Paul O. Dillon, Attorney at Law

Should You Gift Kids Inheritance Now, or After You’ve Passed?

This is a genuine dilemma facing millions of parents and grandparents as they prepare to pass an enormous amount of wealth—$73 trillion—to the next generation. There are pros and cons to both approaches, according to the article, “Give the Kids Their Inheritance Now or Make Them Wait? 3 Things to Keep in Mind,” from Barron’s.

Giving too much too early could put parents in an economic bind in their later years. Therefore, this needs to be considered in light of today’s longer life spans. However, if you can afford to make a generous gift and your children could use the money now for a good purpose, it’s hard to justify making them wait.

How much to give is as critical as when to make the gift. The predominant concern is if you give your children too much, they won’t be motivated to earn their own wealth, or other family members will resent the gift. Estate planning attorneys and financial advisors routinely speak with families about these issues. These conversations always consider the values they want to instill in their children.

In some cases, parental support can help a child while working at an entry-level (i.e., low paying) job in their dream career. Covering the cost of rent for a few years can offer young adults a support net until they achieve financial stability.

This is very different than paying the expenses of a young adult with no career goal whose primary focus is a robust social life.

Anyone can make a yearly gift to any other person of up to $17,000 tax-free, or $34,000 per couple, but there are ways to make gifts without triggering gift taxes. Direct tuition payments to schools are tax-free. Unlike putting money into a 529 account, there is no limit to how much can be paid directly to a college or university. Parents and grandparents could also help with a downpayment on a child’s home without paying gift taxes.

Gifts don’t have to be large to have an impact. Some parents and grandparents give their children or grandchildren a small amount to start saving for retirement. A gift of a few thousand dollars during their 20s can grow into a nice sum over many decades. If the recipient has earned income, you can contribute to their IRA or Roth IRA accounts.

If assets are limited, consider giving personal possessions, such as jewelry or family heirlooms, to younger generations. You’ll get to see them enjoy their gifts, without putting your own financial situation at risk.

Whenever the decision is made to make these gifts, families should talk about their values and intentions around money.

If there are concerns about children losing an incentive to work because of the family’s wealth, a spendthrift trust might pass wealth along while controlling its distribution.

Remember that today’s generous federal estate tax rules are set to expire in 2026. Currently, individuals can gift up to about $13 million ($26 million for couples) tax-free in their estate plans. If the exemptions expire, this amount will be cut by approximately half.

Reference: Barron’s (Nov. 4, 2023) “Give the Kids Their Inheritance Now or Make Them Wait? 3 Things to Keep in Mind”

The Team Behind a Successful Estate Plan

Most advisors stick with their areas of knowledge. The estate planning attorney drafts the necessary documents, your CPA files tax returns and the investment advisor fine tunes assets. However, coordinating these professional silos is critical to ensuring your estate plan works, says a recent article from Forbes, “Your Estate Plan Must Be Coordinated To Work.”

Communication needs to extend past advisors to key loved ones and people you name in roles, such as agents, trustees and executors. Many people find these discussions awkward. However, preparing heirs and fiduciaries for their roles and setting expectations is a crucial step to avoid issues during transition periods. Some of the most significant estate planning problems arise when the baton is passed, such as if you fall and become incapacitated. You need to be sure your agents know what is expected of them and when they will be called upon to perform their respective tasks.

Coordinating advisor actions will save time and expense in the long run. Your estate planning attorney, CPA, trust officer, wealth advisor and insurance broker should know what each other is doing on your behalf. Many people shy away from doing this because of concerns about cost. However, not doing it can lead to much larger expenses.

You want to foster coordination and collaboration, in a controlled and cost-effective manner. One way to do this is to have advisors prepare a summary of key points, facts and decisions following your meetings, so you can circulate it to other advisors. This way they all know what is being done and can share their knowledge and experience if they think something is wrong or won’t work as planned.

One example of what can happen when advisors are not coordinated is paying bills from incorrect accounts. For instance, if you incur legal fees for the estate plan but pay them from a trust account or business entity, a creditor could argue this is a personal benefit from a trust you are not a beneficiary of, or you’ve violated the business purpose of an entity, which could expose all trust or entity assets.

