Paul O. Dillon, Attorney at Law

Discussing Estate Planning in the Holiday Season

With so many families living in distant states, the holiday season is often the only time everyone is together. A family gathering can provide a chance to talk about major life changes and plans for the future, including estate planning issues. It can be tricky to navigate. However, some conversations are simply better in person. A recent article from Independent Record, “How to tackle estate planning with loved ones this holiday season” outlines topics to cover.

Beneficiary Designations. Upon opening savings, investment and retirement accounts, an option is usually provided to name a beneficiary. This tells the financial institution who is to receive the asset upon the owner's death, similar to how a beneficiary is named on a life insurance policy. There are often contingent beneficiaries if the primary has died or does not want to receive the assets.

Beneficiary designations should be checked every few years and when certain triggering life events occur, like death, divorce, or marriage. Some financial institutions have default beneficiary designations, so the owner should also have this information. The beneficiary receives these assets outside of the will, avoiding probate in most cases. Tax treatments of these instruments may differ, so they should be reviewed with an estate planning attorney to see how they work with the estate plan.

Power of Attorney. The POA is a document allowing an individual to name someone to make decisions on their behalf if they are incapacitated. This document should be discussed with the chosen person, usually a spouse, adult child, trusted friend, or an estate planning attorney, with their consent. If there are issues with family members, a non-family member may be a better choice.

There are different types of POA. A durable POA takes effect immediately and doesn’t expire. A non-durable POA is valid for only a specific period of time. The healthcare POA, also known as a healthcare proxy, is also needed for another person to be involved in medical care: spouses are not automatically given these rights. A HIPAA release form should also be in place, so the POA can talk with doctors and others involved in medical care.

Wills and Trusts. If there is no will, the person’s assets are distributed according to the laws of the state, which, in most cases, is decided based on kinship. Most people opt to have a will to decide how their assets are distributed.

Trusts establish a separate legal entity managed by a trustee, who also oversees distribution at the time indicated in the language of the trust. Unlike a will, assets in a trust are distributed privately and outside the court system, meaning they don’t pass through probate. An experienced estate planning attorney creates a trust to meet the specific needs of the grantor.

It’s a good idea to talk about these issues while the family members are well and able to discuss them with a clear head. An estate planning attorney will help with guidance and could also help figure out how to navigate issues when potential conflict exists. During and after the holiday season, estate planning protects loved ones and ensures that wishes are followed.

Reference: Independent Record (Nov. 25, 2024) “How to tackle estate planning with loved ones this holiday season”

Three Key Steps for Estate Planning When You Don’t Have Children

In many ways, estate planning is relatively simple for people who have children. They expect their adult children to be involved in their care as they age and are usually named beneficiaries of their wills. For those who don’t have children, according to a recent article from The Wall Street Journal, “Estate-Planning Priorities for People Without Children,” estate planning becomes a bit more complicated.

When there are no children, seniors need to face serious questions to prepare for aging, from who will be in charge if I become sick to who is going to be in charge of my funeral. There are three essential matters that single people without children need to address.

Plan for Long-Term Care. One study determined that the average 65-year-old will need about $150,000 for healthcare during retirement. For people with no children, long-term care insurance is something to purchase in mid-life, starting around 40 years old. If no next of kin is available to provide care, the policy can cover some of the costs of home care or care in a nursing facility.

Fewer companies sell long-term insurance today than in the past. However, policies are still available. Many are sold as hybrid policies, incorporating life insurance and long-term care coverage. Others allow policy owners to take out at least part of the money contributed as cash. Some even have a death benefit. Others have an inflation rider to protect against rising costs.

Determine who you can count on for help. Without children, people generally turn to their spouses if they have one, siblings, nieces, or nephews to take on roles like Health Care Proxy or Durable Financial Power of Attorney. The people chosen for these roles can also be friends as long as they are reliable and trustworthy.

If no family members are available, consider a friend or neighbor, preferably someone younger. Often single agers name other single agers for important roles, which leaves them all vulnerable to the possibility of disability or death of their trusted decision makers. Other options include doctors, estate planning attorneys, financial advisers, or a social worker to serve as healthcare proxies. A bill-paying service might be in an excellent position to serve as a Durable POA as long as the relationship is established before it’s needed and the service is ethical.

