marital property.

Because there will be no administrative costs, the most economical way to transfer the property to the niece is for the aunt to leave it to the niece in her will, with instructions for her to keep it separate and apart from her marital property. However, this may not be the best way to leave property to the niece, because once it is given to the niece, it is out of the aunt’s control and it may be mixed up with the marital property, in which case the niece’s husband may be able to have access to it.

If, however, the aunt leaves the inheritance in trust, she can make certain the property isn’t commingled with marital assets by drafting a trust that will keep it separate from the rest of the niece’s property. Further, if the trust is properly prepared by an experienced estate planning attorney, the income from the trust will likely not be used to decrease any spousal support to which the niece may otherwise be entitled from her spouse, in the event that they divorce down the road. The trust can also protect against other events, by instructing to whom funds should be paid upon the premature death of the niece. For instance, the trust can state specifically that the funds should then be held in trust for the niece’s children. That would further prevent her estranged husband from ever being able to make a claim against the funds.

If you are concerned about leaving property to someone you love, but that person is married to someone that you don’t, a trust can help you make sure that the inheritance goes to the actual person you want to receive it. Talk to an estate planning attorney who can provide you with some options.

Reference: nj.com (August 21, 2019) “How do I protect my niece’s inheritance from her husband?”

Spare Family Fights: Make a Will

Thinking about your own mortality can be something frightening that many people would rather not do, which makes something like creating a will a difficult thing to do. But if for no other reason than to avoid fracturing the family, everyone needs a will. Otherwise, the family might end up spending all their time fighting over who gets Aunt Nina’s sideboard or Uncle Bruno’s collection of baseball cards.

But whether we want to think about it or not, having an estate plan in place – and that includes a will – is a gift of peace we can give to our loved ones and ourselves. It’s peace of mind that our family is being told exactly what we want them to do after we pass, and peace of mind to ourselves that we’ve put our plan into place.

A recent article from Fatherly, “How to Write a Will: 8 Tips Every Parent Needs to Know,” starts with the basic premise that a will prevents family squabbles. Families fight when they don’t have a clear direction of what the deceased wanted. That’s just one reason to have a last will and testament. However, there are other reasons.

A will is one way to ensure that your property is eventually distributed as you wish. Without a will, your estate is administered as an “intestate estate,” which means the state’s laws will determine who receives your assets after you pass. In some states, that means your spouse gets half of your estate, with your parents getting the rest (if there are no children). If the parents have died and there are no children, the rest of the estate may go to your siblings.

Most people—some studies say as many as 60% of Americans—don’t have a will. It’s hard to say why they don’t: maybe they don’t want to accept the possibility of their own death, maybe they don’t understand what will happen when they die without a will, or perhaps they want to wreak havoc on their families. However, having a will is essential.

Don’t delay. If you don’t have a will in place, stop putting it off. Creating a will gives you the opportunity to effectuate your wishes, not that of the state. What if you don’t want your long-lost brother showing up just to receive a portion of your estate? If you don’t want someone to receive any of your assets, you need to have a will. Otherwise, there’s no way to know how the distribution will play out.

Not only should you think about who will get your assets, you should also be thoughtful about how you distribute your assets. If you have children and your will gives them your assets when they reach 18, will they be prepared to manage without blowing their inheritance in a month? A qualified estate planning attorney will be able to help you create a plan for distributing your wealth to children or other heirs in a way that will match their financial abilities. You may want to create a trust that will hold the assets, with a trustee who can ensure that assets are distributed in a wise and timely manner.

Every family is different, and today’s families, which often include children from prior marriages, require special planning. If you have remarried and have not legally adopted your spouse’s children from a previous marriage, they are not your legal heirs. If you want to make sure they inherit money or a specific asset, you’ll need to state that clearly in your will. If you are not married to your partner, they will not have any rights to your estate, unless a will is created that directs the assets you want them to inherit.