Your estate planning attorney should know how your assets are titled, which are owned jointly, or other designations used to avoid the terms of your will and/or any trusts. Beneficiary designations, wills and titles must be planned and coordinated to avoid derailing your estate plan.

If you die and an asset is owned in your name only, the asset will go through probate and be distributed according to the terms of your will. If you are incapacitated, your agent, under your financial Power of Attorney, must act concerning the asset to help pay bills.

Many people opt to have assets held in a joint name so that on death, the asset will pass to the named joint owner without going through the will and probate. If the person named as the joint owner is not the same as the POA, you may have created a logistical nightmare. How will the POA pay bills if the joint owner does not cooperate?

Coordinating professional advisers is as important as coordinating family members. There are many different agents and positions to be appointed. People often sign a financial POA with their estate planning attorney, and no one looks closely at any conflicting appointments.

The same kind of issues occur with health care agents. There are several different health care documents, and you’ll want to coordinate them to eliminate the possibility of conflicting appointments. The key to achieving this is diligence, communication and follow-up.

Reference: Forbes (Oct. 31, 2023) “Your Estate Plan Must Be Coordinated To Work”

Selling the Family Home When Moving into New Living Situation

When an aging relative decides the time is right to move into an assisted living or continuing care facility, families face many decisions. This is often a difficult but necessary step for older individuals with trouble living independently or planning for their future needs. A recent article from Herald—Standard, “How to handle selling a home when moving into an assisted living facility,” offers suggestions to help families navigate the process.

First, speak with an estate planning attorney to have a trusted, responsible family member be named Power of Attorney. Individuals moving into assisted living may not have any cognitive problems at the time of the move. However, selling a home for a family member who develops dementia can present complex challenges. Only a person with legal capacity may transfer their home to a new owner. Having a Power of Attorney allows a family member to step in and manage the transaction without needing to go to court and have a guardian named.

Talk about the situation and the sale with the aging family member. They will need time to process the idea of selling their home and moving. Homeowners make untold sacrifices and compromises to buy and maintain their homes, so the decision to sell a beloved home is almost always very difficult and brings out a range of emotions.

Throughout this process, an open and honest dialogue about what can be achieved by selling the home and improving their quality of life will be helpful.

Sorting through belongings is an extremely hard task. A lifetime of memories and a loss of their independence are all wrapped up in the contents of a home. It will be impossible to take the entire contents into a one or two-bedroom apartment. Take the time to sort through belongings with your family members and select certain items to give them a sense of home in a smaller space.

If possible, try to pass on some items to younger family members. Most importantly, handle this process with as much compassion as possible.

Keep all relevant people involved and current throughout the process. This is particularly important if the family members are scattered in different states. Adult children who live far away and can’t be active participants in this process shouldn’t be dismissed and left out. Open communication with other family members will minimize the chances of objections when the sale and move take place.

Finally, because this is perhaps the largest and last financial transaction, make sure the sale of their home is done with an eye to their estate plan. There may be ways to minimize tax exposure for the individual and their estate plan. Confer with an estate planning attorney to avoid any missteps.

Reference: Herald-Standard (Oct. 27, 2023) “How to handle selling a home when moving into an assisted living facility”

How Estate Planning Conveys Your Wishes

When musical legend Prince died, it took six years in court to determine who would inherit his worldly possessions because he didn’t have an estate plan. While most of us aren’t dealing with a Prince-sized estate, no family needs to go through the turmoil and expense of fighting over a loved one’s estate. That’s where estate planning comes in, as explained by the article “Let your dying wishes be known by estate planning—before it’s too late” from Star Tribune.

The biggest step is getting started.

Estate planning involves taking inventory of all your assets and liabilities and deciding how you want survivors to deal with these upon your passing. The main legal methods used are wills and trusts. However, a comprehensive estate plan also includes health care directives, or living wills, along with powers of attorney for financial and health care decisions.

Your estate plan should include funeral plans. However, these must be available immediately after your death, so loved ones can follow your wishes. If they are in your will, they may not come to light for weeks after your funeral has already taken place.

Prepaying for your funeral may not be possible for everyone. However, finances aside, it’s best to have all these estate planning angles covered in advance. Have a conversation with your family, so they understand your wishes and goals.

