Everyone Needs an Estate Plan!

Everyone should have an estate plan
Every adult needs an estate plan, don’t wait until you have an “estate.”

Every adult, whether we have a lot of property or not, should have an estate plan.  A client once told me they didn’t need a Will because they didn’t have an “estate.”  They thought it meant substantial wealth, but estate planning is much more than that.

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

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

This is by no means an exhaustive list, but here are some milestones in life when you need an estate plan:

Becoming an adult. It is true, for most 18-year-olds, estate planning is the last thing on their minds. However, at 18 most states consider them legal adults, and their parents no longer control many things in their lives. If parents want or need to be involved with medical or financial matters, certain estate planning documents are needed. All new adults need a general power of attorney and health care directives to allow someone else to step in, if something occurs.  Michael Galligan from our office gave a great presentation this summer on this topic.  See here for the video.  https://youtu.be/lZUaMVRRTms  

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

Getting married. Marriage unites individuals and their assets. In community property states like Texas, it creates the new wrinkle of community property.  For newly married couples, estate planning documents should be updated for each spouse, so their estate plans may be coordinated and the new spouse can become a joint owner, primary beneficiary and fiduciary. In addition to the wills, power of attorney, healthcare directive and beneficiary designations also need to be updated to name the new spouse or a trust. This is also a time to start keeping a list of assets, in case someone needs to access accounts.

If this is not the first marriage, there is an even greater need for an estate plan because there may be children from the prior marriage to plan for.  Remember, your assets don’t go to a surviving spouse just because you are married, so you definitely need an estate plan.

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

Part of business planning. Estate planning should be part of every business owner’s plan. If the unexpected occurs, the business and the owner’s family will also be better off, regardless of whether they are involved in the business. At the very least, business interests should be directed to transfer out of probate, allowing for an efficient transition of the business to the right people without the burden of probate estate administration.  You also want to address these issues.  https://www.galliganmanning.com/the-importance-of-business-succession-planning/

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

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

In sum, it is important to realize everyone needs to plan.  Don’t wait because you think you don’t need one.

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

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The Perils of Online Estate Planning

The rise of online estate planning has lead to a rise in problems attorneys discover after the fact, many of which an estate planning attorney could avoid.

While the attraction of simplicity and low cost is appealing, the results are all too often disastrous, affirms Insurance News in the article “Mind Your Mouse Clicks: DIY Estate Planning War Stories.” The increasing number of glitches that estate planning attorneys are seeing in online estate planning after the fact has increased, as much as the number of people using online estate planning forms. For estate planning attorneys who are concerned about their clients and their families, the disasters are troubling, and very difficult to fix in estate administrations.

A few clumsy mouse clicks can derail an online estate plan and adversely affect the family. Here are five real life examples.

Details matter. One of the biggest and most routinely made mistakes in DIY estate planning goes hand-in-hand with simple wills, where both spouses want to leave everything to each other. Except this typical couple neglected something. See if you can figure out what they did wrong:

John’s will: I leave everything to my wife Phyllis.

Phyllis’ will: I leave everything to my wife Phyllis.

Unless John dies and Phyllis marries someone named Phyllis, this will is not going to work. It seems like a simple enough error, but the courts are not forgiving of errors.

Life insurance mistakes. Jeff owns a life insurance policy and has been using its cash value as a “rainy day” fund. He had intended to swap the life insurance into his irrevocable grantor trust in exchange for low-basis stock held in the trust. The swap would remove the life insurance from Jeff’s estate without exposure to the estate tax three-year rule, and the stock would receive a stepped-up basis at death, leading to tax savings on both sides of the swap.

However, Jeff had a stroke recently, and he’s incapacitated. He planned ahead though, or so he thought. He downloaded a free durable power of attorney form from a nonprofit that helps the elderly. The POA specifically included the power to change ownership of his life insurance.

Jeff put his name in the space designated for the POA. As a result, the insurance company won’t accept the form, and the swap isn’t going to happen.

Incomplete documents. Ellen created an online will leaving her entire probate estate to her husband. It was fast, cheap and she was delighted. However, she forgot to click on the space where the executor is named. The website address for the website company is the default information in the form, which is what was created when she completed the will. The court is not likely to appoint the website as her executor. Her heirs are stuck, unless she corrects this, hoping the court will understand. Hope is a terrible estate plan.

