While the new tax law doubled the federal estate tax exemption, meaning the vast majority of estates will not have to pay any federal estate tax, it doesn't mean you should ignore its impact on your estate plan.
In December 2017, Republicans in Congress and President Trump increased the federal estate tax exemption to $11.18 million for individuals and $22.36 million for couples, indexed for inflation. (For 2019, the figures are $11.4 million and $22.8 million, respectively.) The tax rate for those few estates subject to taxation is 40 percent.
While most estates won't be subject to the federal estate tax, you should review your estate plan to make sure the changes won't have other negative consequences or to see if there is a better way to pass on your assets. One common estate planning technique when the estate tax exemption was smaller was to leave everything that could pass free of the estate tax to the decedent's children and the rest to the spouse. If you still have that provision in your will, your kids could inherit your entire estate while your spouse would be disinherited.
For example, as recently as 2001 the federal estate tax exemption was a mere $675,000. Someone with, say, an $800,000 estate who hasn’t changed their estate plan since then could see the entire estate go to their children and none to their spouse.
Another consideration is how the new tax law might affect capital gains taxes. When someone inherits property, such as a house or stocks, the property is usually worth more than it was when the original owner purchased it. If the beneficiary were to sell the property, there could be huge capital gains taxes. Fortunately, when someone inherits property, the property’s tax basis is "stepped up," which means the tax basis would be the current value of the property. If the same property is gifted, there is no "step up" in basis, so the gift recipient would have to pay capital gains taxes. Previously, in order to avoid the estate tax you might have given property to your children or to a trust, even though there would be capital gains consequences. Now, it might be better for your beneficiaries to inherit the property.
In addition, many states have their own estate tax laws with much lower exemptions, so it is important to consult with your attorney to make sure your estate plan still works for you.
What subjects in a will are interchangeable among all states? Is guardianship the same no matter where you live? How about real estate? If I move frequently due to my company, is there anything in my will I know will always be valid or do I have to make changes every time I move? What are the big topics that change when you move?
Due to the full faith and Credit clause of the U.S. Constitution, which reads "Full Faith and Credit shall be given in each State to the public Acts, Records, and judicial Proceedings of every other State," your will executed in one state will be honored if you move to another state. So you don't have to get a new will every time you move. This is also true of revocable trusts; they will be honored in all states.
This is less true of durable powers of attorney and health care directives. While they should be honored from state to state, sometimes banks, medical professionals, and financial and health care institutions don't accept documents and forms with which they are not familiar. In addition, for some purposes the execution requirements may be different. You ask about real estate. Some states require witnesses on durable powers of attorney and others don't. A state requiring witnesses may not allow a power of attorney without them to be used to convey real estate even though the document is perfectly valid in the state in which it was executed.
Parents want their children to be taken care of after they die. But children with disabilities have increased financial and care needs, so ensuring their long-term welfare can be tricky. Proper planning by parents is necessary to benefit the child with a disability, including an adult child, as well as assist any siblings who may be left with the caretaking responsibility.
Special Needs Trusts The best and most comprehensive option to protect a loved one is to set up a special needs trust (also called a supplemental needs trust). These trusts allow beneficiaries to receive inheritances, gifts, lawsuit settlements, or other funds and yet not lose their eligibility for certain government programs, such as Medicaid and Supplemental Security Income (SSI). The trusts are drafted so that the funds will not be considered to belong to the beneficiaries in determining their eligibility for public benefits.
There are three main types of special needs trusts:
A first-party trust is designed to hold a beneficiary's own assets. While the beneficiary is living, the funds in the trust are used for the beneficiary's benefit, and when the beneficiary dies, any assets remaining in the trust are used to reimburse the government for the cost of medical care. These trusts are especially useful for beneficiaries who are receiving Medicaid, SSI or other needs-based benefits and come into large amounts of money, because the trust allows the beneficiaries to retain their benefits while still being able to use their own funds when necessary.
The third-party special needs trust is most often used by parents and other family members to assist a person with special needs. These trusts can hold any kind of asset imaginable belonging to the family member or other individual, including a house, stocks and bonds, and other types of investments. The third-party trust functions like a first-party special needs trust in that the assets held in the trust do not affect a beneficiary's access to benefits and the funds can be used to pay for the beneficiary's supplemental needs beyond those covered by government benefits. But a third-party special needs trust does not contain the "payback" provision found in first-party trusts. This means that when the beneficiary with special needs dies, any funds remaining in the trust can pass to other family members, or to charity, without having to be used to reimburse the government.
