Learn From the Estate Planning Mistakes of Others

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estate planning 91024There is much to be learned from the mistakes of others and the celebrity world abounds with cautionary tales when it comes to estate planning. Even with all the financial resources available to them, celebrities can neglect the basics when it comes to protecting assets.

We come across sad tales all the time of “regular” people failing to take the proper steps to create an estate plan that assures their assets pass properly and that their heirs are spared from having to untangle costly legal messes.

Here are five important lessons you can learn from the mistakes of others:

  1. Don’t die without a will. Celebrities are the same as most people when it comes to thinking they will live forever – but they differ greatly in that they usually have a lot more money to leave behind. Actor Heath Ledger died without updating his will to include his daughter; all his assets went to his parents and siblings.
  2. Equal isn’t always the same. Thinking she was treating her two children equally in her bequest, one woman left her home to her son and her investment portfolio to her daughter. Unfortunately, when she died, there was a sizeable tax liability on the home, and the only assets available were from the portfolio, leaving the daughter shortchanged.
  3. Name the right executor. Naming a friend as executor is fine, but not always the best option. One woman named her best friend as her executor, but they happened to be the same age. When the woman died at age 86, her friend followed a few weeks later and no one was left to serve as executor since she hadn’t named a backup.
  4. Provide for your children from a prior marriage. A man with children from a first marriage left all his assets to his second wife; when she died, she left all of those assets to her children, leaving nothing for his children. Instead, he should have provided for them directly or placed his assets in a trust so they could pass to his children after her death.
  5. Promises don’t count. Before he died, Marlon Brando allegedly promised his house to his caregiver but did not record that promise in his will. She did not get the house. If you want to leave something to someone, you need to put it in writing in your will or a trust.

You can protect, provide for, and make things as easy on your family as possible. Learn from the mistakes of others. Don’t repeat them.

To your family’s health, wealth, and happiness,
Marc Garlett 91024

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Is it Possible to Inherit Debt?

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Inherited Debt 91024In general, when a loved one passes, his or her debts fall to the estate to be paid. However, in situations where debt is shared — for example, jointly owned credit cards or shared student loans — the debt can pass to the account co-owner, even if he or she was unaware of the debt.

This is why it is important to consider debt planning as part of your overall estate planning process. Here are some tips on dealing with the debt of a deceased loved one:

Get informed. By law, everyone is entitled to one free credit report every year from the three major credit reporting agencies: Equifax, Experian and TransUnion. Spouses should obtain and share their credit reports with each other so they are informed about any debt issues that could impact their estates. If debt will potentially impact adult children, be honest with them about your financial situation as well.

Get advice. Seek the counsel of trusted attorney or other financial professional on your debt issues and learn how to resolve them. Deal with personal debt before it spirals out of control and becomes a potential issue for your family.

Get organized. Ideally, all of your estate and financial planning documents should be kept together in one place where your family knows where to find them. Among these documents should be an updated list of current assets and debts, including financial institution information, account numbers and passwords.

Get educated. Heirs should educate themselves about what types of debt will need to be repaid and what types may be cancelled or forgiven. Generally, any unsecured debt held in the deceased person’s name alone (such as credit cards, student loans, etc.) will be discharged. Be aware, however, debt collectors do have the right to attempt to collect on these kinds of debt — and may contact survivors to try to “guilt” them into paying. Being educated about liability for debts after the death of a loved one will arm you with the knowledge you need to respond to each situation appropriately.

If you’d like to learn about protecting yourself and your family, call us to schedule a Family Estate Planning Session so we can help you identify the best strategies to provide for and protect the financial security of your loved ones.

To your family’s health, wealth, and happiness,
Marc Garlett 91024

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How to Avoid Probate by Properly Funding Your Trust

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probate court 91024A common estate planning mistake made by many people – including celebrities and the wealthy – is not ensuring the trust you have created actually holds all your assets. This process of transferring your personal assets into your trust is called “funding.”

Unfortunately, most lawyers do not make sure this is properly handled for their clients, so even if you’ve worked with an attorney you need to double check this critical issue. If you do not transfer your assets into your trust correctly, it is nothing more than an empty shell and will not accomplish the objectives (such as avoiding probate) you had in mind when you established it.

Here is a basic rundown of the proper procedures for funding your trust:

Real estate – a new deed in the name of the trust must be drawn and recorded at the county clerk’s office. For properties with mortgages there may be additional issues to consider so always seek legal counsel before recording a new deed.

