Paul O. Dillon, Attorney at Law

Is Estate Planning Just for Wealthy People?

Everyone should have an estate plan. However, if you are a millionaire, you want to have one to protect your estate. Millionaire estates typically include multiple homes, business ownership, art collections, expensive jewelry and collectible cars. However, a modest estate of a home, retirement accounts and a desire to pass wealth on to family members also need an estate plan.

A recent article from Kiplinger, “Estate Planning for Millionaires,” divides wealthy people into several categories: Mass Affluent, with liquid assets between $100,000 and $1 million; High Net-Worth Individuals with at least $1 million; Very High Net-Worth Individuals with at least $5 million; and Ultra-High Net-Worth Individuals with at least $30 million.

Regardless of which category you fit into, you need an estate plan to appoint trusted individuals to handle your affairs in case of incapacity or death. Your estate planning attorney will know which documents are used in your jurisdiction to establish your wishes and ensure that they align with local laws.

An estate plan needs one person who is like a quarterback and can coordinate all of the trusted professionals on your team, including a financial advisor, tax professional and business attorney. These different disciplines must work together for your estate plan to be effective.

Everyone needs to have certain documents: a last will and testament, revocable trust, powers of attorney for finances, powers of attorney for health care and a living will to express wishes concerning end-of-life care. With the information in these documents, executors and family members will know your wishes, which avoids heartbreak for family members.

Once you start working with an estate planning attorney, you’ll need to name a trustee to oversee any assets placed in a trust. You may wish to name a financial institution if you don’t want a family member or trusted friend to take this role.

Business owners often do better with a professional trustee for several reasons. If the business entities are large and complex, will a family member know how to manage the assets? Can they work with the estate planning attorney, business attorney, financial advisor and accountant to steward the assets for the beneficiaries?

Estate planning for people at all levels of wealth also involves tax planning. This is especially important now, with the possible sunsetting of the Tax Cuts and Jobs Act of 2017. Estate tax exemptions are historically high, $13.61 million for individuals and $27.22 million for married couples. On January 1, 2026, those numbers will drop significantly. State estate taxes may change depending on where you live, especially if you live in a state whose estate tax levels are tied to federal estate tax exemptions.

Your unique situation will dictate what kind of trust or trusts you need. An Irrevocable Life Insurance Trust (ILIT) could be used to own your life insurance policies, with customized directions for how you want the proceeds to be distributed upon your death. Suppose you have a family member with special needs. In that case, you’ll want a Special Needs Trust (SNT) to provide financial support for them without putting their eligibility for means-tested government programs at risk.

Gifting to individuals and charities serves several purposes: taking assets out of your taxable estate, in the case of donations, earning tax deductions and letting you enjoy seeing the results of your generosity while you’re still living.

Communicating your wishes to beneficiaries while living is often a wise strategy to prevent misunderstandings and resentments. You don’t have to give specific numbers, but by sharing insights into what you hope to accomplish with your decisions, family members may be less inclined to engage in disputes. They can blame you instead of each other!

Reference: Kiplinger (July 19, 2024) “Estate Planning for Millionaires”

How to Transfer Wealth to the Next Generation

Creating an estate plan is a wise step to protect yourself and your heirs. However, you'll need an estate plan to ensure that your life’s work leaves the legacy you want. This is the clear message from an article in The Washington Informer, “Pass It On: A Plan for Transferring Wealth to the Next Generation.”

A team of trusted professionals, including an experienced estate planning attorney, a financial advisor, and an accountant, can help with this process. An estate plan doesn’t have to be complicated, depending on your lifestyle and asset level.

You’ll need a will. Also known as a last will and testament, this document should provide clear directions for how you want your estate—everything you own—to be distributed. Your will does more than distribute assets, however. Your will includes the person you want to be a guardian for any minor children, the person to be your executor and the person who administers your estate.