The will can also provide reassurance and protection in case you need to appoint a guardian for your children. Because of this, parents of young children absolutely need a will. If you do not and both parents pass away at the same time, their future will be determined by the court. They could end up in foster care while awaiting a court decision. Battling grandparents may create a tumultuous situation with long-lasting and detrimental effects on your children and their relationships with their other family members. The court could also name a guardian who you would never have chosen. A will lets you tell the court what you want.

Speak with an estate planning attorney to make sure you have a will that is properly prepared and follows the laws of your state. You also want to have a power of attorney and a health care agent named. Only if you have these plans in advance can you express your wishes in a way that can be legally enforced when you actually need them.

Reference: Fatherly (Feb. 6, 2019) “How to Write a Will: 8 Tips Every Parent Needs to Know”

What Happens When There’s No Will or the Will Is Invalid?

The Queen of Soul’s lack of a properly executed estate plan isn’t the first time a celebrity died without a will, and it surely will not be the last says The Bulletin in the article “Aretha Franklin and other celebrities died without an estate plan. Will you?”

The Rev. Dr. Martin Luther King Jr., Howard Hughes, and Prince all died without a valid will and estate plan. When actor Heath Ledger died, his will left everything to his parents and three sisters. The will had been written before his daughter was born and left nothing to his daughter or her mother (it should be noted that if Ledger lived in California he would have needed a trust to avoid probate). Ledger’s family later gave all the money from the estate to his daughter.

Getting started on a will is not that challenging if you work with an experienced estate planning attorney. They often start clients out with a simple information gathering form, sometimes in an online process or on paper. They’ll ask a lot of questions, like if you have life insurance, a prenup, who you want to be your executor and who should be the guardian of your children.

Don’t overlook your online presence. If you die without a plan for your digital assets, you have a problem known as “cyber intestacy.” Plan for who will be able to access and manage your social media, online properties, etc., in addition to your tangible assets, like investment accounts and real property.

Automatic bill payments and electronic bank withdrawals continue after death, and heirs may struggle to access photographs and email. When including digital estate plans in your will, provide a name for the person who should have access to your online accounts. Check with your estate planning attorney to see if they are familiar with digital assets. Do a complete inventory, including frequent flyer miles, PayPal and other accounts.

Remember that if you don’t make a will or trust, the state where you live has laws that will decide for you. Each state has different statutes determining who gets your assets. They may not be the people you wanted, so that’s another reason why you need to have a will or trust.

Life insurance policies, IRAs, and other accounts that have beneficiaries are handled separately from the will. Beneficiaries receive assets directly and that bypasses anything written in a will, so you should confirm and keep documentation that specifies who your beneficiaries are. This is especially important for unmarried millennials, Gen Xers, divorced people, single individuals, and widows and widowers, who may not have designated someone as a beneficiary.

Don’t forget your pets. Your heirs may not want your furry family members, and they could end up in a shelter and euthanized if there’s no plan for them. You can sign a “pet protection” agreement or set up a pre-funded pet trust. Some states allow them; others do not. Your estate planning attorney will be able to help protect your beloved pets as well as your family.

Reference: The Bulletin (Sep. 14, 2019) “Aretha Franklin and other celebrities died without an estate plan. Will you?”

Dark Side of Medicaid Means You Need Estate Planning

A woman in Massachusetts, age 62, is living in her family’s home on borrowed time. Her late father did all the right things: saving to buy a home and then buying a life insurance policy to satisfy the mortgage on his passing, with the expectation that he had secured the family’s future. However, as reported in the article “Medicaid’s Dark Secret” in The Atlantic, after the father died and the mother needed to live in a nursing home as a consequence of Alzheimer’s, the legacy began to unravel.

When the mother was placed into a nursing home, a guardian of the state signed her up for the state’s Medicaid program, MassHealth. Just weeks after entering the nursing home, her daughter received a notice that MassHealth had placed a lien on the house. The daughter called MassHealth; her mother had been a longtime employee of Boston Public Schools and there were alternatives. She wanted her mother taken off Medicaid. The person she spoke to at MassHealth said not to worry. If her mother came out of the nursing home, the lien would be removed, and her mother could continue to receive benefits from Medicaid.