Stocks, bonds, mutual funds – to transfer the ownership of these assets into your trust, you need to contact your broker, investment counselor or transfer agent for the proper paperwork and complete those documents as instructed.

Savings bonds – you will need to obtain a reissue form from the Federal Reserve Bank and re-title the bonds in the name of the trust.

Brokerage accounts – contact your broker for the proper forms that will enable the broker to close the existing accounts and transfer the assets into a new trust account.

Stock certificates – you will need to send a completed “stock power” form as well as a W-9 form with your tax ID number with the original stock certificates to the company’s transfer agent.

Bank accounts, CDs – new accounts will need to be established in the name of the trust. If your bank cannot transfer CDs until the maturity date, then mark them “in trust for” a beneficiary until the CDs mature and you can transfer them to the trust.

Life insurance, retirement plans – these assets cannot be owned by a living trust but it may be appropriate to name your trust as beneficiary. Seek legal counsel before changing the primary or contingent beneficiary on these types of assets.

Written confirmation – don’t just assume everything has been transferred correctly because you submitted the paperwork. Always ask for and keep a copy of a written confirmation indicating your assets have been moved into your trust.

As your partner in planning for the financial security of yourself and your family, we would never let your trust go unfunded. That’s because our concern for you doesn’t stop with the signing of your legal documents — we always follow up with clients to ensure everything has been done properly so they are fully protected.

If you’d like to learn more about how a trust might benefit you and your family, call us to schedule a Family Estate Planning Session and get educated about your options. There’s no obligation and if you mention this article there will be no fee.

To your family’s health, wealth, and happiness,

Marc Garlett 91024

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5 Things to Consider BEFORE Naming Beneficiaries

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family estate plan 91024Once you have decided whom you want to receive your assets — either from a will, trust, life insurance policy, retirement account, or bank account — understanding how they will inherit becomes important.

Here are five things you need to consider before naming beneficiaries:

  1. Beneficiaries of a will have to wait. Any assets you bequeath to a beneficiary via a traditional will have to wait for their money or property until the probate process has been completed. In some cases, this can take many months or even years — and if the estate is complex, the legal fees can deplete that inheritance. If you want to make it easier for your beneficiaries, consider creating a Revocable Living Trust as part of your estate plan. A trust does not go through probate; upon your death, the successor trustee distributes the assets to your beneficiaries.
  2. Retirement plan and life insurance policy benefits are paid directly. The assets in a life insurance policy or retirement plan are not subject to probate and pass to your (adult) beneficiaries directly. These beneficiaries will receive the assets after providing the account owner’s proof of death and a proof of identity for the beneficiary. Naming contingent beneficiaries is important; if the primary beneficiary predeceases you, the assets will likely go into your estate and will be subject to taxes.
  3. Minor children should not inherit directly. Naming a minor child as the beneficiary of a life insurance policy or other assets is never recommended. Because minor children cannot receive assets directly, the state could take over the assets and name someone to manage those assets on the child’s behalf. This can result in additional expenses that eat into that inheritance, and those assets may not be managed according to your wishes. Instead, the wise move is to create a trust to hold these assets for the benefit of a minor child and name a successor trustee to oversee the management and distribution of the funds in a way that complies with your wishes.
  4. Give careful consideration to naming retirement plan beneficiaries. Studies have shown that most beneficiaries of a retirement plan take the cash immediately, which may not be your intention. Naming your estate as beneficiary of a retirement plan is also not recommended since doing so would not allow your spouse or younger beneficiary to take advantage of an IRA rollover or the “stretch” IRA option that could allow your IRA to grow tax-deferred over many years.
  5. If there are multiple beneficiaries, name them all. If there are multiple beneficiaries for an insurance policy or retirement plan, don’t make the mistake of just naming one person — say, the oldest child — and assuming they will make the proper distributions. Instead, designate a separate share for each beneficiary. If one of your beneficiaries has special needs, create a trust for their share so any inherited assets don’t disqualify them from important government benefits.

One of the main goals of my law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Naming the correct beneficiaries, in the right way, is an important part of that process. Please let me know if you have any questions about this or if there’s anything else I can do to help.

To your family’s health, wealth, and happiness,
Marc Garlett 91024

 

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Debunking 4 Common Myths About Gift Taxes

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Income TaxesApril 15 is upon us! It is not only the deadline for filing your state and federal income tax returns, but also the deadline for filing gift tax returns via IRS Form 709.