An estate plan includes a Power of Attorney. This is a way for you to give another person, often but not necessarily a spouse or adult child, the power to manage your legal and financial affairs if you should become incapacitated. We don’t like to think of ourselves as unable to make decisions or manage money. However, unexpected things happen, and it is far better to have this document in place than to have the court appoint someone to manage our lives.

A Health Care Power of Attorney is also important. This allows you to empower another person to make medical decisions and discuss your care with healthcare providers. Without it, treating physicians will make decisions based on your health, policies set by the health care system, and the law. Your family may not agree with these decisions. However, they won’t be able to challenge them without this document.

You’ll also want a Living Will created by an estate planning attorney. Like the documents named above, these are state-specific documents and need to be made according to the laws of your state. The living will expresses your wishes concerning life-sustaining medicine or medical equipment used to keep you alive if you would otherwise die. It doesn’t give anyone else the power to make these decisions but states what you would want if, for instance, you needed to be fed artificially to keep you alive.

Asset management is also part of your estate plan. Transferring assets into a revocable trust means another legal entity owns the assets. With a revocable trust, you continue to own the asset because you are the trustee, which means you can make any changes whenever you wish. Depending upon your situation, you may do better with an irrevocable trust. An experienced estate planning attorney will help you make informed recommendations.

Reference: The Washington Informer (June 12, 2024) “Pass It On: A Plan for Transferring Wealth to the Next Generation”

Why Do Older People Hide Money in Their Homes?

While this may sound absurd to a cash-free generation, some still take comfort in having stashes of paper money at home. We know one daughter whose mother kept rolls of bills in the freezer and another whose father kept a shoebox of $100 bills in the attic. If the person is known to be a bit eccentric, it may be amusing. However, it is only until the family realizes the difficulties this behavior may present.

For heirs finding these stashes while cleaning out the family home—or mistakenly tossing them—hidden cash inheritances can present a number of problems. A recent article from The New York Times, “When the Money Is Under the Mattress. Or in the Freezer. Or a Shoebox,” explains how this old-school savings plan can go sideways.

Large sums of money thrown in the trash are just one risk. If others learn about the cash stash, having so much cash on hand could lead to the home being broken into. If there’s a fire or flood, the money could be destroyed.

There are more risks: if siblings dispute their parents’ estate plan, a more aggressive person might take the money without telling anyone. If an adult child is the main caretaker while others live far away, there will always be some suspicion. Did they take some cash before sharing the rest with their siblings?

Placing substantial amounts of cash into a savings account can take advantage of the power of compounding interest, which is especially valuable over decades. The only thing cash hidden in a closet will gather is dust.

A cache of cash creates accounting and tax problems as well. There’s no ownership record for cash, so it’s impossible to determine who it belongs to. This can be especially problematic for families whose estates are close to the threshold of the federal or state estate or inheritance taxes. How do you account for $500,000 in cash and gold bars hidden in the home? This happened to an estate planning attorney interviewed for the article.

Cash hoarding can be a result of dementia and Alzheimer’s disease, which can cause paranoia. This makes people feel they need to hide valuables and cash to protect them.

Estate planning attorneys often recommend establishing trusts and taking other steps as soon as possible when adult children notice their parents' diminished capacity. A Power of Attorney and revocable trust could allow the child to manage the parents' finances.

On a practical level, preparing an estate plan and conducting a thorough inventory of all assets, including cash and valuables in the home, makes life easier for heirs. Focusing on finding hidden treasures while grieving the loss of a family member creates a complication for the family and may tarnish a legacy.

Reference: The New York Times (June 8, 2024) “When the Money Is Under the Mattress. Or in the Freezer. Or a Shoebox.”

Smart Estate Planning In 13 Steps

People never understand how expensive it is not to do any estate planning, explains an article from Kiplinger, “13 Smart Estate Planning Moves.” Consider these steps for your estate planning checklist:

The SECURE Act changed distribution rules for non-spouse beneficiaries. The ten-year rule requires most beneficiaries to empty the account within ten years of the original owner’s death. It may be time to rethink how your IRA is invested.