The daughter and her husband moved to Massachusetts, took their mother out of the nursing home and cared for her full-time. They also fixed up the dilapidated house, treating it as if it was theirs because that’s what they believed it to be. To do so, they cashed in all of their savings bonds, about $100,000. They refinished the house and paid off the two mortgages their mother had on the house.

Her husband then began to show signs of dementia. Now, the daughter spent her days and nights caring for both her mother and her husband.

After her mother died, she received a letter from the Massachusetts Office of Health and Human Services, which oversees MassHealth, notifying her that the state was seeking reimbursement from the estate for $198,660. She had six months to pay the debt in full, and after that time, she would be accruing interest at 12%. The state could legally force her to sell the house and take its care of proceeds to settle the debt. At this time, her husband had entered the final stages of Alzheimer’s.

Despite all her calls to officials, none of whom would help, and her own research that found that there were in fact exceptions for adult-child caregivers, the state rejected all of her requests for help. She had no assets, little income, and no hope.

State recovery for Medicaid expenditures became mandatory, as part of a deficit-reduction law signed by President Bill Clinton. Many states resisted instituting the process, even going to court to defend their citizens. The federal government took a position that federal funds for Medicaid would be cut if the states did not comply. There are even some states who took a harder line, even allowing pre-death liens, taking interest on past-due debts or limiting the number of hardship waivers. The law gave the states the option to expand recovery efforts, including medical expenses. Many did, collecting for every doctor’s visit, drug, and surgery covered by Medicaid.

Few people are aware of estate recovery. It’s disclosed in the Medicaid enrollment forms but buried in the fine print. It’s hard for a non-lawyer to know what it means. When it makes headlines, people are shocked and dismayed. During the rollout of the Obama administration’s Medicaid expansion, more people became aware of the fine print. At least three states passed legislation to scale back recovery policies after public outcry.

The Medicaid Recovery program is a strong reason for families to meet with an elder law attorney and make a plan. Assets can be placed in irrevocable trusts, or deeds can be transferred to family members. There are many strategies to protect families from estate recovery. This issue should be on the front burner of anyone who owns a home or other assets, who may need to apply for Medicaid at some point in the future. Avoiding probate is one part of estate planning, avoiding Medicaid recovery is another.

Since the laws are state-specific, consult an elder law attorney in your state.

Reference: The Atlantic (October 2019) “Medicaid’s Dark Secret” 

How to Choose an Estate Planning Attorney

Estate planning is a critical part of financial planning, but it is something that many Americans prefer to procrastinate about. However, drafting a will, health care proxy, and power of attorney are too important to leave to chance, says Next Avenue in the article “How to Find a Good Estate Planner.” An experienced estate planning attorney can help prevent critical mistakes and help you adjust your plan as circumstances change.

Here are a few tips:

Look for an estate planning attorney. This is not the same as a real estate attorney. An attorney who practices real estate law is not going to be up to date on all of the latest changes to estate and tax laws. You should also determine if the attorney deals with families who are in similar situations as yours. An attorney who works with family-owned businesses, for instance, will be more helpful in creating an estate plan that includes tax and succession planning for small business owners, whereas an attorney who works with special needs trusts will be more informed on drafting those.

Experience matters in this area of the law. The laws of your state are just one of the many parts that the attorney needs to know by heart. The estate planning attorney who has been practicing for many years will have a better sense of how families work, what problems crop up when it comes time to execute these plans, and tips on how to avoid them.

Ask about costs. Don’t be shy. You want to be clear from the start what you should expect to be spending on an estate plan. The attorney should be comfortable having this discussion with you and your spouse or family member. Remember that the attorney will be able to understand the scope of work only after they speak with you about your situation. What may seem simple to you, may be more complicated than you think.

If a trust is added, the fees are likely to increase. A trust can be used to avoid or minimize estate taxes, avoid probate, save on time and court fees and create conditions for the distribution of assets after you die.

A full plan includes incapacity documents. Don’t neglect to have the attorney create a Power of Attorney form and any other advance directives you need. These vary by state, and you don’t want them to get too old, or they may become out of date.