Many people are confused about the subject of gift taxes. While only two states — Connecticut and Minnesota — have a state gift tax, there is a federal gift tax you may need to be concerned about. Here are some common myths and the actual truths about gift taxes:

Myth 1: The recipient must pay taxes on gifts.

Reality: While the gift giver may face taxes on certain gifts, the recipient usually doesn’t. There are some circumstances, however, when that will not be the case. For example, if you receive a bonus from an employer or tips, these may be subject to income tax. If you are gifted property that has appreciated in value since the giver bought it, you receive the cost basis as part of that gift. But if you sell the property, you will be liable for taxes on the difference between the sale price and the cost basis (what the giver paid for it).

Myth 2: A giver must pay tax on gifts of over $10,000 per year.

Reality: The annual gift tax exclusion rate is currently $14,000 (it increases periodically), and you can give gifts of that amount to an unlimited number of individuals each year without having to pay gift tax. If you give to a charity or your spouse, you can give an unlimited amount without incurring taxes. The lifetime gift tax exemption for 2015 is $5.43 million per person and your annual gifts (so long as they are under $14,000 per person) don’t count towards that number.

Myth 3: Gift taxes can be avoided by loaning money at no interest and forgiving the loan.

Reality: The IRS requires that you treat a loan like a loan, not a gift. You will have to charge a fair market interest rate and put the terms of the loan in writing.

Myth 4: You can always deduct charitable contributions from your taxable income.

Reality: Charitable contributions must be made to a qualified tax-exempt charity, and must be itemized. You can check the status of your charity on the IRS website with its Exempt Organizations Select Check Tool.

If you have questions about gifting strategies or anything else related to protecting and providing for your family, please let us know. We’re here to help.

To your family’s health, wealth, and happiness,
Marc Garlett 91024

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10 Things to Consider During an Estate Plan Review

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Estate Planning 91024

Estate planning is NOT a “set it once and forget it” type of process. Your plan will likely need to be rejuvenated and renewed several times throughout your life. As such, it should be reviewed with a qualified estate planning attorney at least every few years to ensure the documents have not become outdated due to recent changes in the law and that they still support your overall planning goals.

When reviewing your estate plan, keep these ten important points in mind:

  1. Your estate plan only works if your assets are owned properly. If you have acquired new assets or sold assets you had at the time you made your plan, you will need to update your family wealth inventory spreadsheet (and you absolutely should have a family wealth inventory spreadsheet which lists all your assets) and retitle the newly acquired assets.
  2. Be sure your named fiduciaries are still the right people for the job. Your fiduciaries include the agents for your financial and healthcare powers of attorney as well as the executors or trustees of your estate. In addition, confirm all your fiduciaries know what to do if called upon and have access to the documents they would need if something happens to you (we take care of this by sending letters to all of our clients’ fiduciaries to introduce them to their roles and responsibilities and provide them with instructions).
  3. Determine if the terms of your estate plan still meet your objectives, and that the beneficiaries and your bequests are still up to date and relevant. Be sure to look at whether you are leaving assets to your beneficiaries in a lifetime asset protection trust that ensures what you pass on is protected from a future divorce, creditors or lawsuits.
  4. If you have minor children be sure you have a Kids Protection Plan in place naming short- and long-term guardians, providing instructions and guidelines for those guardians and including executed medical powers of attorney that allow you to dictate medical care for your minor children in case they are injured when you are not with them.
  5. Confirm all beneficiary designations for retirement plans, insurance policies and financial accounts are correct. Never name a minor child as the beneficiary (or even contingent beneficiary) of an insurance policy or retirement account.
  6. Be sure your healthcare and end of life decisions are still the right choices for you and that all the proper documents, including HIPAA waivers, have been executed to allow your agent to make health care decisions for you in case of incapacitation. Also, consider adding provisions to your health care directive that provide for HOW you want to be cared for, not just who you want making your decisions.
  7. If you plan to make gifts to individuals, see if you are taking full advantage of the maximum annual exclusion, which is $14,000 in 2015.
  8. If you make large gifts to charity, you may want to consider making split-interest gifts that provide an income tax deduction while preserving an interest in property to heirs.
  9. If you have already used a majority of your federal gift tax exemption, you may want to consider other strategies to move taxable assets out of your estate.
  10. Talk to your estate planning attorney about other estate planning strategies to take advantage of your generation-skipping transfer tax or remaining federal gift tax exemptions.

We review existing estate plans to ensure they meet these 10 criteria. We also perform a 50-point checkup on existing trusts. If you haven’t had a review of your existing estate plan within the last several years, you’re past due. Give us a call so we can help.