Consider a Roth IRA conversion. This allows heirs to receive distributions tax-free. Consider converting annual distributions instead of moving an entire IRA into a Roth.

Use the annual gift tax exclusion, which is $18,000 in 2024. You can give as many people as you want up to $18,000 without incurring gift taxes. A related choice: superfund a 529 college savings plan, putting five years of gifting into one year—up to $90,000 all at once. Check with your estate planning attorney to see how this could impact your estate plan.

Use up your lifetime gift exemption early. This is especially useful if you believe the gift and estate tax limits will be lowered when the Tax Cuts and Jobs Act expires.

Pay medical or tuition costs directly to the school or healthcare provider as long as checks are written directly to the institution; paying medical bills or tuition doesn’t count towards the annual exclusion or estate tax exemption.

Talk with your estate planning attorney about a Spousal Lifetime Access Trust. This is an irrevocable trust for a spouse, with each spouse opening one for another. The trusts must be different to avoid drawing the IRS's attention.

Find out whether carrying forward any remaining estate tax exemptions unused by a deceased spouse is right for you. If you have appreciated assets, a bypass trust might be better.

Protect yourself and your estate from creditors and litigation with a domestic asset trust. This irrevocable, self-settled trust is available in twenty states. The person funding the trust can be the grantor.

Explore the use of revocable trusts. Some may not help with avoiding probate or trimming taxes but may work well for managing assets as you age or if you have health problems and expect someone to help manage your finances.

Make a plan for Medicaid and Special Needs family members. The massive cost of nursing home care makes this a necessity. Discuss the creation of a Medicaid Asset Protection Trust with your estate planning attorney.

Simplify your investment life. If you have investments in multiple accounts and different bank accounts, your executor will have more work to do.

Consider whether or not your estate should be managed by a professional, especially if you have a particularly argumentative or litigious family.

Finally, don’t delay having your estate plan created or updated. We all think we have plenty of time until we don’t. Meet with an estate planning attorney to update or create a new plan.

Reference: Kiplinger (May 9, 2024) “13 Smart Estate Planning Moves”

Stay-at-Home Parents Need an Estate Plan

Any family’s estate plan must address all aspects of life, planning for incapacity and death. It’s easy to overlook the Stay-at-Home Mom (SAHM) or dad. They don’t have paychecks, raises, reviews, or PTO. But, overlooking the importance of what the SAH parent does for the family is a big mistake, and this includes neglecting estate planning, according to a smart article from The News Enterprise: “Stay-at-home parents must be deliberate about estate plans.”

For one thing, life insurance needs to be in place for both spouses. It may be easy to define the amount of insurance for the spouse working outside of the home, but the SAH parent’s tasks also need to be insured.

How long will the children be at home needing care, and what would daycare or a caretaker cost? How much would it cost to hire someone to cook, clean, do laundry, and run the household?

If children are home-schooled, how will the SAH parent be replaced? Will the children start attending public school, or is private school more aligned with the family’s values?

It’s easy to think the working parent will slide into these tasks, but unrealistic, as any single working parent will tell you. The children will be dealing with grief and emotional upheavals—adding a stressed parent to the mix who is also dealing with grief will make for a terrible situation.

In addition to having the right amount of life insurance, estate planning documents should be prepared with an eye on this possibility. The last will and testament is used to name a guardian for minor children, who will be responsible for raising the children if both parents are unable to care for them because of death or incapacity. A revocable trust should be considered, and a trustee should be appointed to ensure the funds are available for the children’s care and education.

The revocable trust can also ensure the children are not disinherited if the surviving spouse remarries.

This plan needs the review and guidance of an experienced estate planning attorney to ensure the will is correctly created to protect the children and set up any needed trusts.