Recognize that this is an ongoing relationship. Make sure that you are comfortable with the attorney, how the practice is run and the people who work there—receptionist, paralegals and other associates at the firm are all people you may be working with at one point or another during the process. You will be sharing very personal information with the entire team, so be sure it’s a good fit.

This is not a one-and-done event. Having an estate plan is a lot like having a home—it requires maintenance. Every four years or so, or when large events occur in your life, you’ll need to have your estate plan reviewed.

Your estate planning attorney should become a trusted advisor who works hand in hand with your accountant and financial advisor. Together, they should all be looking out for you and your family.

Reference: Next Avenue (September 10, 2019) “How to Find a Good Estate Planner”

What Do I Need to Know About My Own Funeral Arrangements?

You’ve heard about death and taxes. While having a plan for your funeral may not be a big priority, creating a plan for your family when you pass is something everyone should do. WHNT’s recent article, “How to plan for life after death,” says the first step is having that conversation with someone you trust. It may be a close friend, a family member, or an attorney.

The National Institute on Aging has created a comprehensive list of considerations for those who are facing end of life decisions. It’s also a great resource for caretakers. This can help you think about some important considerations like what you want in terms of a funeral service, burial or cremation if you want life insurance to pay your last expenses, and how your estate should be handled. Advanced planning for things like this will may make the process easier for those you leave behind, especially if you work with an experienced estate planning attorney.

There are also some fundamental decisions that can ease the financial burden on your loved ones. The average North American traditional funeral costs between $7,000 and $10,000. This price range includes the services at the funeral home, burial in a cemetery and the installation of a headstone at the cemetery. The National Funeral Directors Association reports that the median cost to move the remains of a loved one to a funeral home in the U.S. is $325. Embalming can run about $725, and the average cost of a vault in the United States is $1,395, as of 2017.

According to the 2018 NFDA Cremation & Burial Report, the 2018 cremation rate is estimated to be 53.5%, and the burial rate is projected to be 40.5%. Forbes says that roughly 42% of people opt to be cremated because of the costs involved with a standard funeral in the United States.

When some people consider these costs, they may think differently about what they would like their family members to plan to commemorate their lives. Writing down what you would like your family members to do for your memorial service can save them significant strain and stress as they cope with losing you, and it can also save them significant costs.

Reference: WHNT (June 30, 2019) “How to plan for life after death”

How to Help Your Elderly Parent Without Ruining Your Relationship

If you have elderly parents, you might have to step in at some point and provide caregiving services. Whether that concept means hands-on personal assistance with things like bathing, dressing, grooming, and feeding, or handling their finances and making decisions for them, this change in your roles can be challenging for you and your parent. Here are some issues to consider about how to help your elderly parent without ruining your relationship.

It’s Usually Not “Leave It to Beaver”

Acknowledge and accept your family dynamics as they are. Many people grow up seeing fictional families on television and wish their parents and siblings got along better. Very few families measure up to the imaginary ones of fiction. You and your parent probably did not have the kind of relationship in which you would regularly get together for coffee or shopping. Quite a few people have strained interactions with their parents.

Relationships carry the baggage of the past. It is not helpful for people to tell you to forget about the past. Your parent is the same person with whom you have had conflict, which means they will continue to do things that upset you. If your parent was extremely authoritarian or independent, it will be difficult for them to accept someone telling them what to do – especially one of their children.

Patience versus Doormat

You should try to be understanding of what your parent is going through, such as losing independence and feeling less valuable or powerful. They might get confused and forget you already did things they now accuse you of not doing. They might also be dealing with chronic pain and other health issues.

You should, however, set boundaries. Getting old does not give your parent a right to be physically, verbally, or emotionally abusive. Be firm with your parent if any of these things happen. Being a dutiful and caring son or daughter does not include being a doormat. Calmly inform your parent of the behavior that is not acceptable. You might need to have someone in social services arrange for counseling to help your parent adjust to the reality of aging and the need for assistance.

