Paul O. Dillon, Attorney at Law

Why Cryptocurrency Ownership Demands Estate Planning

A cryptocurrency investor who died in an accident at age 33 had allegedly accumulated about $60 million in Bitcoin, Ethereum, RP, and Cardano. We’ll still never know if this was true because his crypto millions died with him. His estate plan did everything but address his digital assets, reports the article “Estate Planning With Cryptocurrencies” from Think Advisor.

No one knew how to access his cryptocurrency; he left no information about his digital passkeys and lost whatever he may have owned.

As this relatively new asset class continues to grow in value and use, it becomes increasingly important to have a plan to transfer assets to loved ones and protect the wealth from being lost. Many people who are invested in cryptocurrency tend to be younger and aren’t thinking about dying. However, as the example above illustrates, they need to think differently.

Accessing digital investments is impossible without the correct information. Cryptocurrencies are decentralized, so there’s no one to call when the owner dies. Another issue: as investors become wealthier, they are more likely to become targets of scanners who are aware of the vulnerabilities of this asset.

Executors, trustees and heirs must have the information about storage and private keys. Unless someone else knows about private keys and how to access them, the cryptocurrency may be lost forever if you are incapacitated or have died. The cryptocurrency may also be tangible or intangible property, depending upon whether it is stored on an external hard drive, in a digital wallet, or on a cryptocurrency exchange.

Knowing how to access a crypto wallet is critical. However, there’s more to know. Information should not be in a will, which becomes publicly available upon probate. Anyone who has access to the private key can withdraw funds.

A letter of instruction may be the best way to provide information and ensure privacy. For self-custodied wallets, using third parties for security and verification may be a better approach.

It might make more sense to hold cryptocurrencies in trust, making sure the trustees are familiar with digital investments and know how to manage and access the accounts.

As the cryptocurrency sector continues to grow, it becomes more critical to have an estate planning attorney prepare for digital and traditional assets. Smart decisions about how to hold cryptocurrencies will make the difference between a legacy of wealth and millions lost in cyberspace.

Reference: Financial Advisor (Jan. 6, 2025) “Estate Planning With Cryptocurrencies”

Preparing for Life With an Estate Plan

A properly prepared estate plan includes a number of legal documents giving your specific and personal instructions to healthcare providers, financial institutions and the courts in charge of validating your will and overseeing asset distribution after you die.

According to a recent article from Kiplinger, “5 Key Components of an Estate Plan—and 7 Others to Consider,” if you don’t have an estate plan, your state’s government and local courts will make many decisions for you. Worse, your loved ones will need to petition courts to do anything for you, from making healthcare and end-of-life decisions to appointing someone to raise your children or sell your home.

An estate plan is prepared by an estate planning attorney who will know the various legal documents and strategies necessary to protect you and your loved ones. An estate plan includes the following documents:

Living Will. This document expresses your wishes for medical care, with as much detail as you want. For instance, do you want to have artificial nutrition through feeding tubes or blood transfusions if you are unable to give your consent? How do you want doctors to manage end-of-life care, if your body is living but your brain functions have ceased?

Without a living will, doctors will usually take an aggressive stance to keep you alive, even if you have something else in mind. Alternatively, your loved ones might have to make these decisions without knowing what you would have wanted. Having a living will and making sure your loved ones know what you want is a gift to them. Think of the guilt they’ll live with if they don’t know your wishes.

Healthcare Power of Attorney. This POA names someone you trust to make medical decisions when you can’t convey your wishes because of incapacity. They become your healthcare proxy, speaking with your doctors and deciding on treatment for you. Without one, your loved ones won’t be able to be involved in your care without going to court and petitioning to be named healthcare proxy.

You may remember the case of Terry Schiavo, a 26-year-old woman who had a heart attack and was only kept alive through artificial means. Her husband and parents were engaged in a court battle from 1990 to 2005 when a court ruled doctors could remove a feeding tube. Most of these situations don’t make headlines but are no less painful for families.