Probate is the legal process dictating what happens to assets when you die. Who makes these decisions depends upon whether you have a will. If you have no will, a court-appointed representative deals with your estate according to state laws. Property is gathered, inventoried, debts are paid and what’s left over is distributed to heirs.

In most states, estates pass to spouses. If there is no surviving spouse, children receive any inheritance or obligation in equal shares. If there are no children, assets might go to parents, siblings, nieces, nephews, or other relatives. Every state has different laws, so consult with an estate planning attorney to learn what your state will do in the absence of a will.

In blended families, this can become more complex, since stepchildren have no legal right to inherit.

If there are no heirs or no relatives that can be identified, assets are then deposited with a county treasurer until claimed.

When there is a will, a person you name in the will to manage your affairs, the executor, will oversee managing the estate. However, a probate court must first deem the will valid and approve the named executor.

The probate process varies by jurisdiction, with some being more time-consuming and costly than others. For this reason, many families rely on the use of revocable trusts. It takes a little more work at the start of the estate planning process but streamlines distribution and protects heirs.

The will contains specific instructions for real estate, personal property and any other assets without a beneficiary designation. Most retirement savings accounts and life insurance policies have a beneficiary named and the assets go directly to the heir, bypassing probate.

Think of a trust like a Ziploc bag—during your lifetime, it is easily opened, and assets can be moved in and out as you wish, including changing who will receive what. When you die, the bag becomes an irrevocable trust, and the trustee deals with everything contained in the trust as per the trust's instructions.

A well-planned estate brings peace of mind to parents, who know they have done right by themselves and their family. It also fosters conversations about admittedly difficult topics, helping most families prepare for one of life’s eventualities.

Reference: Star Tribune (Oct. 30, 2023) “Let your dying wishes be known by estate planning—before it’s too late”

Make Sure These Documents are Part of Your Estate Plan

Let’s be frank—no one likes to think about death and end-of-life arrangements. However, being prepared for the inevitable is not only a smart thing, it’s a kindness for loved ones. A recent article, “12 Documents to Prepare Now for Your Heirs,” from U.S. News & World Report, explains what you must do and how much harder it will be for loved ones if you don’t take these steps.

Failing to put your estate in order means family or friends will have to rely on probate court to determine the distribution of your property. Depending on your jurisdiction, this could create lengthy delays, additional court costs and unwanted outcomes. Heirs may also miss out on life insurance proceeds, or accounts may be overlooked if no one knows they exist.

Last Will and Testament. A will is used to name an executor to manage your estate, outline your wishes for property distribution and name a guardian for any minor children. You can use it to make arrangements for pets. However, a pet trust is enforceable and may be a better solution.

Trusts. A “funded” trust bypasses probate and gives more control over how assets are distributed. For instance, a trust can stipulate minor children do not receive access to their funds until a specific age or milestone is reached. Even with a trust, parents of minor children still need a will to name a guardian.

Letter of Explanation. Sometimes called a letter of intent, this document provides the rationale for instructions in the will. This can be especially important if assets are not being divided equally. Expressing your intentions may help avoid animosity between family members. Consider having a family meeting at your estate planning attorney’s office if this is awkward. With your attorney present, a neutral location may be easier and less confrontational than a discussion at home.

Asset Inventory. Create a complete list of all financial accounts and named beneficiaries. Each account may have a designated beneficiary or transfer on death provision. People often forget about these beneficiaries, so they should be checked to be sure they are correct.

Personal Items Inventory. If you want specific items to go to specific people, list them in your will. In some states, a personal property memorandum can be used for tangible property.

Power of Attorney. The POA is for use while you are living. If you become incapacitated because of an illness or accident, the POA lets a designated person make financial and legal decisions on your behalf. A Health Care POA allows a person to make medical decisions. Everyone should have these documents.

Life Insurance Policies. Heirs won’t know if you have policies unless you tell them. Keep records of your life insurance plans with important financial papers.

Real Estate Documents. Records like deeds, assessments, titles, mortgage statements and tax information should be included with documents prepared for heirs.

Recent Tax Returns. Tax returns contain a wealth of information for executors. Share the name of your CPA, so they can guide your family through filing final tax returns for your estate.

Online Accounts. Create a list of usernames and passwords and store it where heirs can access the information.

