What Estate Planning Do I Need with a New Baby?

Congratulations parent! You have a new baby. There’s a lot to think about, but there is a vital task that should be a priority. That is making an estate plan. People usually don’t worry about estate planning when they’re young, healthy and starting a new family. However, your new baby is depending on you to make decisions that will set them up for a secure future.

Motley Fool’s recent article, “If You’re a New Parent, Take These 4 Estate Planning Steps” says there are a few key estate planning steps that every parent should take to make certain they’ve protected their child, no matter what the future holds.

  1. Purchase Life Insurance. If a parent dies, life insurance will make sure there are funds available for the other spouse to keep providing for the children. If both parents die, life insurance can be used for a guardian to raise the child or to fund the cost of college. For most parents, term life insurance is used because the premiums are affordable, and the coverage will be in effect long enough for your child to grow to an adult.
  2. Draft a Will and Name a Guardian for your Children. For parents, the most important reason to make a will is to name a guardian for your children. If you designate a guardian, you can select the person that you think shares your values and who will do a good job raising your children. This way, it’s not left to a judge to make that selection. Do this as soon as your children are born.
  3. Update Beneficiaries. Your will should say what happens to most of your assets, but you probably have some accounts with a designated beneficiary, like a 401(k), IRA, or life insurance. When you have children, you’ll need to update the beneficiaries on these accounts for your children to inherit these assets as secondary beneficiaries, so they will inherit them in the event of your and your spouse’s death. Be careful, however, to designate a custodian to take care of those funds while your children are still minors.
  4. Look at a Trust. If you die prior to your children turning 18, they can’t directly take control of any inheritance you leave for them. This means that a judge may need to appoint someone to manage assets that you leave to your child. Your child could also wind up inheriting a lot of money and property free and clear at age 18. To have more control, like who will manage assets, how your money and property should be used for your children and when your children should directly receive a transfer of wealth, ask your estate planning attorney about creating a trust. With a trust, you can designate an individual who will manage money on behalf of your children and provide instructions for how the trustee can use the money to help care for your children, as they age. You can also create conditions on your children receiving a direct transfer of assets, such as requiring your children to reach age 21 or requiring them to use the money to cover college costs. Trusts are for anyone who wants more control over how their property will help their children after they’ve passed away.

When you have a new baby, working on your estate planning probably isn’t a big priority. However, it’s worth taking the time to talk to an attorney for the security of knowing your bundle of joy can still be provided for, in the event that the worst happens to you.

Reference: Motley Fool (September 28, 2019) “If You’re a New Parent, Take These 4 Estate Planning Steps”

What Mistake Did Hollywood Director John Singleton Make with his Estate?

Hollywood director John Singleton didn’t do his family any favors by committing the most common mistake when it came to estate planning: procrastination.

Forbes’ recent article, “The John Singleton Estate Teaches Why No One Should Procrastinate Updating Their Will” explains that after Singleton died in April at age 51 from a stroke, he only had an outdated will from 1993. Although he was unmarried when he died, he left behind at least five children and two other minor daughters, who may be his offspring. The family has already publicly disagreed about important issues like who should serve as his conservator if he was to recover from the stroke. They even fought over the cause of his death, after he was brought to the hospital under mysterious circumstances.

Couple this acrimony with an outdated will, and Singleton’s family can expect many years of headaches, stress and legal battles about his estate. There will also be some hefty legal fees. Singleton died with only a will in place, so his estate will go through the lengthy and expensive probate court process. This has already led to more fighting and will likely mean more legal disputes.

Singleton’s mother, Sheila Ward, filed to open the probate proceeding and asked the court to admit his 1993 will. At the time he signed it, Singleton was a relatively new director and had only one child, daughter Justice. Ward reported that Singleton had assets worth $3.8 million. She listed his heirs, which include five acknowledged children, plus two minor daughters, each of whom she designated as an “Alleged Daughter.”

However, some websites have reported that Singleton’s net worth was around $35M when he died. It is believed that the filing only listed a small fraction of his wealth, because he may have had a trust that contained the remainder of his assets. It’s possible but unlikely, in light of the fact that it would be very unusual for someone to set up a trust and not at the same time create or update his will to a “pour-over” will.