To your family’s health, wealth, and happiness,
Marc Garlett 91024

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The Importance of Preparing for Your Potential Incapacity

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Long-term care 91024Have you thought about the possibility that you or your spouse could become incapable of handling your own medical or financial affairs? Avoiding the need for a conservatorship – the process whereby someone is appointed by a court to assume responsibility for the property or the personal welfare of an incapacitated adult – is important.

A serious illness or accident can happen suddenly at any age. And, as Americans are living longer than ever, we have a greater likelihood of experiencing senility, dementia, Alzheimer’s disease, or a host of other ailments during our golden years, any of which will affect our ability to make sound decisions about healthcare, or to pay bills, write checks, make deposits, sell assets, or otherwise manage our affairs.

The best way to avoid the need for expensive and burdensome conservatorship proceedings is through estate planning tools like these:

Durable Financial Powers of Attorney — Executing a durable power of attorney enables you to name a conservator to act on your behalf if you become incapacitated. The conservator is empowered to handle all your financial and business affairs in case you cannot do so yourself. Although it can become effective immediately, it only becomes active if or when you become incapacitated. To be valid, it must be executed prior to any incapacitation.

Advance Health Care Directives — Executing an advance health care directive designates someone to serve as your agent for making health care decisions in the event of your incapacitation. This can include temporary hospitalizations or end-of-life care, and your choice should be someone you trust to honor your wishes when it comes to your medical care. This document must also be executed prior to any incapacitation to be valid.

Revocable Living Trusts — Executing a revocable living trust avoids the need for conservatorship proceedings by designating a successor trustee to serve during a period of incapacity. You can serve as co-trustee along with a trusted person or financial institution of your choice. If you become incapacitated, the co-trustee you have designated will take over the management of your assets held in the trust. Remember though, this is only valid if your property is properly titled in the name of your Living Trust before incapacity.

One of the main goals of my law practice is to help families like yours plan for the protection of yourself and your loved ones. If you’re ready to start thinking about your own estate planning, call my office today to schedule a time for us to sit down and talk.

To you family’s health, wealth, and happiness,
Marc Garlett 91024

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Is a Will All You Need? Probably Not

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inheritance 91024One of the most prevalent misconceptions when it comes to estate planning is that a Will is all most people need. But before you fall into this trap with your own estate plan, consider these five circumstances where a will simply doesn’t work:

Avoiding Court. To take effect, a will must go through the probate process at your death (or a conservatorship if you become incapacitated while still living), which can be lengthy and deny your heirs (or family while you are incapacitated) a quick resolution to the distribution of your estate (or the ability to pay your bills while you are incapacitated). There are also situations which complicate probate even further such as having minor children or owning property in another state.

Protecting privacy. Once a will is open to probate, it is a matter of public record and open to everyone — meaning that anyone can get access to it and learn the details on everything you owned and exactly where it is going. Wills can also contain personal information that is attractive to identity thieves.

Protecting you in case of incapacity. Since a will only goes into effect upon death, it provides zero protection for you if you should become incapacitated and no longer able to handle your own financial affairs or make decisions about your health care. If that were the case, your family would have to go through the stress and expense of petitioning the court to appoint a guardian or conservator to handle your affairs. This is costly and can even drain your entire estate. This can easily be avoided by having advance medical directives and a financial power of attorney drawn as part of your comprehensive estate plan.

Protecting your assets. Passing assets to heirs via a will does not provide any protection for those assets. Once they are distributed, they become vulnerable to a divorce actions, civil lawsuits, creditors, and even bad financial decisions by your beneficiaries. Placing your assets in a trust gives you control over how and when they are distributed, and protects them from creditors and judgments. This is one of the most powerful aspects of a living trust.

Passing real estate. When your home passes to your heirs through Probate (which it will do without a trust in place) it loses the step up in tax basis that a trust can provide. That means your heirs (who are most likely your family) will have to pay capital gains tax on the difference between the value of the home when you bought it versus the value of the home now. This can be another huge financial burden to bear on top of the already expensive cost of Probate.

See, trusts aren’t just for the wealthy because wills aren’t always the best way to protect and pass on even modest financial assets. Comprehensive estate planning should use living trusts and other legal tools to preserve your assets and make things as easy as possible on your family. Taking care of your family, after all, is really what it’s all about.

To you family’s health, wealth, and happiness,
Marc Garlett 91024

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Women, You Rock!

