COVID-19 and Estate Planning

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As Americans adjust to a changing public health landscape and historical changes to the economy, certain opportunities in wealth planning are becoming more valuable, according to the article “Impact of COVID-19 on Estate Planning” from The National Law Review. Here is a look at some strategies for estate plans:

Basic estate planning. Now is the time to review current estate planning documents to be sure they are all up to date. That includes wills, trusts, revocable trusts, powers of attorney, beneficiary designations, and health care directives. Also, be sure that you and your family members know where they are located.

Wealth Transfer Strategies. The extreme volatility of financial markets, depressed asset values, and historically low-interest rates present opportunities to transfer wealth to intended beneficiaries. Here are a few to consider:

Intra-Family Transactions. In a low-interest-rate environment, planning techniques involve intra-family transactions where the senior members of the family lend or sell assets to younger family members. The loaned or sold assets only need to appreciate at a rate greater than the interest rate charged. In these cases, the value of the assets remaining in senior family member’s estate will be frozen at the loan/purchase price. The value of the loaned or sold assets will be based on a fair market value valuation, which may include discounts for certain factors. The fair market value of many assets will be extremely depressed and discounted. When asset values rebound, all that appreciation will be outside of the taxable estate and will be held by or for the benefit of your intended beneficiaries, tax-free.

Grantor Retained Annuity Trusts (GRATS). The use of a GRAT allows the Grantor to contribute assets into a trust while retaining a right to receive, over a term of years, an annuity stream from the Trust. When the term of years expires, the balance of the Trust’s assets passes to the beneficiaries. The IRS values the ultimate transfer of assets to your intended beneficiaries, based on the value of the annuity stream you retain and an assumed rate of return. The assumed rate of return, known as the 7520 rate comes from the IRS and is currently 1.8%. So, if you retain the right to receive an annuity stream from the trust equal to the value of the assets plus a 1.8% rate of return, assets left in the trust at the end of the term pass to your beneficiaries transfer-tax-free.

Charitable Lead Annuity Trusts. Known as “CLATs,” they are similar to a GRAT, where the Grantor transfers assets to a trust and a named charity gets an annuity stream for a set term of years. At the end of that term, the assets in the trust pass to the beneficiaries. You can structure this so the balance of the assets passes to heirs transfer-tax-free.

Speak with your estate planning attorney about these and other wealth transfer strategies to learn if they are right for you and your family. And stay well!

Reference: The National Law Journal (March 13, 2020) “Impact of COVID-19 on Estate Planning”

Finalizing Estate Planning Documents while Social Distancing

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After the initial shock of the pandemic, people are realizing not just that they need to update their estate planning documents, but also the people who have been named in important roles. In a recent article from The New York Times, “What to Know About Making a Will in the Age of Coronavirus,” one person said, “I think I still have my jerk brother as the trustee. I need to change that.”

However, with social distancing now being the new norm, some necessary processes for finalizing estate plans are calling for extra creativity. While lawyers can draft any necessary documents from their home offices, the documents need to be signed by clients and, depending upon the document and the state, by witnesses and notaries. These parties usually need to be in the same room for the documents to be considered legally valid.

New York’s Governor Andrew M. Cuomo issued an executive order on March 7 that declared a disaster emergency in the state and temporarily gave notaries the authority to authenticate documents by videoconference. Other governors have also issued executive orders to allow video notarizations, including Connecticut, Iowa, New Hampshire, and Washington. It’s safe to say that more states will probably permit this as time goes on. California is not on the list of remote notarizations or videoconference.

However, besides needing notarizations, wills in New York State and other documents require two unrelated witnesses in the room when the document is signed. That also goes for the health care directive, which gives a person the ability to name someone to make medical decisions on their behalf, if they become incapacitated.

One New York attorney used a video conference to watch two clients and their witnesses, located more than 100 miles away from his home office, sign new financial powers of attorney and health care documents. He used his laptop to record a video of the proceedings, while clients used their phones. The client couple sat on the enclosed porch of a friend’s house in a distant county and signed the documents, while their friends stood six feet away. When the couple finished signing, they stepped away and their friends moved in to sign the documents, all in view of the attorney and all, of course, wearing vinyl gloves.

The documents were then scanned and sent to the attorney by email and he notarized them. They will also be mailed to him at his home, and then he will authenticate the documents.

In New Jersey, notaries need to be physically present at the signing of documents. One attorney took extra steps for two ER nurses, both single mothers and on the front lines of the coronavirus outbreak. He met them in the front yard of one of their houses, where a table had been set up and rocks were used to hold down the documents from blowing away in the wind. Everyone wore gloves and brought their own pens. One nurse served as a witness for each other, and another friend was a witness for both. After each person signed, they stepped away, while another stepped up to the table.