The Silver Lining

For some people, this stage of life is a time to deal with unfinished business. For those that have had challenging relationships with your parents, now could be the opportunity where you can talk out problems or questions. You might be able to resolve conflicts that could have caused you regrets down the road. The best approach for this goal to tread lightly. Just because your parent is frail, you do not have the right to beat them up verbally with a long list of criticisms and complaints.

Address only one piece of a small issue in a visit, and do not dredge up unpleasant topics in every visit. You do not want your parent to dread seeing you. Be the kind of person you might wish your parent had been when you were a child – kind, compassionate and nurturing.

Those of you who have enjoyed a happy, healthy relationship with your parents can deepen your mutual affection and interaction. Since your parent is no longer rushing around to work and raise a family, you can have uninterrupted conversations and create memories to treasure. Even people who have had strained relationships might get to reach the point where they have pleasant times with their elderly parents.

References: A Place for Mom. “Parenting the Parent: Caring for Elderly Parents.” (accessed August 21, 2019 ) https://www.aplaceformom.com/planning-and-advice/articles/caring-for-elderly-parents

Don’t Forget to Update Your Estate Plan

There are some people who sign their will once in their life and never change it. They may have executed their estate plan late in life, or after they were diagnosed with a serious disease. However, even if your family life and finances are pretty basic, there are still changes in the law that you may need to incorporate into your estate plan.  Some of the people that you named in your will could also have died or moved away.

Forbes’ recent article, “Why You Should Change Your Will Now,” warns us that if you’ve taken the “one and done” approach to your estate plan, think again. In addition to the reasons already mentioned, your assets may have changed dramatically since you signed your will and other estate plan documents. The plan you put in place years ago may not have considered new federal and state estate taxes. Now that you’ve accumulated significant wealth that will be passed on to your children, you might need to review your plans for that wealth for your children.

You may want to include grandchildren to help pay for their college education. It is also not uncommon for parents to want to protect their children from themselves. This can be because of addiction issues or a lack of financial literacy. If that’s an issue, some parents elect to hold monies in trust for adult children, as a way to ensure that the funds will be there throughout the child’s lifetime.

A person’s estate plan should grow with them over time. An estate plan for a twenty-something may be very basic, but a newly-married couple will want to include provisions for their spouse. Parents need to think about providing for and protecting their children. Adult children have another set of concerns and you need to prepare for the possibility of divorcing spouses, poor life choices, addiction issues, and just poor money management. There are many stages in life when you may need to readjust the provisions for your children in your estate planning documents.

If you haven’t looked at your estate plan in a while, do it now.

Reference: Forbes (August 27, 2019) “Why You Should Change Your Will Now”

What Do I Need to Do Financially, When We Have a Baby?

In addition to all the logistics involved with a new baby, new parents should also take care of financial and legal matters in the months leading up to the big day.

U.S. News & World Report’s recent article, “Financial Steps to Take When You’re Pregnant” reminds us that pregnancy is a terrific time to review your financial life. It’s a great time to assess your budget, emergency savings, estate planning documents, and insurance needs to see if anything needs to be refreshed.

Here are a few things to do to prepare for a new baby:

Employee Benefits. Take a look at your employee benefits or have a conversation with HR to determine how much time you can take off and whether you’ll be paid your salary while on parental leave. This is important because many families are faced with higher living costs by the presence of a new baby, which is often combined with taking parental leave that may cut their take-home pay. New parents may have to use the Family and Medical Leave Act (FMLA), which offers eligible employees 12 weeks of unpaid leave, or tap into short-term disability insurance, which typically only replaces a portion of your salary. The amount you receive in short-term disability will also be impacted by whether you pay premiums with pre-tax or post-tax dollars. If you pay with pretax, your benefit will be subject to taxes, which will decrease the overall amount received.

While reviewing these policies, look at your health insurance and see what kind of prenatal visits and pediatric care are covered. You should also look at the terms of your health insurance policy since you could be liable for health insurance premiums during periods where you are taking leave from work. Also, remember that you’ll need to add your baby to your medical insurance within 30 days of the birth.