Pourover wills work in concert with trusts so that any assets not transferred into a trust during someone’s lifetime are then passed into the trust through the probate court process after they die. As the name implies, the will “pours” the assets from the probate estate into the trust. Singleton’s 1993 will was already admitted into probate, so the court determined it was his last unrevoked will created during his life, and it wasn’t a pour-over will.

His mother, who was appointed the personal representative of his estate, recently filed a new document asking for the court to approve a settlement worth $515,472 based on Singleton’s claim for a greater share of royalties from Sony Pictures arising from his 2001 movie, Baby Boy. The filing says that Singleton reached a settlement in this amount before he died, but the settlement was never signed or finalized due to his untimely stroke. This money would be added to his estate.

Under his 1993 will, only his daughter Justice will inherit the millions of dollars of her dad’s estate.  However, the other kids aren’t out of luck. Singleton’s will doesn’t control their inheritance, because they were born after he signed his will. California’s probate law permits any after-born children to inherit equally with children living when the will was signed, with exceptions (like if a child was taken care of in other ways, such as a life insurance policy).

There’s still the question of how many of the children are really his. The paternity of the two minor daughters wasn’t established. That may be another probate fight.

The lesson of all of this is to work with a qualified estate planning attorney to be certain that you have an up-to-date will, as well as other important estate planning documents.

Few people expect to pass away at such a young age, like Singleton, but no one is promised tomorrow. Don’t procrastinate creating an estate plan, believing that you can take care of it “someday.”

Reference: Forbes (November 4, 2019) “The John Singleton Estate Teaches Why No One Should Procrastinate Updating Their Will”

How Do I Deed My Home into a Trust?

Say that a husband used his inheritance to purchase the family home outright. The wife signed a quitclaim deed to him to put the property into his individual living trust with the condition that if he died before his wife, she could live in the home until her death.

But what if the husband or the creator of the trust never signed the living trust? In that case, what would happen to the property if the husband were to die before the wife?

This can quickly become even more complicated if it’s a second marriage for each of the spouses and they have adult children from prior marriages.

The Herald Tribune’s recent article, “Home ownership complications need guidance from estate planning attorney,” says that in this situation it’s important to know if the quitclaim deed was to the husband personally or to his living trust. If the wife quitclaimed the home to her husband personally, he then owns her share of the home, subject to any marital interests she may still have in the home. However, if the wife quitclaimed the home to his living trust, and the trust was never created, the deed may be invalid. The wife may still own the her original interest in the home.

It’s common for a couple to own a home as joint tenants with rights of survivorship. This would have meant that if the wife died, her husband would own the entire property automatically. If he died, she’d own the entire home automatically.

If the wife signed a quitclaim deed over to him or his trust, and the deed was recorded, then she would have transferred her ownership rights to her husband and he would be the sole owner of the home.  If the deed was never even filed or recorded, the wife could simply destroy the document and keep the status of the title as it was.

If the trust doesn’t exist, her quitclaim deed transfer to an entity that doesn’t exist would create a situation where she could claim that she still owned her interest in the home. However, the home may now be owned by the spouses as tenants in common, rather than as joint tenants with rights of survivorship.

To complicate things further, if the husband fully owned the home at the time of his death and the wife has marital rights in the home, then she may still be entitled to a share of the home under her husband’s will, if he has one, or by the laws of intestacy. However, the husband’s children would also own a share of his share of the home. At that point, the wife would co-own the home with his children.

You can see how crazy this can get. It’s best to seek the advice of a qualified estate planning attorney to guide you through the process and make sure that the proper documents get signed and filed or recorded.