Stay-at-home parents are often the glue keeping the family running. Replacing them isn’t possible—but preparing for life’s ups and downs will help the family adjust to any major changes.

Reference: The News Enterprise (May 25, 2024) “Stay-at-home parents must be deliberate about estate plans”

What Happens If You Inherit a Parent’s House?

Inheriting your parent’s home is a combination of sadness, relief, and worry. The last one can be avoided if the right planning is done in advance, says a recent article, “6 lessons I learned from inheriting a parent’ s house” from Bankrate. When all these feelings are combined with navigating the inheritance among siblings, things can get complicated quickly.

Many people think children automatically inherit a house when their parents die, but this isn’t true. It’s possible for children to inherit without a will, but it doesn’t always happen. Every state has its own laws about who inherits what in the absence of a will. Without a will, there will be unpleasant surprises for the family.

Parents need to talk with their children to tell them if they have a will or estate plan and where the will can be found. If there is no will, the parents must meet with an estate planning attorney as soon as possible to ensure their wishes are documented.

Wills and estate plans are never completely done. Wills need to be updated as circumstances change over time. A will created while a parent is in their 50s may not reflect the family's status ten years later. Let’s say one sibling is disabled and receives means-tested government benefits. If the sibling is left something in the will, their benefits could be cut off. If the sibling was well ten years ago, the estate plan didn’t include a special needs trust, which would allow the family to provide for the disabled sibling without putting their benefits at risk.

The general rule for reviewing wills is to review wills every three to five years. They may not always need updating, but they definitely need reviewing.

Heirs need to put everything in writing if they have been left assets like the family home as a group. Siblings will have different lives and needs, so inheritances need to be clarified and documented. A verbal agreement is asking for trouble, even in the best of circumstances. If something happens to a sibling and their spouse has a different idea of what they want to happen to their share of the house, for instance, the way forward won’t be pleasant.

It's best to plan how your assets should be managed after death. Would a revocable trust work better to keep the family home out of probate? If the home is placed in a revocable trust upon the death of the owner, the ownership of the home goes to a trustee, avoiding probate.

Plan ahead and expect surprises. Inheriting a home isn’t great for every family, as it comes with costs. Property taxes, maintenance, and utility costs might make home ownership a burden rather than a blessing. Parents need to think carefully about whether or not inheriting the home will work for the family.

Consulting with an estate planning attorney in advance can facilitate a discussion about how best to pass the family home onto the next generation or determine it’s not in everyone’s best interests. Leaving a legacy of careful planning is as much a gift to the family as the home itself.

Reference: Bankrate (May 3, 2024) “6 lessons I learned from inheriting a parent’ s house”

How Does a Revocable Trust Work?

A revocable or living trust is a document created by you while you are living, creating a separate legal entity to hold title to property or receive property by being the designated beneficiary of financial assets. Real estate is moved into the trust by recording a deed for the real estate into your trust, according to the article “What are the pros and cons to putting my home in our trust” from Coastal Point.

There are many benefits to having property in a revocable trust, including probate avoidance, especially when you use one trust to hold property in more than one state, thereby avoiding having the estate go through probate in more than one state. Trusts are also used to make the administration of an estate easier and maintain property in further trust for beneficiaries within the initial trust. Trusts are also used to maintain privacy, since a revocable trust is never a public record in most states, unlike a last will and testament.

The revocable trust can be more expensive and time-consuming to set up initially. Nevertheless, they save the beneficiaries time and money after the death of the grantor (the person creating the trust). They can be a little more difficult for people to understand than the traditional last will and testament. However, the overall pros usually outweigh the negatives.

Probate is the process by which the court approves the validity of the will and the plan to distribute assets to beneficiaries. When someone dies, and their real estate and assets are not in a trust, the estate is probated, meaning an estate is opened at the Register of Wills in each state where the person owned real estate. The assets of the decedent are tied up for at least eight months, so any creditors of the decedent can submit claims against the estate. After the period of time required by each state, check with your estate planning attorney to find out about your state’s process. The estate can be closed, and assets can be distributed.