Financial Power of Attorney. This POA names someone to manage your money, access financial accounts, manage assets and run the day-to-day finances of your life when you are incapacitated. If you don’t have a POA, the court will name someone for you, whether you would have chosen them or not.

There are different kinds of POAs. The Durable POA is in effect the moment it is executed. The Springing POA is only executed when you become incapacitated and may lead to delays. Your estate planning attorney will know which is best for your situation.

Last Will and Testament. A will outlines your instructions for distribution of assets. If you have minor children or other dependents, it names a guardian for them. It also names an executor, the person who will be in charge of managing your estate. Without a will, again, the courts will decide who should receive your assets and raise your children.

An estate plan addresses the use of trusts to distribute your assets without court involvement. If your family includes a disabled individual, your estate plan includes plans for their future. For singles and childless couples, an estate plan spells out who will be able to make financial and healthcare decisions when you cannot.

Consult with an estate planning attorney today to give yourself and your family the peace of mind you all deserve.

Reference: Kiplinger (Jan. 6, 2025) “5 Key Components of an Estate Plan—and 7 Others to Consider”

Do You Need a Will or a Trust?

The start of a New Year is accompanied by wishes to make life better. Planning for the future and protecting the family means addressing your estate plan. A recent article from Parkland Talk, “Start the New Year Right: Why Estate Planning Should Be Your Top Resolution for 2025,” explains the basics of estate planning.

Everyone should have a will, a document setting out instructions for the disposition of your estate after you have died. For many families, a trust is part of an estate plan. This is a document creating a separate legal entity that takes effect once the trust is created. Trusts are used to own and manage assets during and after life. With a trust, you can assign another person to take care of assets in the trust if you become incapacitated.

Wills and trusts are very different legal documents, performing different tasks. The trust is effective while you are living and after you have died, while a will is only executed after you have died. For most people, both a will and a trust make up the foundation of an estate plan. Here are some of the differences:

A will and the property bequeathed in the will are subject to probate, while assets in the trust don’t go through probate.

Wills become part of the public record and can be read by anyone. At the same time, trusts remain private, their contents known only to the estate planning attorney who created them, the grantor—the person who created the trust—and the beneficiaries.

Wills are used to name a guardian for minor children.

Trusts let you control when and how minor children, grandchildren, or other beneficiaries receive assets in the trust.

You manage property in your will, while the trustee manages assets in the trust. An irrevocable trust is managed by the named trustee, while the grantor may be the trustee of a revocable trust.

A court does not get involved with the trust, while the executor, the person named to carry out the instructions in the will, is court-supervised during probate.

A will is only effective upon the death of the testator, the person creating the will. There are no provisions in a will for what should happen if the person should become incapacitated because of illness or injury. The trust is a tool for incapacity.

Both the will and trusts have their uses in a comprehensive estate plan. An experienced and knowledgeable estate planning attorney will help create an estate plan to best suit your needs.

Reference: Parkland Talk (Jan. 6, 2025) “Start the New Year Right: Why Estate Planning Should Be Your Top Resolution for 2025”

Do I Need a Living Will?

Most people have strong feelings about what kind of medical care they want if they are incapacitated but don’t know if they can put those wishes into a legally enforceable document. A living will expresses whether or not you want all means taken to save your life, to refuse medical treatment, or any steps in the middle, according to a recent article from The Wall Street Journal, “A Living Will Covers Your Most Important Asset: You.”

A last will and testament distributes assets, like real estate and investments, and directs what you want to happen after you die. A living will is a separate document addressing healthcare decision-making if you are unable to express your wishes because of being in a coma, having an accident, or being at the end stage of a terminal illness.

There’s a lot of confusion about end-of-life issues in hospitals and emergency rooms. A living will can remove almost all ambiguities.