Digital Estate Plan. You’ll need a digital estate plan to provide directives of what you want to happen with your digital assets, including social media accounts, websites, digital photos, intellectual property and other files and documents. On certain platforms, you can designate a legacy contact who can access and manage your data after death.

Final Wishes and Arrangements. Your final wishes should be shared with your executor and family members. If you’ve made prearrangements for a funeral, memorial service, burial, or cremation, make sure that the information is shared. It’s a great relief for family members to know what you want rather than having to guess.

Reference: U.S. News & World Report (Oct. 27, 2023) “12 Documents to Prepare Now for Your Heirs”

How Can a Trust Be Used for Long-Term Care?

More than a few seniors who are retired or nearing retirement lose sleep worrying over being able to afford the expense of long-term care, including nursing home care, which can cost thousands monthly. The fallback option for many Americans is Medicaid; according to a recent article, “Long-Term-Care planning using trusts,” from the Journal of Accountancy., Medicaid is a joint federal-state program requiring spending down assets.

To be eligible for long-term care through Medicaid, a person’s “countable” assets must fall below an extremely low ceiling—in some states, no more than $2,000, with some provisions in some states protecting the “well” spouse. States vary in terms of which assets are counted, with many exempting a primary residence, for example.

For many people, planning for Medicaid for long-term care may consider the use of an irrevocable trust. The basic idea is this: by transferring assets to an irrevocable trust at least five years before applying for Medicaid for long-term care, the Medicaid agency will not count those assets in determining whether Medicaid’s asset ceiling is satisfied.

If the planning is done wrong, there is a risk of not qualifying, thereby defeating the objective of creating the irrevocable trust. In addition, any tax planning may be undone, causing liquidity and other problems.

Some people plan to qualify for Medicaid even though they have asset levels as high as $2 million or more. Much of this may be the family’s primary residence, especially in locations like New York City, with its elevated real estate market. Costs at nursing homes are equally high, with nursing homes costing private-pay patients upwards of $20,000 a month, or $250,000 per year.

Timing is a key part of planning for Medicaid. Many estate planning attorneys recommend clients consider planning in their mid-to-late 60s or early 70s to move assets into a Medicaid Asset Preservation Trust, also called a Medicaid Asset Protection Trust.

This is because of Medicaid’s five-year lookback period. Most states have a five-year look-back period for both nursing home and home health care. If any transfer of countable assets has been made within the preceding five years of applying for long-term-care Medicaid, there will be a penalty period when the person or their family must pay for the care. The penalty is typically measured by the length of time the transferred assets could have paid for care, based on the average costs of the state or the region.

While there is no way to know when a person will need long-term care, statistically speaking, a person in their mid-to-late 60s or early 70s can expect to be healthy enough to satisfy the five-year lookback.

Why not simply make gifts to children during this time to become eligible for Medicaid? For one reason, there’s no way to prevent a child from spending money given to them for safekeeping. A trust will protect assets from a child’s creditors, and if the child should undergo a divorce, the assets won’t end up in the ex-spouse’s bank accounts.

Using a trust for Medicaid planning could be combined with gifts made to children or assets placed in trust for children, depending on the individual’s financial and familial circumstances.

The creation of a Medicaid Asset Preservation Trust is critical. The estate planning attorney must seek to accomplish two things: one, to say to Medicaid that the settlor, or creator of the trust, no longer owns the assets. At the same time, the IRS must see that the settlor still owns these assets and, therefore, receives a basis step-up at death.

An experienced estate planning attorney will be needed to advise you and create a Medicaid Asset Preservation Trust to meet the Medicaid and IRS requirements.

Reference: Journal of Accountancy (Oc. 9, 2023) “Long-Term-Care planning using trusts”

Estate Planning in Seven Steps

From defining financial objectives and understanding legal issues to safeguarding assets and establishing directives, every step in the creation of an estate plan is a brushstroke in the painting of your personal legacy. A recent article from Market Business News, “Crafting Your Legacy: 7 Steps in the Estate Planning Process,” describes the process of creating what is essentially a testament to protect loved ones.

Create an inventory of assets. You’ll need to be meticulous about this to ensure that all your assets are accounted for. This includes properties, investment accounts, items of value and sentimental possessions. It should include detailed descriptions and appraisals. This forms the foundation of your estate plan.