Not every state is making changes to permit these documents to be witnessed and notarized, so there may be many outdoor signings taking place in the weeks and months to come. Speak with your estate planning attorney, who will know the laws that apply to your state.

Reference: The New York Times (March 26, 2020) “What to Know About Making a Will in the Age of Coronavirus”

An Estate Plan Is Necessary for the Unthinkable

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The death of basketball legend Kobe Bryant, his daughter, and seven others reminded us that we never know what fate has in store for us. A recent article from The Press Enterprise titled Yes, you must go there: Think about the unthinkable, plan for the worst” explains the steps.

Put an appointment in your schedule. Make an appointment with a qualified estate planning attorney. If you make the call and have an actual appointment, you have a deadline and that’s a start. The attorney may have a planning worksheet or organizer that they can send to you to guide you.

Start getting organized. If this seems overwhelming, break it out into separate parts. Begin with the easy part: a list of names, addresses, phone numbers, and email addresses for family members. Include any other people who you intend to include in your estate plan.

Next, list your assets and an estimated value of each. It doesn’t have to be to the penny. Include the account numbers, name of the institution, phone number, and, if you have a personal contact, a name. Include bank accounts, real estate holdings, timeshares, stocks, bonds, personal property, vehicles, RVs, any collectibles of value (attach appraisals if you have them), life insurance, and retirement accounts.

List the professionals who you rely on—your estate planning lawyer, CPA, financial advisor, etc.

If you own a firearm, include your license and make sure that both your spouse and your estate planning attorney are aware of the information. In certain states, having possession of a firearm without being the licensed owner is against the law. Speak with your estate planning attorney about the law in your state and how to prepare for a situation if the firearm needs to be safely and properly dealt with.

Name an executor or personal representative. Estate planning is not just for death. It is also for incapacity. Who will act on your behalf, if you are not able to do so? Many people name their spouse, a long-time trusted friend, or a family member. Be certain that person is willing to act on your behalf. Have a second person also named, in case something occurs, and your first choice cannot serve.

If you have minor children, your estate plan will include a guardian, who will be responsible for raising them. Talk about that with your spouse and that person to make sure they are willing to serve. You can also name a second person to be in charge of finances for the children. Your estate planning lawyer will talk with you about the role of trusts to provide for the children.

Think about your overall goals. How do you see your legacy? Do you want to leave some funds for a charity that has meaning to you and your family? Do you want your children to receive equal shares of your entire estate? Does one child require special needs planning, or are you concerned that one of your children may not be able to manage an inheritance? These are all topics to discuss with your estate planning attorney. Their experience will help clarify your goals and create a plan so that you are prepared for the unthinkable.

Estate planning touches on topics people would prefer to avoid thinking about, but avoiding planning for the unthinkable will not protect you from it.

Reference: The Press Enterprise (Feb. 2, 2020) Yes, you must go there: Think about the unthinkable, plan for the worst”

Do You Want to Decide or Do You Want the State to Decide?

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A will allows you to direct your assets to the people you want to receive them, rather than the alternative, which is relying on the laws of your state to direct who receives your assets, says the article “Will you plan now or pay later?” from the Chron.com.

A will is also the document used to name an independent executor with successors, in the unlikely chance that the first executor fails, refuses or becomes unable to serve. Your estate planning attorney will discuss the use of special trusts to provide for family members who are disabled, trusts for minors or special needs family members or even adult children.

There are three big considerations you may not have even considered that would require you to have an estate plan created in recent years to be reviewed or revised. Years ago, the federal tax exemption, which allows a person to leave a certain amount of money to beneficiaries, was much smaller than it is now.

This was a “use it or lose it” exemption. Here’s an example of how things have changed. In 1987, when the exemption was $600,000 per taxpayer, a couple would use a by-pass trust to shelter the first $600,000 upon the first to die to take advantage of the exemption. In 2020, the exemption is $11.58 million. The “use it or lose it” law is different. Therefore, if your will/trust still has a by-pass trust for this reason, it may be best to discuss it with your estate planning attorney. It is likely that you don’t need it anymore.

You also want a will to have some control over what happens to your assets when you die. Let’s say Betty and Bob have three children. Bob dies, leaving his assets to Betty, then Betty dies and leaves all of her assets to her three children. One of the children, Bea, dies shortly after Betty dies. Bea’s will leaves all of her assets to her husband Bruce.