Reference: The (Sarasota, FL) Herald Tribune (September 8, 2019) “Home ownership complications need guidance from estate planning attorney”

The Biggest Estate Planning Errors

The Biggest Estate Planning Errors
Young woman making a mistake on a pink background

Nobody likes to plan for events like aging, incapacity, or death. However, failing to do so can cause families burdens and grief, thousands of dollars and hundreds of hours. Fox Business’ recent article, “Here are the top estate planning mistakes to avoid,” says that planning for life’s unexpected events is critical. However, it can often be a hard process to navigate. Let’s look at the top estate planning mistakes to avoid, according to industry experts:

1. Failing to have a will (or one that can be located). The biggest mistake is simply not having a will. Many people wait for “a more appropriate time” to put a will together. The truth is, we all need estate planning, no matter the amount of assets a person may have. In addition to having a will prepared and executed, it needs to be findable. The Wall Street Journal says that the biggest estate planning error is simply losing a will. Make sure your family has access to any estate planning documents you create.

2. Failing to name and update beneficiaries. An asset with a beneficiary designation supersedes any terms in a will. Review your 401(k), IRA, life insurance, and any other accounts with beneficiaries after any significant life event. If you don’t have the proper beneficiary designations, income tax on retirement accounts may have to be paid sooner and your heirs will have to pay a lump sum tax immediately. Without a life insurance policy, the proceeds will have to go through probate, which means they are subject to creditors’ claims.

Another mistake that impacts people with minor children is naming a guardian for minor children and then naming the guardian as the outright beneficiary of their life insurance. If money is left to the guardian, then the proceeds are now considered the assets of the guardian and do not transfer to the minors. The cash also now faces exposure to the creditors and spouse of the guardian named as a beneficiary Instead, parents should leave the money to a trust for the children and name the guardian, or another trusted and responsible person, as the trustee of the trust.

3. Failing to consider powers of attorney for adult children. When your children reach age 18, they’re adults in the eyes of the law. If something unfortunate happens to them, you may be left without any say in their treatment or even access to their medical records. In the event that an 18-year-old becomes ill or has an accident, a hospital won’t consult with their parents if a power of attorney for health care isn’t in place. Further, without a financial power of attorney, a parent may not be able to take care of bills, make investment decisions or pay taxes without the child’s signature. This could create an issue when your child is in college—especially if he or she is attending school abroad. It is very important that when your child turns 18 that you have powers of attorney put into place.

Reference: Fox Business (October 15, 2019) “Here are the top estate planning mistakes to avoid”

Estate Planning Is for Everyone, at Every Age

As we go through the many milestones of life, it’s important to plan for what we know is coming. Equally important is planning for the unexpected. An estate planning attorney works with individuals, families, and businesses to plan for what lies ahead, says the Cincinnati Business Courier in the article “Estate planning considerations for every stage of life.” For younger families, having an estate plan is like having life insurance: it is hoped that the insurance is never needed, but having it in place is comforting.

For others, in different stages of life, an estate plan is needed to ensure a smooth transition for a business owner heading to retirement, protecting a spouse or children from creditors or minimizing tax liability for a family.

Here are some milestones in life when an estate plan is needed:

Becoming an adult. It is true that for most 18-year-olds, estate planning is the last thing on their minds. However, most states consider these people to be legal adults, and their parents no longer automatically control many things in their lives. If parents want or need to be involved with medical or financial matters, certain estate planning documents are needed. All new adults need a general power of attorney and health care directives to allow someone else to step in if something occurs.

That can be as minimal as a parent talking with a doctor during an office appointment or making medical decisions during a crisis. A HIPAA release should also be prepared. A simple will should be considered, especially if assets are to pass directly to siblings or a significant person in their life, to whom they are not married.

Getting married. Marriage unites individuals and their assets. For newly married couples, estate planning documents should be updated for each spouse. Marriage often means two individuals will merge their estate plans, so documents need to reflect this. A review of their accounts and assets is also good to make sure the new spouse becomes a joint owner, primary beneficiary, and initial fiduciary. In addition to the legal documents of wills, powers of attorney, healthcare directives, something else that needs to be updated to the name of the new spouse or trust are beneficiary designations. This is also a time to start keeping a list of assets, now that someone else may need to access accounts.