Consider your family’s needs after your death. Anticipate your family’s financial, practical, and emotional needs. Consider things like educational expenses, healthcare costs, ongoing support for basics, and, depending on your situation, recreational activities. Address this concern in your estate plan, so your family will have a secure foundation after your passing.

Select beneficiaries. This is simple in some cases and more complicated in others. You may have a traditional family or one including non-family members who are like family to you. Are there charitable concerns you want to address?

How do you want your estate divided? Be specific to avoid confusion and ensure that assets are distributed according to your intentions. Language needs to be specific and clear, with no room for ambiguity.

Store documents properly. Safeguard estate planning documents, which include your will, Power of Attorney, Health Care Power of Attorney, Living Will and others, in a secure location, like a fire and water-proof home safe. Do not put them in a bank safe deposit box, as the bank may seal the box upon your death and not allow representatives to access the box’s contents. Talk with your estate planning attorney about their recommendations.

Update your estate plan on a regular basis. Life changes, and so should your estate plan. It should be reviewed every three to five years or whenever there is a life event, including marriage, divorce, birth, or changes in your financial situation. Keeping an estate plan updated ensures that it remains relevant to your life.

Seek help from an experienced estate planning attorney. An estate planning attorney will help you navigate the complexities of legal documentation, tax implications and probate. You’ll want to be sure that your estate plan aligns with state laws. The knowledge of an estate planning attorney will provide you with peace of mind, knowing you’ve done the right thing to protect your family and ensure your legacy.

Reference: Market Business News (Oct. 28, 2023) “Crafting Your Legacy: 7 Steps in the Estate Planning Process”

Can You Amend a Will or a Trust?

It’s the rare person who puts their estate plan together once and never needs to change some part of it. What is important is to understand how to make changes effectively and legally to a will or a trust so these changes are enforceable and your wishes are followed. A recent article from Coeur d’Alene/Post Falls Press, “Amendments to your estate planning documents require certain steps,” explains how an estate planning attorney ensures that your requested changes are made properly.

All too often, people come to their estate planning attorney’s office with handwritten edits and changes to the original language, thinking their notes and a signature or their initials will make the changes legitimate. This is never a good idea.

People also arrive at their attorney’s offices with handwritten addendums written on the front or back of a will or trust document, attached by a staple or paper clip after the original document has been signed. This doesn’t work either.

These approaches create problems because they don’t meet state requirements for a legally valid amendment to a will or trust.

There are two ways to make legally enforceable changes to a will. One is replacing the prior document with an entirely new will document. This new will must explicitly state in the document that all prior wills are revoked and replaced.

The second is to add a document known as a codicil to the old will to clarify exactly which part of the old document is being changed. It typically reaffirms the unchanged other terms of the old will document.

Legally enforceable changes to trusts are similarly done in one of two ways. The first is to replace the prior trust document with an entirely new trust document, although the name and creation date of the trust must remain the same and must state explicitly this is not a revocation of the trust. This is referred to as a trust restatement.

The second way to change a trust is using a trust amendment, which is similar to a codicil of a will. A trust amendment is a new document added to the existing trust document. It states which parts of the original trust document are being changed.

It’s important to speak with a local estate planning attorney about making changes to wills or trusts because each state has its own technical requirements for a will codicil or trust amendment/restatement, which must be followed so the changes will be legally effective.

Just writing on the existing pages of a will or trust never meets the requirements but certainly ensures that there will be major post-death disputes among family members and interested parties. An estate planning attorney can help with any modifications, whether they are large or small, to your will or trust.

Reference: Coeur d’Alene/Post Falls Press (Oct. 25, 2023) “Amendments to your estate planning documents require certain steps”

Estate Planning can Protect Beloved Pets

While pets are still legally considered possessions, they are also recognized as family members deserving of a safe and happy future, says a recent article from The Record-Courier, “Estate planning for pets.”

Estate planning for pets involves creating provisions for the pets’ care and well-being if their owner becomes incapacitated or after the owner’s passing. The goal of estate planning for pets is to be sure that they will receive the same level of care, attention and resources they enjoyed even if their owner is unable or alive to care for them.