Power of Attorney and many similar estate planning documents are state-specific, so meet with an estate planning attorney in your state to be sure you have the documents you need and that they are valid. Discuss the roles of the people you pick to eliminate any surprises. A secondary person should consistently be named if the primary POA is unavailable or chooses not to take on the role when the time comes.

Make the executor’s life easier with detailed preparations. This applies to people with children, as well as childless people. Check your beneficiary designations on financial accounts, including life insurance, investments and retirement funds. Write down your wishes for funerals or other types of memorial services. Have an estate planning attorney create a will and a trust, if appropriate, and tell the person you’ve chosen as executor where these documents can be found. Don’t make a difficult job harder by making them search through paper files and your computer to figure out your estate.

Your estate planning attorney will be able to provide guidance about how to address the issues accompanying a child-free life. These extra steps will give you considerable peace of mind.

Reference: The Wall Street Journal (Nov. 12, 2024) “Estate-Planning Priorities for People Without Children”

Make Life Easier for Heirs: Get Your Estate Organized

The holiday season is not when most of us think about death and dying. However, we do think about gift-giving. Estate planning is a gift for your family. Wouldn’t you prefer a package wrapped in festive paper and decorated with ribbons than an unwrapped item hastily stuffed into a shopping bag? The article “5 Things to Do Now to Make Your Estate Simpler for Your Heirs” from The Wall Street Journal offers a starting point.

Update all estate planning documents. Failing to update estate planning documents, including finalizing new documents, can wreak havoc on families. One example is a woman who took about two decades to update her will and then died before signing the papers. Her will included giving assets to stepchildren she hadn’t seen in more than twenty years. Her adult children are spending thousands to have the new will enforced by a judge, even though it’s unsigned.

When did you last examine the beneficiary designations for all your financial accounts? Life insurance, retirement accounts, bank and investment accounts, pensions and other financial accounts provide an opportunity to name a person or people to receive the assets directly upon your death. If your old college pal is the person you thought of when you started your 401(k) with your first job, your wife may not appreciate his receiving hundreds of thousands of dollars upon your death.

Named beneficiaries receive assets directly from the financial institution and do not go through probate. No matter what language is in a will or even a living trust, these assets belong to the people you named to receive them. You should have a list of all of these accounts and know who the beneficiaries are.

Digital assets are now part of estate plans. There are very few people today who don’t have digital assets. These include the content in your emails, photos stored on the cloud, websites, content on social media platforms, online businesses and anything you’ve created online. Most people don’t understand the Terms of Service Agreement they make between the service provider and themselves when they click on the link to approve the TOSA. However, this is a legally binding contract delineating what the platform owns and what the user owns. You may not own books, movies, or other digital assets; you might have rented them unknowingly.

Digital assets need to be organized for heirs, since there isn’t a paper trail for them to follow like in previous decades. You can create a spreadsheet, use a password manager or a pad of paper.  However, there should be a means for your digital executor to identify and access your digital assets.

Some digital platforms allow you to name a “legacy” contact who can take care of your digital assets after you’ve passed. You’ll need to go through each of your digital assets to find out which platform has this or related features. If it seems annoying, imagine how your heirs will feel trying to untangle your digital assets.

If your estate includes cryptocurrency, this is especially important. Millions of dollars of crypto have been lost because people have failed to secure their pass keys or digital wallets.

Deal with personal property now. Especially if you have multiple heirs, hoping the kids “work things out” could be a recipe for disaster. Make a list of your personal items and who you want to receive what. In some families, this is relatively straightforward. However, your adult children will be grieving after your passing and vulnerable to disputes. Another tactic: give items while you’re living.

Get your estate planning documents organized. Create a three-ring binder with all essential documents. Contact information for your estate planning attorney, CPA and financial advisor should be provided. Include a list of bills paid online, like utility, mortgage, taxes, health insurance, car insurance, etc. Also included are Power of Attorney, Health Care Power of Attorney, Living Will, Trusts and other estate planning documents. Tell your executor and adult children where the folder is.

An organized estate plan helps avoid family conflict. Having documents prepared, property assigned and accounts recorded all takes time. However, by doing so, you’ve minimized the work for loved ones and minimized reasons for quarrels during what will already be a difficult time.