When children join the family. Whether born or adopted, the entrance of children into the family makes an estate plan especially important. Choosing guardians who will raise the children in the absence of their parents is the hardest thing to think about, but it is critical for the children’s well-being. A nomination of guardian can make the transition smoother and prevent unnecessary delays in the court system during an already difficult time. A revocable trust may be a means of allowing the seamless transfer and ongoing administration of the family’s assets to benefit the children and other family members.

Part of business planning. Estate planning should be part of every business owner’s plan. If the unexpected occurs, the business will benefit from advance planning by having a set of procedures in place. The owner’s family will also be better off, regardless of whether they are involved in the business. At the very least, business interests should be directed to transfer out of probate, allowing for an efficient transition of the business to the right people without the burden of probate estate administration.

If a divorce occurs. Divorce is a sad reality for more than half of today’s married couples. The post-divorce period is the time to review the estate plan to remove the ex-spouse, change any beneficiary designations, and plan for new fiduciaries. It’s important to review all accounts to ensure that any controlling-on-death accounts are updated. A careful review by an estate planning attorney is worth the time to make sure no assets are overlooked.

Upon retirement. Just before or after retirement is an important time to review an estate plan. Children may be grown and take on roles of fiduciaries or be in a position to help with medical or financial affairs. This is the time to plan for wealth transfer, minimizing estate taxes, and planning for incapacity.

Reference: Cincinnati Business Courier (Sep. 4, 2019) “Estate planning considerations for every stage of life.”

‘Bye Bye Love’ Rocker Ric Ocasek Cuts Wife Out of Will

In a world where many stars have their estates dragged through the probate court, it can be a relief to see a celebrity use estate planning documents to accomplish their post-death goals. One example is Ric Ocasek.

The language in the will was very clear, according to the article “Cars singer Ric Ocasek cuts supermodel wife Paulina Porizkova out of will” from Page Six. There was no provision for his wife Paulina since they were in the process of divorcing. He added that even if he died before their divorce was finalized, she was not to receive any elective share “… because she has abandoned me.” This highlights the fact that Ocasek thought through different possibilities, and the lack of ambiguity makes it easier for a court to administer the will.

It was Porizkova who found Ocasek’s body in September while bringing him coffee as he recovered from recent surgery. The couple had two sons together and had called it quits in May 2018, after being married for 28 years. They met on set during the making of the music video for the Cars’ song “Drive.”

A filing with Ocasek’s will stated that his assets included $5 million in copyrights, but only $100,000 in tangible personal property and $15,000 in cash. The document did not detail the copyright assets.

That may seem like a small estate for someone with Ocasek’s fame. However, an attorney who examined the document told The New York Post that it was likely the Cars’ frontman probably had more assets protected through trusts, yet another indication that Ocasek was very intentional about his estate plan.

Like other high-profile performers who have considerable assets and who are savvy about finances, it’s possible that he has many more millions of dollars. Thanks to proper planning, however, they will not pass through probate and will be protected from the public view and scrutiny. That is why people use trusts, especially when they are public figures.

The Cars’ singer also seems to have left two of his six sons out of the will. The children he had with Porizkova were not left out of the will. Even though this may seem harsh, it’s possible that the sons who were left out of the will were compensated through other means. There may have been trusts set up for them, or life insurance proceeds.

The document indicates that the will was signed on August 28, less than a month before his death.

Ocasek died of heart disease on September 15. At the time, he also suffered from pulmonary emphysema. Mario Testani, his friend, and business manager is named as the executor.

The advance planning done in Ocasek’s estate is a lesson in how trusts and other estate planning methods can be used to maintain an individual’s privacy, even if some of their other assets pass through a will.

Reference: Page Six (Nov. 7, 2019) “Cars singer Ric Ocasek cuts supermodel wife Paulina Porizkova out of will”

Second Marriages Need A Plan to Protect Children and New Spouses

There are a number of issues in estate planning that are more important in second and subsequent marriages, as discussed in the article “Estate planning documents for second marriages” from the Cleveland Jewish News. A couple who each have children from a prior marriage are planning to marry again and blend their families. Consequently, the couple needs to address income taxes, a prenuptial agreement, pension and 401(k) benefits, Social Security, college funding, cost-sharing, and estate planning documents.