Bruce remarries. When Bruce dies, the share of the family’s assets that Bruce inherited from his wife Bea may be left to Bruce’s second wife or the couple may spend them all during their marriage. If Bruce divorces his second wife, she may win those assets in a divorce settlement. Would Betty and Bob have wanted their assets to go to their grandchildren, instead of their son-in-law’s second wife and children?

An estate plan can be created to protect those assets, so they remain within the family, going to grandchildren or to the children of Betty and Bob.

While most people think of an estate plan as a plan for death, it’s also a plan for illness and incapacity. A perfectly healthy person is injured in a car accident or suffers a stroke. Without having documents like a power of attorney, power of attorney for health care, living will and medical privacy documents, the family will spend a great deal of time and money trying to establish legal control over the estate.

Speak with an estate planning attorney today to update your current will or create a will and the necessary documents to protect yourself and your family.

Reference: Chron.com (January 16, 2020) “Will you plan now or pay later?”

Estate Plan Updates in the Age of Coronavirus

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With the ever-increasing number of deaths in Europe and the U.S., many people are now doing what estate planning attorneys have advised them to do for years—get their estate plans in order. Many are having phone meetings or videoconferences with estate planning attorneys, says Barron’s in the article “The Coronavirus Has Americans Scrambling to Set Their Estate Plans. Here Are Some Key Things to Know.” People are worried, and they are in a hurry too.

However, estate planning can be complex, even when there is plenty of time to prepare. Here are a few tips:

Everyone should have three basic documents: a last will and testament, a durable power of attorney and an advance health care directive. These documents will allow assets to be distributed, give another person the ability to make financial decisions if you are too sick to do so, and also allow another person to talk to medical professionals on your behalf on treatment and care. These same documents are also a good idea for any young adults in the family, anyone older than 18 in most states.

With the proper documents prepared in accordance with the laws of your state, you may be able to avoid having a court appoint a guardian for minor children or having a probate court determine asset distribution.

However, there’s more. In addition to these basic documents, everyone needs to review their beneficiary designations on assets that include bank accounts, IRAs, annuities, insurance policies, and any other assets. If family situations have changed, these may be out of date.

It’s also a good idea to have an attorney create a medical power of attorney for a minor child, in case another family member needs to take a child to the doctor, discuss their care and make decisions. While this exact document does not exist in California, a similar document may be available.

While young adults may be more worried about the financial impact of the pandemic, seniors and the elderly are concerned about having documents in order. Wealthy people are concerned about the impact that the pandemic may have on estate planning law, and some are engaged in planning to make substantial gifts, in case the current estate and give tax exemptions are lowered.

Other issues to be discussed with an estate planning attorney:

  • Irrevocable living trusts, which provide an opportunity to protect and direct how assets in a trust will be held, invested, and distributed before and after death.
  • Durable powers of attorney, which appoint an agent to make financial decisions.
  • Health-care directive, which let people designate a surrogate to make health decisions on their behalf and receive health care information from physicians and designate whether to provide life-prolonging treatment, if in a terminal state.

Reference: Barron’s (March 22, 2020) “The Coronavirus Has Americans Scrambling to Set Their Estate Plans. Here Are Some Key Things to Know”

Fixing an Estate Plan Mistake

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When an issue arises with your estate planning documents, you need to seek the assistance of a qualified and experienced estate planning attorney, who knows to fix the problems or find the strategy moving forward.

Generally speaking, an irrevocable trust can’t be revoked. However, in some circumstances, it can be modified or changed with a Court order. The trust may have been drafted to allow its trustees and beneficiaries the authority to make certain changes in specific circumstances, like a change in the tax law.

Those kinds of changes usually require the signatures from all trustees and beneficiaries, explains The Wilmington Business Journal’s recent article entitled “Repairing Estate Planning Mistakes: There Are Ways To Clean Up A Mess.”

Another change to an irrevocable trust may be contemplated if the trust’s purpose may have become outdated or its administration is too expensive. An estate planning attorney can petition a judge to modify the trust in these circumstances when the trust’s purposes can’t be achieved without the requested change. Remember that trusts are complex, and you really need the advice of an experienced trust attorney.

Another option is to create the trust to allow for a “trust protector.” This is a third party who’s appointed by the trustees, the beneficiaries, or a judge. The trust protector can decide if the proposed change to the trust is warranted. However, this is only available if the original trust was written to specify the trust protector.

A term can also be added to the trust to provide “power of appointment” to trustees or beneficiaries. This makes it easier to change the trust for the benefit of current or future beneficiaries.

There’s also decanting, in which the assets of an existing trust are “poured” into a new trust with different terms. This can include extending the trust’s life, changing trustees, fixing errors or ambiguities in the original language, and changing the legal jurisdiction. State trust laws vary, and some allow much more flexibility in how trusts are structured and administered.