Budget. Create a new budget that takes into account changes in your income from taking leave and new expenses from having a new baby. You may have to survive several weeks without your normal level of income, so be sure that you have enough saved up to get through that period. After that, create another budget that considers more long-term expenses associated with the new one, such as the cost of childcare, diapers, and formula, all of which can add up.

Life Insurance. Determine if your current life insurance will meet your needs. If you need more, look at term life insurance. It’s usually affordable and expires after a set term, typically anywhere from 10 to 30 years. This policy payout would help a surviving parent or guardian care for your child.

Estate Planning. Consider who would care for your child if both parents were to die before they turn 18. Talk to family or close friends about who you’d like as the guardian of the child. Talk to an estate planning attorney to update (or create) a will and guardianship choices. In addition, ask about formulating a plan for how inheritance, insurance, and other assets will be handled and disbursed if you die while the child is a minor. A revocable living trust can be one way to direct a future inheritance. You can designate your child as the beneficiary and a relative or close friend as the trustee. The trustee will help decide how the money is spent. This trust is usually included in the will and activates after the death of the person who created it.

Beneficiary Designations. Update any beneficiary designations on your retirement and insurance accounts to include your child, but make sure and ask about meeting requirements for how minors can own property.

529 College Savings Account. You should also look into funding a 529 college savings account but don’t feel pressure to contribute a lot. Making certain that your budget, estate, and insurance needs are tailored to meet your new family dynamic are more pressing concerns.

Reference: U.S. News & World Report (August 29, 2019) “Financial Steps to Take When You’re Pregnant”

Can the Golden Girls Model Work for Families?

Multi-generational living is not exactly new, and as people are living longer, it may start becoming more common. Shared households bring many benefits, including convenience. Why should a nurse’s daughter travel 20 miles a day to take her mom’s blood pressure when living together works better, asks The Mercury’s article “Do shared living arrangements make sense?”

There’s also the benefit of increased financial security. Two households merged into one can share expenses, including mortgages, property taxes, utilities and more.

Whether this works in each case depends upon the situation and the relationships of the individuals involved. If there is flexibility and the relationships are good, it can be a blessing. Imagine grandparents and grandchildren who are part of each other’s lives on a daily basis, rather than a twice-a-year visit. That’s a gift.

The arrangement needs to start with a lot of discussions and understanding the wants and needs of each participant. It needs to be based on reasonable expectations. A happy joint living arrangement can swiftly be derailed, for instance, if parents assume that grandparents are willing to be 24/7 babysitters, or if grandparents consider household chores something only for their children and grandchildren to do.

Joining living arrangements must also address financial considerations, estate planning and everyone’s personal experiences and convictions. What works for one family may not work at all for another. Each family must work through their own details.

Here are some examples where a joint living arrangement works.

Parents and children buy a house together. When parents and children live too far away, and the parent’s house would require too much modification for them to continue to live there, both sell their homes and buy a much bigger home that can be made handicapped accessible. The parents make most of the down payment. The house is titled in joint names. Titling is critical. One half is owned by the father and mother, the other half is owned by the adult child and their spouse. Each half would be tenants by entireties (in states where that form of ownership between spouses is available) as between the spouses, but joint tenants with rights of survivorship as to the whole.

Parent moves in with adult child. A widow or widower comes to live with a son or daughter and their family. The parent makes contributions to the monthly expenses. There is a written agreement, which is very important for Medicaid rules regarding gifting. If modifications need to be made to the house—a mother-in-law suite—a written agreement details who contributed what, so that it is not considered a “gift” by Medicaid.

Adult child moves in with parent. This is a “buy-in,” where an adult child obtains a home equity line of credit to purchase an interest as a joint tenant with right of survivorship. The house can be inherited by paying one-half of the value.

None of these strategies should be done without the help of an elder law attorney who is knowledgeable about Medicaid, estate planning and real estate ownership. When it works, this arrangement can benefit everyone in the family.

Reference: The Mercury (AuG. 28, 2019) “Do shared living arrangements make sense?”