Reference: The Wall Street Journal (Nov. 14, 2024) “5 Things to Do Now to Make Your Estate Simpler for Your Heirs”

Is Charitable Giving Part of Your Estate Plan?

Legacy gifts and complex assets can be used in charitable giving to create a lasting impact for donors, heirs and the nonprofits they benefit, according to a recent article from Wealth Management, “Unlocking the Power of Complex Assets and Legacy Gifts in Philanthropy.”

Legacy donations, sometimes referred to as planned giving, involve gifting assets to a charity through trusts, wills, or beneficiary designations. These donations can be made during the donor’s lifetime, upon the donor’s passing, gifted all at once, or in a steady stream. Several trusts specifically allow for making donations, with Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs) among the most widely used.

An estate plan incorporating charitable giving should include educating family members about their own role in philanthropy. Creating a tradition of giving and service teaches the importance of compassion and social responsibility as part of the family’s legacy.

Legacy donations are often made through Donor-Advised Funds (DAFs). The estate planning attorney should discuss how donations are made to ensure that they align with the estate plan. Donations can be made annually, based on a percentage of the fund’s year-end balance, or structured according to the donor’s wishes.

Donating illiquid assets may yield greater benefits for a nonprofit than cash gifts. Nevertheless, some charities are reluctant to accept non-cash assets, since they may need to manage the assets and/or liquidate them. The DAF may provide a means of converting assets into cash for charitable giving.

A common gift to nonprofits is real estate property. The nonprofit may not have the money to maintain the property until it is sold, then sell the property. Instead of selling it and paying capital gains taxes (which will reduce the amount of money the charity receives), the donor can gift it to a DAF. The DAF facilitates the transfer, alleviating the nonprofit from the transactional work involved in real estate transactions.

Tax policy has recognized the social benefit of charitable giving for many years, acknowledging that donated assets aren’t income and shouldn’t be taxed. Legacy and complex asset gifts are not taxed as long as they are donated to charities recognized as 501(c)(3) organizations.

There have been some recent attempts to change the tax treatment of gifts, so an estate planning attorney should be consulted to ensure that all charitable giving falls within the current regulations and yields benefits for both donors and charity.

Reference: Wealth Management (Nov. 6, 2024) “Unlocking the Power of Complex Assets and Legacy Gifts in Philanthropy”

How Does a Special Needs Trust Work?

The most straightforward description of a special needs trust is designed to hold assets for a disabled person without putting benefits received from the government at risk. It’s essential for those planning for a loved one’s future to understand how special needs trusts work, how they are funded and what they can and cannot accomplish. A recent article appearing in Success, “What Is a Special Needs Trust?” provides more insight.

Individuals with disabilities who qualify for financial support through Medicaid or Supplemental Security Income (SSI) must have limited assets and income. They become ineligible for benefits and resources if they exceed their state’s limits. A Special Needs Trust (SNT) keeps assets separate.

An estate planning attorney creates the SNT and names a trustee for the funds. The trust's assets are to be used for housing, transportation, education, health and other expenses not covered by government benefits.

In some cases, the SNT shouldn’t be funded until necessary. Once money or other assets are in the trust, its use is restricted. Parents are advised to ensure that well-meaning grandparents or other family members don’t bequeath assets directly to their disabled loved ones. They have the option of creating an SNT of their own or bequeathing assets to the SNT created by the parent.

There are different kinds of SNTs. A Third-Party Special Needs Trust is created by a parent or other involved person to benefit a disabled child. If any assets are in the trust when the beneficiary of the trust dies, the person who created the trust decides who receives them. They may choose to donate the assets to a charity or a family member.

If an adult becomes disabled later in life, a different type of trust is used: a First Party Special Needs Trust. These trusts are created to own the assets of the disabled individual. For instance, if someone becomes disabled due to a car accident and receives a legal settlement, the money would go into the trust. This allows the disabled person to continue to receive government benefits. When the person dies, the funds spent on their care are paid back to the government through the Medicaid Repayment Program.

Parents or loved ones need several other legal documents to protect themselves and their disabled family members. An estate planning attorney will draft a will to ensure that the parent’s assets pass into the Special Needs Trust. Everyone should have a Power of Attorney and Medical Power of Attorney to protect themselves in case of incapacity.