The most drastic option is to end the trust. The assets would be distributed to the beneficiaries, and the trust would be dissolved. Approval must be obtained from all trustees and all beneficiaries. A frequent reason for “premature termination” is that a trust’s assets have diminished in value to the extent that administering it isn’t feasible or economical.

Again, be sure your estate plan is in solid shape from the start. Anticipating problems with the help of your lawyer, instead of trying to solve issues later is the best plan.

Reference: Wilmington Business Journal (Jan. 3, 2020) “Repairing Estate Planning Mistakes: There Are Ways To Clean Up A Mess”

Five Estate Planning Mistakes to Avoid

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While it’s true that no estate is completely bulletproof, there are mistakes that people make that are big enough to walk through, while others are more like a slow drip, draining retirement finances in a slow but steady process. There are mistakes that can be easily avoided, reports Comstock Magazine in the article “Five Mistakes to Avoid When Planning Your Estate.”

  1. Misunderstanding Estate Law. Some people are so thrown by the idea of an estate plan, that they can’t get past the word “estate.” You don’t need a mansion to have an estate. The term is actually used to refer to any and all property that a person owns. Even modest people need a plan to help beneficiaries avoid unnecessary costs and stress. Talk with an estate planning attorney to learn what your needs are, from a will to trusts. Make sure that this is the attorney’s key practice area. A real estate or personal injury attorney won’t have the same knowledge and experience.
  2. Getting Bad Advice. It takes a team to create a strong estate plan. That means an estate planning attorney, a financial advisor and an accountant. Be wary of firms that focus entirely on selling trusts. There’s definitely a role for trusts in estate plans, but there are many other tools that are needed. Buying an insurance policy or an annuity is not an estate plan.
  3. Naming Yourself as a Sole Trustee. Naming yourself as a sole trustee puts you and your estate in a precarious position. What if you develop Alzheimer’s or are injured in an accident? A trusted individual, a family member, a longstanding friend or even a professional trustee, needs to be named as a backup trustee to protect your interests if you should become incapacitated.
  4. Losing Track of Assets. Without a complete list of all assets, it’s nearly impossible for someone to know what you own and who your heirs may be. Some assets, including retirement funds, life insurance policies, or investment accounts, have named beneficiaries. Those people will inherit these assets, regardless of what is in your will. If your heirs can’t find the assets, they may be lost. If you don’t update your beneficiaries, they may go to unintended heirs—like ex-spouses. Your attorney should help you compile that list to make sure that your successor agents and beneficiaries are informed.
  5. Deciding on Options Without Being Fully Informed. When it comes to estate planning, the natural tendency is to go with what we think is the right thing. However, unless you are an estate planning attorney, chances are you don’t know what the right thing is. For tax reasons, for instance, it may make sense to transfer assets, while you are still living. And for other reasons, it might be best to wait until you pass to transfer the assets. However, that might also be a terrible idea, if you choose the wrong person to hold your assets or don’t put them in the right kind of trust.

Estate planning is still a highly personal process that depends upon every person’s unique experience. Your family situation is different than anyone else’s. An experienced estate planning attorney will be able to create a plan and help you to avoid the big, most commonly made mistakes.

Reference: Comstock Magazine (Dec. 2019) “Five Mistakes to Avoid When Planning Your Estate” 

What Happens If I Don’t Have an Estate Plan?

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It’s so much better to have an estate plan than not to. With a will and/or trust, you can direct your assets to those whom you wish to receive a legacy, rather than the default rules of the State of California. This is according to a recent article in the Houston Chronicle’s entitled “Elder Law: Will you plan now or pay later?”

You should also designate an independent financial agent (known as an executor, power of attorney and trustee). You may want to have an estate planning attorney create a special trust to provide for family members who are disabled, along with trusts for minors and even adult children.

Here are three major items about which you may not have considered that may require changes to your estate plan or motivate you to get one. Years ago, the amount a person could leave to beneficiaries (the tax-free exemption equivalent) was much lower. You were also required to either use it or lose it.

For example, back in 1987 when the exemption equivalent was $600,000 per taxpayer, a couple had to create a by-pass trust to protect the first $600,000 upon the first to die to take advantage of the exemption. The exemption is $11.58 million in 2020, and the “portability” law has changed the “use it or lose it” requirement. There may still be good reasons to use a forced by-pass trust in your will, but in some cases, it may be time to get rid of it.

Next, think about implementing planning to have some control over your assets after you die.

You could have a heart attack, a stroke, or an unfortunate accident. These types of events can happen quickly with no warning. You were healthy and then suddenly a sickness or injury leaves you severely disabled. You should plan in the event this happens to you.