Everyone should have both a living will and a regular will. However, only about a third of people do. Older people tend to have more living wills than younger people. However, the number of those who have both documents is far too low.

A living will can be very specific. You might want to receive artificial hydration and nutrition but not artificial respiration. You can even add whether or not you want music to be played by your bedside, or whether or not you want to have a visit by a chaplain in the hospital.

Some states have different names for these documents. However, in most states, there is one form called an advanced directive, which includes a living will. You also want to have a healthcare proxy, a document naming a person you want to make medical decisions for you. Your healthcare proxy is also the person who follows the living will directions.

People who are incapacitated and don’t have a living will create confusion and stress for loved ones. Let’s say you have three adult children, and none of them know what kind of care you want. What will they do if the doctor asks them?

Another problem is if you have a living will, but no one knows where it is except you. The living will should be with other estate planning documents. Important people in your life should know where they are located and be able to access them.

If you have a living will, your healthcare proxy should have a copy of it. Ask your doctor if they can include a copy in your patient chart or on the portal they use to communicate and share medical records.

Finally, you’ll want to keep your living will up to date. As you age or illnesses change your health, you may have different feelings about your wishes. The most recent living will with the most recent date will be the one used by medical providers.

The living will is part of your comprehensive estate plan. Like the rest of your estate plan, it is a gift to others so they know what your wishes are.

Reference: The Wall Street Journal (Dec. 2, 2024) “A Living Will Covers Your Most Important Asset: You”

Money Tips for the Coming Year

A fresh start for 2025 should include your financial life and your health and wellness resolutions. A recent article from USA Today, “Start 2025 off right with these 9 money moves,” offers good suggestions to make this new year a good one.

Get out of debt. If you have high-interest debt and high-earning investments, you’re only treading water and not getting ahead. Take care of the high-interest debt first if you want to see your net worth grow.

Try living below your means. Too many of us spend more than we bring in and then try to catch up (See “Get out of debt” above). The more significant the difference between what you earn and spend, the better your savings accounts will grow. If you’re saving for retirement and your kid’s education, changing spending from what you want to what you need will help.

Build an emergency fund. Unless you are lucky enough to have untapped wealth, you need an emergency fund in cash ready to pay for at least three months of non-negotiable expenses. This means taxes, housing, food, transportation, medical expenses, etc. Few people are ready to deal with the economic impact of losing a job, having to replace a car, or needing major surgery. Having an emergency fund protects you from needing to use retirement funds or take on debt to deal with a short-term financial crisis.

Revaluate your portfolio. Investing in great companies for the long haul is how most people set their investment portfolios. However, it makes sense to look at a rebalance every now and then. People who are in their high-earning years may be okay with a 60/40 split between stocks and bonds. However, as you get closer to retirement, you may want to change this. After a few years, when stocks grow faster than bonds, your 60/40 split from a few years ago might have become an 80/20 split.

Maximize retirement accounts. If you can make use of tax-advantaged retirement funds, your future self will thank you. Use IRAs and 401(k)s to build long term wealth. If your company has a matching program, make sure to maximize your contributions using what is essentially free money. Your retirement withdrawals will be tax-free, if you can use a Roth account and pay taxes when you make contributions.

Check beneficiary designations. Make a list of all the financial accounts with beneficiary designations and check to see if the people you named to receive the assets on your death are still the right people. This is especially true if you’ve gone through a divorce, moved, or married.

Get your estate planning documents in order. If you don’t have a will, durable power of attorney, healthcare power of attorney, living will, or advanced directive, make an appointment with an estate planning attorney now to get these documents in order. If you have these documents but they are more than four years old, you’ll want to update them to be sure they still reflect your wishes. If you have young children, be sure your will includes naming a guardian.

Celebrate the New Year by organizing your estate planning and financial life. Next year at this time, you’ll be glad you did.

Reference: USA Today (Jan. 5, 2025) “Start 2025 off right with these 9 money moves”

Do Charitable Gift Annuities Work?