Here’s an example of how important estate planning is for blended families. A couple who each have children from their prior marriages get married. Twenty years later, the husband dies. He had wanted to provide for his second wife, so his will stated that all his assets went to his wife. They had the understanding that on her death, those assets would go back to his children.

What actually occurred was that his wife lived a long time after he passed, and she simply combined their assets. When she died, the money went to her children, and her husband’s children received nothing. The husband’s children didn’t believe that he meant to do that, but because of the lack of planning, that’s exactly what happened.

What were the alternatives? He could have set up a marital trust that would have held the assets for his second wife on his death, but upon the wife’s passing, would have gone back to his children. The trust document could prohibit the wife from transferring the assets in the marital trust to her children, and instead, guarantee that any assets remaining at her death would go to his children.

It’s wonderful to have a verbal agreement with your spouse, but if you don’t set up a formal legal plan, there’s no way to be sure that assets will be distributed as intended.

Another way to ensure that children from a blended family receive what they are intended is to have an independent person or entity, like a bank or a trust company, oversee a marital trust.

Other important documents include a durable financial power of attorney, durable health care power of attorney and a living will declaration.

Just as important as remarriage, anyone who has been divorced needs to review their estate planning documents to ensure that they reflect their new marital status, especially when they marry again. That is also the time to review beneficiary designations that appear on insurance policies, 401(k)s, pensions, retirement accounts, and investment accounts.

There’s no “set it and forget” plan for estate documents, so before you walk down the aisle a second time, or shortly after you do so, speak with an estate planning attorney to clarify your goals and put them into the appropriate estate planning documents.

Reference: Cleveland Jewish News (May 7, 2019) “Estate planning documents for second marriages”

Do Name Changes Need to Be Reflected in Estate Planning Documents?

When names change, executed documents with the person’s prior name can become problematic. For example, what about a daughter who was named as a health care representative by her parents several years ago, who marries and changes her name? Then, to make matters more complicated, add the fact that the couple’s daughter-in-law has the same first name, but a different middle name. That’s the situation presented in the article “Estate Planning: Name changes and the estate plan” from nwi.com.

When a person’s name changes, many documents need to be changed, including items like driver’s licenses, passports, insurance policies, etc. The change of a name isn’t just about the person who created the estate plan but also their executors, heirs, beneficiaries and those who have been named with certain legal powers through power of attorney (POA) and health care power of attorney.

It’s not an unusual situation, so there are some different solutions that can address this situation. It’s pretty common to include additional identifiers in the documents. For example, let’s say the will says, “I leave my house to my daughter Samantha Roberts.” If Samantha gets married and changes her last name, it can be reasonably assumed that she can be identified. In some cases, the document may be able to stay the same.

In other instances, the difference will be incorporated through the use of the acronym AKA—Also Known As. That is used when a person’s name is different for some reason. If the deed to a home says Mary Green, but the person’s real name is Mary G. Jones, the term used will be Mary Green A/K/A Mary G. Jones.

Sometimes when a person’s name has changed completely, another acronym is used: N/K/A, or Now Known As. For example, if Jessica A. Gordon marries or divorces and changes her name to Jessica A. Jones, the phrase Jessica A. Gordon N/K/A Jessica A. Jones would be used.

However, in the situation where the sisters-in-law had such similar names, most attorneys want to have the documents changed to reflect the name change. First, the names are too similar, as are their relationships with the testator. It is possible that someone could claim that the person wished to name the other person. It may not be a strong case, but challenges have been made over smaller matters.

Second, the document being discussed in the case above is a healthcare designation. Usually, when a health care power of attorney form is being used, it’s in an emergency. Would a doctor make a daughter prove that she is who she says she is? It seems unlikely, but the risk of something like that happening is too great. It is much easier to simply have the document updated.

In most matters, when there is a name change, it’s not a big deal. However, in estate planning documents, where there are risks about being able to make decisions in a timely manner or to mitigate the possibility of an estate challenge, a name change to update documents is an ounce of prevention worth a pound of trouble in the future.