Checking beneficiary designations is especially important if a family member receives funding from a Special Needs Trust. The person named on the beneficiary designations receives assets upon the owner’s death, which could put their government benefits at risk. All assets must go into the Special Needs Trust to protect their Medicaid eligibility.

Planning for the future is essential for parents of disabled children and adults. It can’t fix everything, but it can relieve some of the worry, knowing that their loved one’s future is protected.

Reference: Success (Oct. 20, 2024) “What Is a Special Needs Trust?”

How Does Property Pass to Heirs in Estate Planning?

Not everyone understands how different kinds of property pass to heirs. This becomes problematic when heirs learn they aren’t receiving assets they thought would automatically pass to them — or when taxes or court costs take a big bite out of their inheritance. A recent article from The News-Enterprise, “Understanding how property passes on is crucial to planning,” explains how assets are distributed.

There are four general categories for how property can pass to beneficiaries upon death: joint ownership, POD (Payable on Death) accounts, trusts and wills. Most estates include a combination of these methods. However, every estate plan is different and should be crafted to meet the individual's unique needs.

A primary residence typically passes to a joint owner, usually a spouse or domestic partner. This is why homes are owned by “Joint Tenants with A Right of Survivorship.” Property owned with a JTWRS title passes to the surviving owner when one of the owners dies. This is often how married couples own homes and joint bank accounts. These rules vary by state, so check with your estate planning attorney to be sure you own your home correctly.

Jointly held assets can also be owned without a right of survivorship. Each person owns a separate interest in the property, and ownership continues after death. When one owner dies, several steps must take place to distribute the decedent’s share to their heirs. A case will need to be opened in probate court, and a will needs to be submitted if there is one. Without a will, the decedent’s shares pass to their nearest heirs by kinship.

If you don’t like your relatives, having a will is necessary to prevent your assets from going to the wrong people.

How assets are owned should be clarified during estate planning. Many cases involve surviving spouses going to court against their own children because the ownership of joint property wasn’t established with a right of survivorship.

When accounts are set up as Payable on Death (POD) or Transfer on Death (TOD), the assets go directly to the person named on the account. It sounds simple and speedy. However, there are some risks. The assets may return to the taxable estate if the intended beneficiary dies before the primary owner. If the beneficiary receives means-tested benefits because of a disability, they might become ineligible for benefits like SSI or Medicaid. Even a small distribution could disrupt years of careful planning, if it is directly into their own name.

Trusts are commonly used to pass assets privately and smoothly. The distribution directions follow the trust's language and can be tailored as needed. Assets can be distributed based on meeting certain conditions, like getting married or attaining a college degree. A trust can also distribute specific percentages of the trust at certain ages.

Assets not distributed through the three methods described above pass through a will and the probate process. If there is no will, the laws of the state determine who inherits the property.

An experienced estate planning attorney uses well-formed strategies to help clients consider how assets are best passed to their heirs. Keep in mind that every situation is different, so what your neighbor or best friend may have done may not be suitable for you and your family. A consultation with an estate planning attorney is the best way to be sure that your wishes are followed.

Reference: The News-Enterprise (Oct. 12, 2024) “Understanding how property passes on is crucial to planning”

How Does Estate Planning Protect Couples with Big Age Gaps?

A decade-sized age gap doesn’t seem like much when you are 38 and he’s 57. However, as you get older, the age difference can lead to challenges, including those concerning estate planning and long-term care. There needs to be enough resources for the surviving spouse if the older spouse passes first, which isn’t always the case. According to a recent article, “Estate Planning for May—December Couples,” from Next Avenue, finances, wills and estate plans must consider the age difference.

The U.S. Census Bureau reports the average age gap in traditional marriages as 3.69 years. However, in some Western countries, about 8% of all traditional couples have an age gap of 10 years or more.

One couple had a nearly 20-year age gap when they sat down with an advisor. The husband had three grown children from a prior marriage and didn’t want to put his second wife’s financial security in jeopardy if he should die first. His will needed to be drafted so she would inherit the home outright, while also providing his three children with an equal share of remaining assets after a certain period.