A Charitable Gift Annuity donated to a qualified 501(c)(3) charity creates an immediate tax deduction for a portion of the contribution and a fixed income stream from the charity for as long as the grantor lives. With the minimum contribution usually $5,000, a CGA is accessible for many people seeking to create a legacy and lower taxes, according to a recent article, “How about a gift that pays you back?” from Los Angeles Daily News.

Who could benefit from a CGA?

• A person who wants to give generously but is concerned about having enough income for the future.
• Someone who needs a last-minute tax deduction and has already reached contribution limits for an IRA or 401(k) plan.
• A philanthropic-minded person who wants to leave a large amount or all of their estate to charity and wishes to have the business end of their giving done all at once.
• A donor who wants to avoid or defer capital gains tax on an asset they want to donate to charity.

An estate planning attorney should be involved in creating and executing the CGA to ensure that all requirements are met so that the CGA achieves the desired results and works in tandem with the rest of the estate plan. The estate planning attorney will set up the CGA. You then donate the asset to the charity. The gift is set aside and invested by the charity. You receive fixed monthly or quarterly payments as long as you are living. After your death, the charity receives the funds remaining in the account.

The income tax deduction is the contribution minus the present value of the payments to the donor. The estate planning attorney can make the calculations. Current annuity rates range from 4.6 to 10.1% for 50 and older, based mainly on age. Let’s say someone made a $100,000 contribution. They would receive $4,600 to $10,000 a year from the charity.

The amount received never fluctuates and is fixed so it won’t adjust for inflation. However, it is secured by the charitable organization’s assets and continues at the stated rate, no matter how the annuity investments perform.

Another example: a couple in their 70s funds a Charitable Gift Annuity with $50,000 of appreciated stock originally purchased for $20,000. They will receive an income tax charitable deduction of $17,584 and a payment of 6% or $3,000 a year for the rest of their lives.

This kind of donation is advantageous to both the donor and the nonprofit. The charity needs to be a qualified 501(c)(3), and it’s best to pick a well-established charity with a Charitable Gift Annuity program in place. Your estate planning attorney will be able to review the program to be sure that it aligns with your overall estate plan.

Reference: Los Angeles Daily News (Dec. 29, 2024) “How about a gift that pays you back?”

Millionaires Aren’t the Only Ones Needing Estate Plans

Even at the relatively tender age of 18, people need estate planning documents, even if they only have a Power of Attorney and Medical Power of Attorney. Once those documents are created, parents or the person named in the POA can update their car registration or pay bills while they are away at college. A recent article from Market Watch, “People think $1 million is the magic number to start estate planning—but it’s much lower,” makes a clear case for estate planning at all stages of life.

Surveys show most Americans are ignoring this advice, in part because they prefer not to think about death and because they don’t think they have enough assets to warrant an estate plan. This leaves their loved ones with a terrible burden when they become incapacitated or die unexpectedly.

Those who die without estate planning must know their wishes won’t be followed. They’ll be leaving more of their money to the state and federal government instead. This wouldn't happen if they wanted to give anything to charity.

A survey from Charles Schwab revealed that people think they need to have $1 million to think about protecting their assets during their lifetime and how they want to pass them along after they die. At the same time, nearly half of the people surveyed said they agreed estate planning should happen before reaching this level of wealth.

Almost all people surveyed said they planned to give away, donate, or pass on assets, even though only 57% had a will, and very few said they had an estate plan. An estate plan is a comprehensive plan for the future, including a will, trusts, power of attorney, medical directives and other documents as needed. An experienced estate planning attorney creates such a plan after meeting with couples or individuals and defining their wishes for passing on assets and a plan for incapacity.

Without an estate plan, none of your wishes will be followed. Your family will have to go through an expensive and stressful time of going to court and petitioning the court to name an administrator so they may manage your affairs. By the way, the court is under no obligation to name a family member for this role and could assign it to a complete stranger. Your family will no doubt wonder why you didn’t care for this while living.