A pooled trust is an alternative to the first-party special needs trust. Essentially, a charity sets up these trusts that allow beneficiaries to pool their resources with those of other trust beneficiaries for investment purposes, while still maintaining separate accounts for each beneficiary's needs. When the beneficiary dies, the funds remaining in the account reimburse the government for care, but a portion also goes towards the non-profit organization responsible for managing the trust.
Life Insurance Not everyone has a large chunk of money that can be left to a special needs trust, so life insurance can be an essential tool. If you've established a special needs trust, a life insurance policy can pay directly into it, and it does not have to go through probate or be subject to estate tax. Be sure to review the beneficiary designation to make sure it names the trust, not the child. You should make sure you have enough insurance to pay for your child's care long after you are gone. Without proper funding, the burden of care may fall on siblings or other family members. Using a life insurance policy will also guarantee future funding for the trust while keeping the parents' estate intact for other family members. When looking for life insurance, consider a second-to-die policy. This type of policy only pays out after the second parent dies, and it has the benefit of lower premiums than regular life insurance policies.
ABLE Account An Achieving a Better Life Experience (ABLE) account allows people with disabilities who became disabled before they turned 26 to set aside up to $15,000 a year in tax-free savings accounts without affecting their eligibility for government benefits. This money can come from the individual with the disability or anyone else who may wish to give him money.
Created by Congress in 2014 and modeled on 529 savings plans for higher education, these accounts can be used to pay for qualifying expenses of the account beneficiary, such as the costs of treating the disability or for education, housing and health care, among other things. ABLE account programs have been rolling out on a state-by-state basis, but even if your state does not yet have its own program, many state programs allow out-of-state beneficiaries to open accounts. (For a directory of state programs, click here.)
Although it may be easy to set up an ABLE account, there are many hidden pitfalls associated with spending the funds in the accounts, both for the beneficiary and for her family members. In addition, ABLE accounts cannot hold more than $100,000 without jeopardizing government benefits like Medicaid and SSI. If there are funds remaining in an ABLE account upon the death of the account beneficiary, they must be first used to reimburse the government for Medicaid benefits received by the beneficiary, and then the remaining funds will have to pass through probate in order to be transferred to the beneficiary's heirs.
Get Help With Your Plan However you decide to provide for a child with special needs, proper planning is essential. Talk to your attorney to determine the best plan for your family.
How frequently you should review your estate plan depends on how old you are and whether there has been a significant change in your circumstances. If you are over age 60 and you haven't updated your estate plan in many decades, it's almost certain that you need to update your documents. After that, you should review your plan every five years or so. But if you're younger, you don't need to do so nearly as often.
Here are a few age ranges and what they mean in terms of estate planning:
18-30 Everyone needs a durable power of attorney, health care proxy and HIPAA release so that they have people they choose to step in and make decisions for them in the event of incapacity.
30-40 Once you begin accumulating assets, get married, and have children, it's important to create an estate plan to care for your loved ones in the event of your death. It also can't hurt to update your durable power of attorney, health care proxy and HIPAA release, since the people you may have appointed at 18 (your parents?) may not be the people you want in these roles at 35.
40-60 Unless there's been a change in your circumstances, and assuming you've set a good plan in place during your 30s, you probably don't need to review your estate plan during your 40s and 50s.
60-70 Once you've hit your 60s, it's time to take a look. Your children are probably grown. You may have grandchildren. And, hopefully, you've accumulated some wealth. The people you appointed to step in in the event of incapacity when you were 35 may not be in a position to assist when you're 65. You may have retired or are contemplating doing so. And, unfortunately, the chances of disability or death increase with every year.
70+ Now it's time to review your plan every three years or so. Changes happen -- to your health and that of your loved ones, to the tax laws, to the programs supporting long-term care or disability care. It's important to have a plan in place and to adjust it as circumstances change.
Change in Circumstances
While the timeline above outlines when you should review and perhaps update your estate plan, it needs to be supplemented by the following potential changes in circumstances that would warrant a review of your plan to see if it still meets your goals and needs:
Marriage. You're likely to want your assets to go to your spouse and to name him or her to be your agent in the event of incapacity.