Naming someone who is not also a beneficiary to be the executor of your estate may be especially helpful here. Someone who isn’t going to benefit from an inheritance may be more objective about how assets are distributed. During their years of practice with families of all types, experienced estate planning attorneys see all kinds of family situations, including couples in subsequent marriages with large age gaps. They can help navigate the best way for wealth to be distributed to protect both the younger spouse and any children from prior marriages.

A few essential tasks:

Review and update beneficiary designations on accounts like life insurance, retirement accounts and other assets.

Be clear in conversations about your intentions for personal property and document your wishes in your will. Family disputes over heirlooms, regardless of their value, can happen if you haven’t put those wishes in writing.

If the older spouse dies and the young one remarries, it’s possible the new spouse could inherit the older spouse’s assets unless good estate planning is done. The older spouse may consider leaving assets in a marital trust designed to benefit the surviving spouse. This way, the surviving spouse has access to funds as needed. However, upon the surviving spouse’s death, the assets go to the older spouse’s other beneficiaries.

Couples should always have a Power of Attorney, Health Care Power of Attorney and Living Wills created when working with an estate planning attorney. The medical power of attorney allows another person to make medical decisions in case of incapacity. A Living Will outlines what treatments you do or don’t want if you are terminally ill or injured. These documents vary by state and, just like your will, should be personalized to reflect your wishes.

Reference: Next Avenue (Sep. 5, 2024) “Estate Planning for May—December Couples”

Estate Planning Success Supported by Speaking with Heirs

Because we are reluctant to discuss wills, many families only learn what their loved ones want to happen with their property after funeral services, and grief has made everyone fragile. A recent article from Success, “Will Power: Why Transparency in Estate Planning Matters,” explains how family members can share their wishes with loved ones during difficult times.

People not used to dealing with large sums of money may not have plans for tax-efficient wealth transfer. This includes parents who have devoted their lives to saving for retirement and need a plan both to use their accumulated wealth and pass it on to the next generation. Without an estate plan, inheritances could be diminished or lost entirely to taxes.

For beneficiaries, knowing they may be receiving an inheritance should lead to advance planning. Inherited IRAs, for instance, need to be inherited and retitled correctly, or the entire amount could be subject to taxes. Anyone expecting to inherit assets should speak with an estate planning attorney to learn what steps they need to take beforehand.

Discussions about inheritances and last wishes are opportunities for families to connect on a deeper level than planning a Thanksgiving menu. Providing ample time to have these discussions can also allow families to work through any issues before it’s too late.

These are not easy conversations. They may not be possible for every family. Another option is to create a personal message via video or write a letter explaining your intentions. Whichever way you decide to communicate your wishes, it doesn’t need to be an overly long message. A simple explanation of what you’ve decided and why may be enough.

When you create an estate plan, start by inventorying all your assets, checking how they are titled and finding out which assets have beneficiary designations. Assets like life insurance policies, investment accounts and some bank accounts with beneficiary designations pass directly to beneficiaries and are not included in your probate estate. Check on beneficiary designations to make sure you’re not leaving a surprise present to a college pal you haven’t spoken to in three decades—unless you want them to receive a surprise.

Be especially careful if you decide not to give your heirs equal distributions. This can often lead to litigation against the estate, assets lost to legal fees and damaged family relationships. Your estate planning attorney will have strategies for how you might distribute your assets to be fair to all of your loved ones.

Surprises are good for birthday parties but bad for estate planning. Revealing a hidden secret in a will after you have passed will shadow your legacy.

If you haven’t updated your will in more than three or four years, now is a good time to tackle this task. Include your new, up to date will in a folder with other documents, including Power of Attorney, Living Will, Healthcare Proxy and other estate planning documents. Ensure that your executor knows where the folder is, so it can be accessed in case you become incapacitated or pass.

Having an estate plan created by an experienced estate planning attorney, who will be able to guide you through the process, is a gift to the family. You’ll enjoy the peace of mind of knowing you did the right thing.

Reference: Success (Sep. 12, 2024) “Will Power: Why Transparency in Estate Planning Matters”

Do You Need a Will and an Estate Plan?