Almost all the millennials surveyed said they wanted to give assets away while living, which is nice.  However, they may be more optimistic than boomers about their financial futures. Many older Americans are more cautious, with only 19% planning to gift assets before they die.

Whether you have $1 or $1 million, you need at least the basics of an estate plan: power of attorney, medical directives and a will. The estate plan gives you control over distributing assets and empowers another person to take care of your medical decisions and finances in case of incapacity.

Reference: Market Watch (Dec. 7, 2024) “People think $1 million is the magic number to start estate planning—but it’s much lower”

Why Singles and Child-Free People Need Estate Plans

A growing number of Americans are single or have chosen to be child-free. They may feel they don’t need estate planning, since so many articles about this topic concern couples, children, and grandchildren. However, estate planning can be more important for these individuals, according to a recent article from Yahoo! finance, “Don’t let the government inherit your wealth: Estate planning is essential for those who are single or child free.”

Without spouses and children, most state laws about inheriting property when there is no will rely on kinship or bloodlines, and assets will go to the next of kin, whether you like them or not. The other estate planning issue facing singles and child-free people is planning in advance, so someone you trust can manage your financial life and make health decisions on your behalf if you are incapacitated. All of these things are part of an estate plan.

For starters, review your financial accounts. Which ones allow you to name beneficiaries? If you have nieces or nephews, beloved friends who are your family, or charitable organizations you care about, you could name them to receive these assets.

If you don’t already have a durable and medical power of attorney, speak with an estate planning attorney to get these started immediately. Downloading templates from the web is not a good idea for these documents, as you may give someone expanded powers you didn’t intend to, or they may be deemed invalid. An estate planning attorney will create these documents to reflect your wishes. Do you want someone to be able to pay your bills but not to sell your house? Do you want to be kept on life support only if certain indicators are present? These are specific wishes to discuss and document.

Everyone should have a last will and testament. The will is used to name the executor overseeing your estate upon your passing. They will need to notify the Social Security Administration, Medicare and/or Medicaid and your state’s motor vehicle bureau, of your passing. They’ll also create an estate bank account, file for an estate taxpayer identification number, pay taxes and more. They’ll be in charge of distributing assets according to the directions you’ve left in your will. Without a will and a named executor, a court will name someone you don’t know as your estate administrator.

If you are a member of the LGBTQ+ community, having an estate plan is even more important to protect your wishes and, if you have one, a long-term partner. Without being legally married, even someone who has been part of your life for decades will not have any rights to inherit from you. Another reason to work with an experienced estate planning attorney is that every state’s laws regarding same-sex marriages, domestic partnerships and civil unions vary. An estate planning attorney will make sure that your documents align with state laws.

An unpleasant but necessary fact to consider: financial elder abuse can occur more easily when there’s no one closely involved in your life to keep an eye on you and your finances. Decision-making can be less heartfelt. Will a distant relative deciding on your nursing home pick one you would have wanted, or will their eyes be on their inheritance?

Whether you are child-free, single, or unmarried but in a serious relationship, don’t delay sitting down with an estate planning attorney to map out your future.

Reference: yahoo! finance (Dec. 19, 2024) “Don’t let the government inherit your wealth: Estate planning is essential for those who are single or child free”

Required Minimum Distribution Changes for 2025

One thing you can be sure of about IRAs is that the rules will continually change. Starting in 2025, non-spousal beneficiaries must take withdrawals every year as long as the original owner has reached the age where they had to take RMDs. This and a host of other rule changes are explained in a recent article from U.S. News & World Report, “What to Know About Changes to IRA Required Minimum Distributions for 2025.”

Before the rules changed, beneficiaries who inherited IRAs could stretch out their withdrawals for years if there was money in the account. This avoided major tax burdens, especially when the IRAs were large. In 2020, the new rules made it mandatory for heirs to empty the account within ten years of the original owner’s passing.