The main benefit of placing real estate in trust is to avoid probate. This not only saves time and expense but allows the property to pass immediately to the beneficiaries, be sold to a third party, or otherwise be disposed of following the instructions in the trust. Holding assets in trust also provides privacy and lets you be very specific about what you want to happen to those estates.

If the trust is revocable (as opposed to irrevocable), you also have a lot of flexibility. Changes can be made to the terms, contents and distributions as wished by the grantor. The trust can even be revoked entirely, if wished. A revocable trust remains private and is not part of the public record.

Be sure to fund the trust once it is created, either by retitling deeds or other asset ownerships. Knowing exactly how to title the property deed or make proper changes to account names is something your estate planning attorney can help with.

Reference: Coastal Point (Feb. 15, 2024) “What are the pros and cons to putting my home in our trust”

Do I Need a Pour-Over Will?

A living trust, also known as a revocable trust, is used in estate planning to transfer ownership of assets in trusts and accomplishes several things. It takes assets out of your probate estate, while permitting you to continue to control the assets. You can be the trustee while living and of sound mind, as explained in the article “What Is A Pour Over Will?” from Forbes. The trust names a backup or successor trustee who manages the trust assets if you become incapacitated or die. The living trust includes the names of your beneficiaries, which may be individuals or charitable organizations.

When you die, assets held in the living trust are transferred using the trust administration process. Assets held (owned) outside the trust must be addressed differently. This usually means going through probate.

If you have no will, your state's intestacy laws will apply. These laws would distribute your assets to family members based on their relationship to you—kinship. This may not be what you wanted, especially if a family member is estranged from you. However, it won’t matter, and other family members will have to live with the court’s decision.

However, you can use a pour-over will to “pour over” any assets not in the trust at the time of your death into the trust after your passing. This ensures that the assets will be transferred through the trust administration as well.

When the living trust is established, assets must be retitled so the trust becomes the legal owner. But you might not do this with everything you own, or you may acquire assets after the trust is created and die before you can transfer them. You might simply forget some assets.

As you create a trust for the specific reason to facilitate effective management and transfer of property through the trust administration process, it makes sense to have all your property moved into that trust upon your passing.

An experienced estate planning attorney can help create the living trust and coordinate it with your will and instructions for all assets not otherwise accounted for to pass into the trust upon your death. You’ll need to work with an estate planning attorney to be sure the trust, will and other estate planning documents comply with your state’s laws.

An estate planning attorney can help you understand other options for transferring assets and provision for loved ones. The pour-over will is one of many estate planning tools available to protect your loved ones.

Reference: Forbes (Jan. 29, 2024) “What Is A Pour Over Will?”

What Should I Do to Get My Affairs in Order?

Estate planning is one of the most important tasks you can do for your family. It has many different steps. Using a checklist can help be sure your wishes are met and simplify the process for loved ones, according to an article from Forbes, “Estate Planning Checklist: Get Your Affairs In Order.” Every plan is different. However, there are several primary steps everyone needs to take to protect their future and secure their legacy.

Identifying What Needs to Happen to Protect Wealth: Asset protection is crucial to estate planning. One way to do this is to create a Medicaid protection plan. Nursing home care is expensive and not covered by Medicare or other medical insurance, except in very limited situations. Medicaid does cover custodial care in a nursing home. However, you need limited assets to qualify. A Medicaid plan helps ensure that you can access care while protecting wealth. Ask your estate planning attorney about a Medicaid Asset Protection Trust.

You may also need to protect assets against creditor claims, be sure an irresponsible heir doesn’t burn through any inheritance, or take steps to limit or avoid estate taxes. All of these can be accomplished with the help of an experienced estate planning attorney.