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  • family estate plan 91024By and large, mothers and housewives are the only workers who do not have regular time off. They are the great vacation-less class.
  • Most women with children will put their children’s needs before their own.
  • Women earn 78% less than men and are at risk of a compromised lifestyle if they and their husband do not plan well for a future in which his income is no longer there.
  • The history of all times and of today especially, teaches that women will be forgotten if they forget to think about themselves. – Louise Otto

Women, you especially, need to know the following about estate planning:

Kids Protection Planning provides parents with important legal tools to name short- and long-term guardians, gives instructions and guidelines for those guardians and executes medical powers of attorney that allow you to dictate medical care for your minor children in case they are injured and you are not with them.

A will and a living trust are both essential estate planning tools, and although both can be used to transfer assets upon death, they serve separate purposes. A living trust takes effect when you become incapacitated or after death. It allows you to hold assets for your benefit during your life and transfer those assets, without the need for probate, after your death. A will only takes effect upon death and is used to cover assets that do not need to go through probate.

Women need to execute financial and healthcare durable powers of attorney so a trusted friend or family member can make financial and/or medical decisions on your behalf in case of incapacity. And, if you are married or partnered, make sure your spouse or partner does the same so you can handle their financial and medical affairs if something happens to them.

Make sure your partner/spouse has life insurance to support you and your children for as long as you will need support in the event of their death. Women often don’t have their own life insurance if they don’t bring in an income. This is a mistake. Think about the cost of finding someone to handle your responsibilities if you aren’t able to take care of them yourself and secure enough life insurance to cover those costs.

Keep beneficiary forms for retirement accounts (IRAs, 401(k)s, etc. ) up to date, as they determine who receives the assets of each one of your accounts.

We men don’t like to think about leaving you to pick up the pieces if something happens to us even though statistically you’re likely to outlive us. We love and appreciate you and want things to be as easy as possible for you. Your well-being and financial security is our priority. But hey, we’re guys. Sometimes we need to be prodded just a bit. Right? Take care of yourself and don’t be afraid to prod. We’ll come around. I promise.

To you family’s health, wealth, and happiness,
Marc Garlett 91024

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Trusts Are Great, But …

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Estate Planning, 91024I talk a LOT about living trusts. They are one of the most powerful and versatile legal tools available. Trusts enable us to avoid taxes, probate court, legal battles, and if set up correctly they can also shield our family from creditors, lawsuits, and even future potential ex-spouses – and it’s all perfectly legal.

What’s not to love about trusts? But even though they are such an important aspect of fully protecting and providing for your family, they are not the only important legal tool you should be utilizing. There are several separate, and complimentary, devices you absolutely MUST have in place. These include:

Advance Medical Directive — this document details your wishes about your medical care in case of incapacity, as well as names a person to make health care decisions on your behalf and spells out who can be given access to your medical records. This should protect your family from having to go to court in order to make medical decisions for you and saves them the cost in time, energy, and money of a guardianship application, which can run into several thousands of dollars.

Financial Power of Attorney – this documents names the person who will be given the power to act as your agent and handle your financial affairs in case you are no longer able to do so yourself. A financial power of attorney will save your family the cost of having to go to court to get access to your financial accounts and to pay your bills if you are not able to do it yourself. This unnecessary court process could cost your family $10,000 or more. Plus, we are hearing reports of adult children applying for financial conservatorship of their parents, not being able to qualify, and having to sit by and watch their parents’ assets dwindle to nothing when a professional conservator is appointed.

Last Will and Testament – this document won’t keep your family out of probate court like a trust does, but it can provide guidance to the judge as to how you want your assets distributed. Without a trust or a will in place, a judge will determine who gets what. This often causes personal heartache and family feuds. If you have more than $150,000 in assets, you really should be considering a trust. But even if you have less than that amount you still need a will to spare your family from having a stranger divvy up and distribute your assets.

Kids Protection Plan – this is a set of documents parents of minor children must have in place to ensure their children are never placed in the custody and care of strangers. Thankfully, most of our children will never have to worry about legal guardianship issues. But the sad truth is that thousands of children are orphaned each year in just this country alone. As parents, if we don’t choose – and legally document – who we would want to raise our children if we cannot, we lose the right to make that decision. A judge, who doesn’t know us or love our children, will make that critical, life-altering choice instead. A Kids Protection Plan keeps that decision in the hands of parents, no matter what.

So while trusts are a key element in protecting families like yours, they are not the only tool available. You really should be taking full advantage of all available legal instruments to ensure there are no holes or gaps for your family.
Marc Garlett 91024

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