Letting the form define the estate plan. Single parent Joan has a 6-year-old son. Her will includes a standard trust for minors, providing income and principal for her son until he turns 21, at which point he inherits everything. Joan met with a life insurance advisor and applied for a $1 million convertible 20–year term life insurance policy. It will be payable to the trust. However, her son has autism, and receives government benefits. There are no special needs provisions in her will, so her son is at risk of losing any benefits, if and when he inherits the policy proceeds.

Don’t set it and forget it. One couple created online wills, when the estate tax exclusion was $2 million. They created a credit shelter, or bypass, trust to reduce their estate taxes, by allowing each of them to use their estate tax exclusion amount. However, the federal estate tax exclusion today is $11.4 million per person. With $4 million in separate assets and a $2 million life insurance policy payable to children from a previous marriage, the husband’s separate assets will go into the bypass trust. None of it will go to his wife.

Online estate planning is dangerous because there is no opportunity to receive legal advice on how to meet your goals in your estate plan.  An experienced estate planning attorney who is licensed to practice in your state is the best source for creating and updating estate plans, preparing for incapacity and ensuring that tax planning is done efficiently.  This post will help you get started.  https://www.galliganmanning.com/how-to-begin-the-estate-planning-process/

Reference: Insurance News Net (Sep. 9, 2019) “Mind Your Mouse Clicks: DIY Estate Planning War Stories”

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What to Know About Continuing Care Retirement Communities

Continuing Care Retirement Communities are great residential options for some, but have many pros and cons to consider when planning your long term care.

With all the different types of residential options for seniors today, it is easy to get confused by the terminology. If you are trying to decide which choice is right for you or your loved one, you need to evaluate several kinds of arrangements. Here is what you need to know about continuing care retirement communities.

A continuing care retirement community (a “CCRC”) offers a continuum of care, from independent living for people who need no assistance, to assisted living that offers some services, to nursing home care that provides skilled nursing care. A person or couple usually move into the level they need, with the option to move to either more independence or more services as their needs change.  See here for more information on different options and how to pay for them.  https://www.galliganmanning.com/practice-areas/elder-law/

The benefit of a continuing care retirement community (CCRC) is you do not have to move to a different facility when you need more medical attention or if your health improves. You would have to move to a different part of the community, that is usually in a separate building. However, all levels of care are at one campus or physical location.

The drawbacks of CCRC include:

  • These facilities tend to be more expensive than stand-alone centers. There is usually a sizeable entrance fee, ranging from $10,000 to $500,000.
  • The monthly expenses of living in a CCRC make these facilities out of range for low-income and most middle-income seniors. On top of the rent, there is a monthly maintenance fee that can range from $200 to more than $2,000.
  • There might not be a vacancy in the section to which you want to move, so you might have to go on a waiting list or move out of the CCRC to get the level of care you need. If you move out, you can lose the entrance fee you paid.
  • Usually, you do not own the place where you live, even though you might pay more than the market value of the building.

On the other hand, CCRCs have advantages, like:

  • A broader range of activities and services than stand-alone facilities.
  • Getting to stay close to the friends you have at the CCRC, when your needs change.
  • More options for independent living, like apartments, houses, duplexes and townhomes.
  • The CCRC arrangement creates a social network and helps residents get through grief when a spouse passes. Residents of CCRCs tend to have less social isolation and higher activity levels as widows or widowers, than people who live in single-family homes that are not part of a CCRC.
  • Because CCRCs have so many ongoing activities and the facilities include a range of opportunities for physical exercise, like swimming, yoga, tennis, golf, walking and dance, seniors in these communities tend to stay healthy and socially engaged.
  • Many CCRCs have barbers, hairdressers, grocery stores, coffee shops and retail shops onsite for the convenience of residents.
  • You can tailor your services to your desires. One resident might only want lawn care and snow removal. Another person might want housekeeping, meal preparation and transportation.

Make sure that you get detailed written information about all the costs for each service the CCRC offers and for all levels of care. Get the facility to tell you in writing what happens to your entrance fee, if you move from the facility.  You also want to make sure that your estate plan addresses any potential refunds of the entrance fee if you pass away as they often become probate assets without proper planning.

Compare at least three CCRC developments, if you decide that a CCRC is the option you prefer and can afford.

References:

A Place for Mom. “Continuing Care Retirement Communities.” (accessed August 21, 2019) https://www.aplaceformom.com/planning-and-advice/articles/continuing-care-retirement-communities

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