Estate planning for pets involves more than securing funds for their care. It requires a complete plan to protect their future, from designating caregivers, addressing specific needs, habits, preferences, daily routines, and personality quirks, considering any legal or financial issues and planning for alternate solutions if the primary plan becomes unattainable.

The more details addressed in the estate plan for the pet, the better protected they will be.

Designating a guardian for the pet is usually the most important step. This is the person you want to care for the pet and probably bring the pet into their home. It is critical to have a detailed conversation with the potential guardian to ensure that they understand what they are being asked to do and ensure they can and are willing to follow your wishes.

You should have one or even two backup guardians, if the primary guardian becomes unable or unwilling to serve. The estate plan should also prepare for a situation where no designated people can care for the pet and provide an alternate solution, such as placing the pet in a no-kill shelter or charging the trustee with finding a good home.

Designation of sufficient funds is also necessary. Consider how long the pet is likely to live, the cost of veterinary care in your community, and any emergency care.

Different legal documents are used to prepare estate plans addressing care for a pet. A pet trust is a legally recognized document, with funds set aside for the pet’s care in the trust, managed by the trustee by the terms of the trust. You can also use provisions in your last will and testament, with a designated individual nominated to care for the pet. However, the trust is more enforceable, with the trustee having a fiduciary obligation to carry out the terms of the trust.

Estate planning with pets in mind is a responsible way to ensure that your beloved animal companions have a secure future even if you cannot provide it for them. Your estate planning attorney will be able to create a pet trust to alleviate any concerns about your pet’s future.

Reference: The Record-Courier (Oct. 21, 2023) “Estate planning for pets”

Revocable Living Trust can Help with Planning for Incapacity

Planning for potential disability and mental incapacity is part of a comprehensive estate plan. Women, in particular, are at a higher risk of becoming disabled, with 44% of women 65 and older having a disability. Most people understand the value of an estate plan. Nevertheless, few know how to use a Revocable Living Trust, or RLT, when planning for incapacity, as explained in the article “Incapacity Planning: The Hidden Power Of A Revocable Trust” from Financial Advisor.

Revocable Living Trusts are highly effective tools to protect assets against failing capacity. Although everyone should have both, they can be more powerful and efficient than a financial Power of Attorney. An RLT offers the freedom and flexibility to manage your assets while you can and provides a safety net if you lose capacity by naming a co-trustee who can immediately and easily step in and manage the assets.

Cognitive decline manifests in various ways. Incapacity is not always readily determined, so the trust must include a strong provision detailing when the co-trustee is empowered to take over. It’s common to require a medical professional to determine incapacity. However, what happens if a person suffering cognitive decline resists seeing a doctor, especially if they feel their autonomy is at risk?

Do you need an RLT if you already have a financial Power of Attorney? Yes, for several reasons.

You can express your intentions regarding the management and use of trust assets through the trust. A POA typically authorizes the agent to act on your behalf without specific direction or guidance. A POA authorizes someone to act on your behalf with financial transactions, such as selling a home, representing you and signing documents. The co-trustee is the only one with access to assets owned by the trust, while the POA can manage assets outside of the trust. Having both the POA and RLT is the best option.

Trustees are often viewed as more credible than a POA because RLTs are created with attorney involvement. POAs are often involved in lawsuits for fraud and elder abuse.

Suppose there is an instance of fraud or identity theft. In that case, RLTs provide another layer of protection, since the trust has its own taxpayer ID independent of your taxpayer ID and Social Security number.

Your co-trustee can be the same person as your POA.

Adding a trusted family member as a joint owner to accounts and property provides some protection without the expense of creating a trust. However, it does not create a fiduciary obligation, enforceable by law, for the joint owner to act in the original owner’s best interest. Only POAs or trustees are bound by this requirement.

Once a POA is in place, it is wise to share it with all institutions holding accounts. Most of them require a review and approval process before accepting a POA. Don’t wait until it’s needed, when it will be too late because of incapacity, to have a new one created.

Talk with your estate planning attorney about planning to create an RLT and POA to ensure that your assets will be protected in case of incapacity.

Reference: Financial Advisor (Oct. 18, 2023) “Incapacity Planning: The Hidden Power Of A Revocable Trust”