Consider Your Heirs and Their Needs: You may face unique circumstances impacting the people who inherit your wealth or your ability to provide for them. For instance, a direct inheritance could jeopardize their eligibility if your family includes a special needs individual who receives government benefits such as Supplemental Security Income (SSI) or Medicaid. You may need to have a Special Needs Trust (SNT) created.

Other issues to consider when creating your estate plan include leaving money or other assets to minor children not old enough to inherit or manage funds or leaving money to someone you don’t trust to manage it. By thinking about who you wish to provide for, you can make informed choices about the strategies and tools used to create your estate plan.

A Plan to Transfer Assets: Once you’ve clarified your heirs’ needs and any potential threats to your wealth, you’ll be better positioned to create an estate plan to facilitate the transfer of your property to the people or charities you want after death.

Your estate plan will likely include the following:

• A last will and testament.
• Pay-on-death accounts.
• Jointly owned property.
• Revocable Trusts.
• Irrevocable Trusts.

Prepare for Incapacity: Preparing for possible incapacity should be a key part of your estate planning checklist. This includes:

• Creating a durable power of attorney—to allow someone of your choosing to act on your behalf in managing assets and making decisions for you.
• Naming a healthcare proxy—giving someone the power to make medical decisions for you.
• Creating a living will—allowing you to convey your wishes for medical care regarding being kept alive by artificial means.

Address Other Issues: If you have minor children, your will is used to name a guardian. You may also mention your pets and designate a person to care for them and arrange financial support for their lifetime. You can also include instructions for your funeral, although the will may not be reviewed for a while after your passing. Talk with your estate planning attorney about how to best handle this in your jurisdiction.

Reference: Forbes (Dec. 25, 2023) “Estate Planning Checklist: Get Your Affairs In Order”

Do You Need a Revocable Trust?

Think of your will as a letter to the court explaining your wishes for property distribution. A revocable trust is one of the easiest ways to pass property to heirs outside of probate, says a recent article from The News-Enterprise, “Revocable trusts provide flexibility in estate planning.” Revocable trusts are popular tools to avoid probate, protecting the decedent and beneficiaries.

Another benefit of revocable trusts? The trustee who manages the trust can work on their own timeline rather than worrying about meeting dates set by the court. In most cases, assets can be distributed much faster through a revocable trust than through a will. However, expediency isn’t always the main reason for a trust. Flexibility on timing is another benefit.

Revocable trusts can be held individually or jointly. This is usually determined by how assets are held before being placed in the trust. A joint trust is the more comfortable approach if all assets are owned jointly. Independent trusts usually work best for couples who prefer to keep assets separate.

Revocable trusts also offer several options for the distribution of property on the death of the first spouse.

The most commonly used option is the transfer of all property to the surviving spouse upon the first spouse’s death. All trust property remains in a “survivor’s trust,” which gives the surviving spouse all access and control, including the right to change beneficiaries. This works best for couples who have been married for a long time and share beneficiaries in common.

For blended families, another option is to split the trust assets upon the death of the first spouse between a survivor’s trust and a decedent’s trust. The surviving spouse retains full control over the survivor’s share of the trust property but becomes a beneficiary of the decedent’s trust. If the surviving spouse’s assets are insufficient, the decedent’s trust can be used for the benefit of the survivor. Nevertheless, the surviving spouse may not change the ultimate beneficiaries of the decedent’s trust.

Another option is to pass all assets completely outside of the control of the surviving spouse upon the first spouse’s death. Assets may pass into a family trust to benefit the spouse and other beneficiaries but at the discretion of a trustee. Alternatively, the assets may pass directly to residuary beneficiaries, with no assets left in trust for the surviving spouse.

This is often used when one spouse is unable to manage their own financial affairs or if one spouse is in a nursing home.

Planning should always be designed for the unique needs of each family. If the wish is to avoid probate and protect spouses and beneficiaries, revocable trusts offer many useful options.

Reference: The News-Enterprise (Aug. 5, 2023) “Revocable trusts provide flexibility in estate planning”