Dying without a will can cause your family to go through at least a year, maybe longer, of probate, fights over property distribution, and, in many cases, litigation against each other. This is probably not the legacy you have in mind, which is why this aptly-titled article, “You need a will and here’s why,” from Lincoln County Leader, is a good read.

Dying intestate, the legal term for dying without a will, means the local jurisdiction will be in charge of how your estate is handled. Each state has its own laws for distribution. In most states, distribution is based on kinship or bloodlines, so if you have relatives, they may be first in line for your inheritance.

In some states, when there is no will, the surviving spouse receives 50% of all assets, and the remaining assets are divided equally among the children. In other states, the spouse gets 30%, with the children receiving the balance. You must have a will if you want your spouse to receive 100% of your assets. If you have children but no spouse, they will usually inherit everything in equal shares.

If you have no children and no spouse, property distribution can become more complicated unless you have a will. The court may give your parents your estate if they are living. If your parents have passed, your siblings are the next likely heirs. The court will seek to identify your closest relatives by kinship, and they may inherit all of your worldly goods.

If there are family heirlooms, you want to give to a particular child, or if you want to have a portion of your estate go to a charity, it won’t happen without a will.

Today’s family often is a bit more complicated than in the past. Blended families need to have estate planning so biological children aren’t disinherited. Estranged relatives could end up with your precious heirlooms unless a will is in place.

What if your children are minors? A will is used to name a guardian for children, so they are brought up by the people you trust. The court will decide who will raise your children if you don’t name a guardian in your will. Also, minor children cannot inherit property, so if you die, your spouse will get their share as per your state’s laws, and the children’s inheritance will be overseen either by the court or by a person named by the court.

Having a last will and testament allows you to direct who is to inherit your assets, from personal items to financial assets. But you need to do more to protect yourself and your family, and this is part of the estate planning process.

When you sit down with an estate planning attorney, they will also review matters, including beneficiary designations (i.e., the people named to receive assets upon your death on life insurance, retirement accounts, and certain financial accounts). They’ll also advise you on documents like a Power of Attorney and Medical Power of Attorney, which allow you to name someone to take care of your financial and healthcare matters if you become incapacitated.

Taken all together, an estate plan provides security for your family, protects you while you’re living, and creates a legacy of caring about the ones you love.

Reference: Lincoln County Leader (Aug. 4, 2024) “You need a will and here’s why”

How Does Probate Work?

Very few Americans know how long it takes to settle an estate or how probate works and are surprised when their inheritance takes months, if not years, to arrive. This, according to an article from USA Today, “Inheritance on hold? Most Americans don’t understand the time and expense of probate,” may become a problem over the next twenty years. During that time, boomers, who control about half the wealth in America, will be passing, and as much as $84 trillion is expected to move from one generation to the next.

Most inheritances are expected to go to millennials, who don’t know if their parents have an estate plan. Only half have spoken with their parents about estate plans, and more than half of all millennials don’t have a will or trust in place.

The tendency to avoid what we don’t understand, plus our discomfort with talking about money and death, is something to overcome, say estate planning attorneys.

The first parent to die isn’t where most people encounter probate. If the parent had an estate plan created, their will usually passes most assets to the surviving spouse or to a trust set up for beneficiaries. However, when the second parent dies, the adult children are the ones to deal with serving as executors, selling the family home, paying estate taxes, and waiting for probate to be finished before receiving their inheritance.

Some accounts pass by beneficiary designations, where the account owner names the people, they want to receive the asset upon their death. These assets don’t go through probate and are more straightforward for heirs.

State laws differ, so if your parents live in another state, the will is probated where they live. If there is no will, the court will apply state laws to distribute property, and the family won’t have any say in what happens to a person’s property, which could include items with great sentimental value, investments, and real estate.

Step one is working with an experienced estate planning attorney to create an estate plan to avoid or minimize probate. The estate plan also includes documents to control who will manage assets if a person becomes incapacitated, as well as who will manage their medical care. These documents are Power of Attorney and Health Care Power of Attorney.

Talking with parents, or parents talking with their children, about estate plans, is very important for all concerned, even if it is difficult. If children live in different stages, an online gathering is better than waiting until everyone is together for a holiday.

Reference: USA Today (July 30, 2024) “Inheritance on hold? Most Americans don’t understand the time and expense of probate”