For a short while, people understood the rule to mean they could delay withdrawals until the last year. However, this has been clarified. In 2025, annual withdrawals are required, with penalties for failing to comply.

This change will most likely impact high-income earners who inherit IRAs. Timing is the issue. If a parent aged 80 or 90 has children in their 50s and 60s, the children are most likely in prime earning years.

Some are looking for alternatives because of the possibility of being shoved into a higher tax bracket, triggering a net investment income tax, or, for seniors, creating taxes on Social Security and increasing Medicare premiums. One option is to name a qualified charity as the beneficiary of the IRA and gift other assets, like appreciated securities on a stepped-up basis, to heirs.

For some taxpayers, the only tactic is to take regular distributions over ten years. Thinking more expansively, reviewing the marginal tax rate each year, and making strategic decisions from year to year might make more sense. For instance, the year one retires will be better if income drops. Another factor to consider is deciding when to take Social Security based on the size of the RMD.

Another option is to use the inherited IRA funds to pay taxes on converting qualified accounts and traditional IRAs into Roth IRAs.

One change for 2025 will benefit account owners. The penalty for missing an RMD has been cut from 50% to 25%. If the mistake is corrected within two years, the penalty drops to 10%. This is a huge change from the past and reflects the IRS’s willingness to accommodate mistakes. Figuring out how much to withdraw from an IRA has never been easy. The lowered rates soften the penalty pain.

Even with the lowered penalties, mistakes are still expensive. Consult with your estate planning attorney to optimize RMDs as part of your estate plan. You may decide to make some changes to your own retirement accounts in light of these changes. However, they should be coordinated with the rest of your estate plan.

Reference: U.S. News & World Report (Dec. 12, 2024) “What to Know About Changes to IRA Required Minimum Distributions for 2025”

Common Estate Planning Mistakes and How to Avoid Them

Estate planning is something everyone should do to protect themselves while they are living, ensure that assets are distributed according to their wishes after death and prevent families from fighting over estates. A recent article from The Daily Record, “Experts urge early estate planning to avoid costly mistakes,” reminds us we never know when we’ll need our estate plan to go into effect, so having one in place is important.

Remember, estate planning isn’t just about drafting and signing legal documents. It encompasses defining family goals and facilitating conversations to discuss family values and hopes for the future.

Every estate plan needs at least three core documents:

• A financial power of attorney, needed to authorize another person to make financial and legal decisions on your behalf in case of incapacity.
• An advanced medical directive, which gives you the opportunity to express your preferences for medical care, if you’re not able to communicate.
• A last will and testament directing how you want assets to be distributed, naming an executor to administer your estate and naming guardians for minor children.

A common mistake is attempting to use online templates for critical documents like a power of attorney or wills. While it seems convenient and inexpensive, many of these documents fail when reviewed by a court because they don’t follow state law or are contradictory.

An estate plan is a highly personalized document and requires a holistic view of the family’s life and situation. A thorough review of your life, finances and family dynamics is necessary to create an effective estate plan while you are living and after you’ve passed.

Another common error is thinking your family won’t benefit from a trust. However, any family with dependents and assets needs to at least consider a trust. Using a trust can protect your family and your assets from creditors, avoid probate and maintain privacy.

Another mistake is failing to review an estate plan every three or four years. The estate plan might not achieve goals unless it keeps up with changes in tax laws and retirement rules. For example, beneficiaries now have ten years to empty an inherited IRA, when in the past, they had a lifetime to take out withdrawals.

You may want to change your IRA beneficiary if these new rules will create a tax burden for them.

The process doesn’t have to be complicated. However, it does require taking the first step, which is making an appointment to meet with an estate planning attorney. You can anticipate a feeling of relief and peace of mind from knowing you’ve protected loved ones and yourself.

Reference: The Daily Record (Dec. 17, 2024) “Experts urge early estate planning to avoid costly mistakes”