Reference: nwi.com (October 20, 2019) “Estate Planning: Name changes and the estate plan”

When Selecting Beneficiaries Gets Overlooked

Here’s one way to mess up your estate plan: naming beneficiaries not by name, but by the generic term “children.” If yours is a blended family, your stepchildren may be out of luck, according to the article “Five mistakes to avoid when naming beneficiaries” from Delco Times. In many states, stepchildren aren’t recognized if the word “children” is used. Use their full names.

Here are more mistakes that people make about beneficiaries:

Failing to name a beneficiary on every account. The great thing about beneficiary designations as that they do not go through probate and beneficiaries receive assets directly from the custodian of the account. However, if you fail to name a beneficiary, the asset, whether they are life insurance proceeds or the entire balance of a 401(k) account, will go to your estate. If it exceeds the statutory limit, then it will need to go through probate.  For retirement accounts, your heirs will also lose the ability to stretch withdrawals over their lifetime.

Failing to name a contingent beneficiary. What if the first person passes away before you do and there’s no contingency beneficiary named? The asset will be treated as if there were no beneficiaries named at all, and it goes through probate.  If both the sole beneficiary and the owner die at the same time, all of the funds must similarly go through probate.

Neglecting to review beneficiary selections on a regular basis. Beneficiary designations override a will, so it’s very important to keep them current. Every few years, review the accounts that you own and see what your beneficiary designation choices are. This is especially necessary if you have been divorced, widowed or remarried. If you fail to take your ex-spouse off an insurance policy, for instance, there’s little that can be done when you die—even if you put your wishes that a new spouse or children receive the proceeds in your will. This will likely cause the issue to go to court, which will soak up precious time, resources, and anxiety.

Not communicating with your partner and family members. Talking with family members and loved ones about your wishes for your legacy and asset distribution is an important way to let them know what to expect when you die. It’s not an easy conversation, but it will be helpful to all. Knowing you have a plan will alleviate them from the worry of the unknown, and it prevents unexpected surprises. There’s no need to talk specific dollar amounts unless you want to. Instead, give them a high-level overview of what your intentions are.

Some families find these conversations easier in the presence of an objective third party, like your estate planning attorney. If your estate plan includes trusts or any complex planning strategies, a family meeting provides a means of explaining the plan and the processes involved.

Reference: Delco Times (October 6, 2019) “Five mistakes to avoid when naming beneficiaries”

Am I Too Young to Think About Estate Planning?

It’s wise for younger generations to consider estate planning early, advises The Cleveland Jewish News in the recent article “Younger generations should focus on estate planning, too.” Don’t be fooled into thinking that an estate plan is only for older people or the ultra-wealthy. In fact, there are many younger adults who may need it, especially if they have been financially successful and also have experienced changes with marriage and families.

This is especially important for young people who are in committed relationships. A young married couple should talk together about their vision and goals for their financial, health, and legal affairs, in case something happens to one of them or within their families.

Estate plans provide some certainty in an otherwise uncertain life. There are many reasons to start early. One reason is that you never know what’s going to happen. You want to make certain that all of your assets are in place.

When creating an estate plan, there are a few things that younger people should consider, such as making sure all their accounts have named a beneficiary. This includes life insurance, retirement, and checking and savings accounts. These beneficiaries need to be reviewed on an ongoing basis and updated for life and family changes.

Many younger adults will be fine with just a will, a financial power of attorney, and a health care power of attorney. However, marriage is a time when people begin to have more complexity in their professional lives. This can include starting a business or becoming leaders at companies and that may require more complex and protective plans.

While younger generations are known to be independent and to try to meet all their needs online, estate plans should be treated differently. There are numerous online tools or ‘do-it-yourself’ strategies, but professional legal assistance can make it an easier and a more thorough process. Remember, when you meet with an attorney, you are not just getting the papers; you are also receiving their guidance and expertise, crafted to address the needs of your specific situation.

Start as early as you can and set the foundation for more complex planning that will come in the future. This preparation will mean less stress for those left behind after you pass away.

Reference: Cleveland Jewish News (September 19, 2019) “Younger generations should focus on estate planning, too”