Why would a person not take the opportunity to prepare documents such as powers of attorney for property, powers of attorney for health care, living wills, and medical privacy documents?

It’s good to know that becoming the subject of a court-supervised conservatorship proceeding is a matter of public record for everyone to see. There is also the unnecessary expense and frustration of a guardianship that could’ve been avoided if you’d taken the time to prepare the appropriate documents with an estate planning or elder law attorney.

Why would you want to procrastinate making an estate plan and then die suddenly without ever taking the time to make your will? Without valid estate planning documents, like a trust, your family will have to pay more for a costly probate proceeding.

Reference: Houston Chronicle (Jan. 16, 2020) “Elder Law: Will you plan now or pay later?”

If I’m 35, Do I Need a Will?

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Estate planning is a crucial process for everyone, no matter what assets you have now. If you want your family to be able to deal with your affairs, debts included, drafting an estate plan is critical, says Wealth Advisor’s recent article entitled “Estate planning for those 40 and under.”

If you have young children or other dependents, planning is vitally important. The less you have, the more important your plan is, so it can provide as long as possible and in the best way for those most important to you. You can’t afford to make a mistake.

Talk to your family about various “what if” situations. It is important that you’ve discussed your wishes with your family and that you’ve considered the many contingencies that can happen, like a serious illness or injury, incapacity, or death. This also gives you the chance to explain your rationale for making a larger gift to someone, rather than another or an equal division. This can be especially significant if there’s a second marriage with children from different relationships and a wide range of ages. An open conversation can help to avoid hard feelings later.

You should have the basic estate plan components, which include a will, a living will, advance directive, powers of attorney, and a designation of an agent to control the disposition of remains. These are all important components of an estate plan that should be created at the beginning of the planning process. A guardian (or guardians) should also be named for any minor children.

In addition, a life insurance policy can give your family the needed funds in the event of an untimely death and loss of income—especially for young parents. The loss of one or both spouses’ income can have a drastic impact.

Remember that your estate plan shouldn’t be a “one and done thing.” You need to review your estate plan every few years. This gives you the opportunity to make changes based on significant life events, tax law changes, the addition of more children, or their changing needs. You should also monitor your insurance policies and investments because they dovetail into your estate plan and can fluctuate based on the economic environment.

When you draft these documents, you should work with a qualified estate planning attorney.

Reference: Wealth Advisor (Jan. 21, 2020) “Estate planning for those 40 and under”

Ozzy Osbourne and Sharon Osbourne Have an Estate Plan

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Heavy metal rock star Ozzy Osbourne and his talk show host wife, Sharon Osbourne say that they have a plan to pass the lion’s share of their estate to their children.

Ozzy rose to fame during the 1970s as the lead vocalist of the heavy metal band Black Sabbath, and Sharon became a household name more recently, thanks to her role in the MTV reality show “The Osbournes” and her job as a daytime talk show host.

Sharon explained the couple’s plan on The Talk, while reacting to news that the late Kirk Douglas bequeathed most of his $80 million fortune to charity when he died in February 2020 at age 103, reports I Heart Radio’s recent article entitled “Ozzy, Sharon Osbourne’s Children Will Determine The Fate Of Their Fortune.”

“Everybody is different,” Sharon said. “And I just know that my husband’s body of work, that he’s written, and kept us all in the lifestyle that we love, goes to my children.”

The children will also be entrusted with determining what will happen to Ozzy’s image and likeness, Sharon also said.

“I don’t want someone that never met my husband owning his name and likeness and selling T-shirts everywhere and whatever. No, it stays in the Osbourne family.”

Ozzy’s latest solo album, Ordinary Man—which is his 12th overall—already ranks as his highest-charting solo debut ever in the United Kingdom.

Between Ozzy’s equity in Black Sabbath, the solo recordings that he and Sharon have worked so hard to control and the hours of television in which the two have starred, it’s not hard to see the fruits of the couple’s labor benefitting several future generations of Osbournes.

Estate planning is important in every field and for everyone. However, it’s particularly important in the entertainment business, where will contests and questions about inheritances frequently are publicized in the press. To that end, the estates of celebrated artists like Frank Zappa, Kurt Cobain, Prince, Tom Petty, Chris Cornell, and many others have been the subject of public battles in recent years.

Even if you are not about to release your latest solo album, you still need to work with an experienced estate planning attorney to make certain that your plans for your assets and property are carried out after your death.

Reference: I Heart Radio (March 2, 2020) “Ozzy, Sharon Osbourne’s Children Will Determine The Fate Of Their Fortune”