Divorce. Likewise, if you get divorced, you probably won't want your assets to go to your ex-spouse or to rely upon him or her to step in if you were to become incapacitated.
Children. Once you have children, you'll want to provide for them and to name someone to step in as guardian in the event of your death or incapacity and that of their other parent, if any. Generally, once you have a plan in place you do not have to update it unless you have more children.
Disability. If you or someone who would inherit from you becomes disabled, you will need to plan to protect and manage your assets, whether for yourself or for your beneficiaries.
Wealth. If you accumulate sufficient assets to exceed the thresholds for state and federal estate taxes -- $11.4 million federally -- you may want to plan to reduce or eliminate such taxes.
Moving. If you move to a new state or country, it will be important to have your estate plan reviewed to make sure it works in the new jurisdiction.
In short, until you reach age 60 or 70, reviewing your estate plan every five years probably is overkill. But do so whenever you have a change in circumstances such as those listed above. If you're over 60 and haven't updated your estate plan in many years, now's the time. Then, having a review every five years is definitely a good rule of thumb.
“Wills are beneficial, whether you think you have assets or not.”
Having a will and an estate plan makes passing along assets much easier for the family. Having necessary documents like a power of attorney and a health care power of attorney lets the family make decisions for a loved one, who has become incapacitated. These are estate planning basics, as reported by WKBN 27 in the article “Attorney recommends everyone have a will in place to prevent avoidable issues.”
Think of the will as a way to speak for yourself, when you have passed away. It’s the instructions for what you want to happen to your property, when you die. If there’s a will, the executor is responsible for carrying out your requests. With no will, a court will have to make these decisions.
Many people believe that if they don’t have a will, their spouse will simply inherit everything, automatically. This is not true. There are some states where the surviving spouse receives 50% of a decedent’s assets and the children receive the rest. However, the children could be offspring from outside the marriage. Not having a will, makes your estate and your family vulnerable to unexpected claims.
A will must contain certain elements, which are determined by your state’s laws and must be signed in the presence of two witnesses. Without the correct formalities, the will could be deemed invalid.
Lawyers recommend that everyone have a will and an estate plan, regardless of the size of your estate.
Young parents, in particular, need to have a will, so they can name a person to be guardian of their child or children, if they should both die.
Details matter. In some states, if you make a list and neglect to name specifically who gets what, using the term “children” instead of someone’s name, your stepchildren may not be included. State laws vary, so a local estate planning attorney is your best resource.
You should also be sure to talk with your spouse and your children about what your intentions are, before putting your wishes in writing. You may not feel totally comfortable having the discussion. However, if your intention is to preserve the family, especially if it is a blended family, then everyone should have a chance to learn what to expect.
Wills do become binding, but they are not a one-time event. Just as your life changes, your estate plan and your will should change.
Don’t neglect to update your beneficiary designations. Those are the people you named to receive retirement accounts, bank accounts or other assets that can be transferred by beneficiary designations. The instructions in your will do not control the beneficiary designation. This is a big mistake that many people make. If your will says your current spouse should receive the balance of your IRA when you die but your IRA lists your first wife, your ex will receive everything.
Here are the four estate planning documents needed:
A living will, if you need to be placed on life support and decisions need to be made;
A healthcare power of attorney, if you cannot speak for yourself, when it comes to medical decisions;
A durable power of attorney to make financial decisions, if you are incapacitated.
A local estate planning attorney can help you create all of these documents and will also help you clarify your wishes. If you have an estate plan but have not reviewed it in years, you’ll want to do that soon. Laws and lives change, and you may need to make some changes.
“Truly, nearly every legal question depends on a host of facts and circumstances that make it impossible to guarantee a particular outcome … except in the case of my favorite question: ‘Do I need a will?’”
It doesn’t take very long for any newly-minted attorneys in the trusts and estates practice area to see what happens when there is no will, says the Daily Memphian in a to-the-point article titled “Five reasons you need a will (and one reason you don’t).” The stress on families, unnecessary expenses and assets going to the wrong people, can easily be prevented with an estate plan and a will. However, in case you still aren’t convinced, here are the top five reasons:
You have a family. For those who are married with children, the laws of intestacy take over, if you don’t have a will. Assets are divided between the surviving spouse and the children in most states (check with a local estate planning attorney for your state’s laws). In theory, that sounds fine. But there are three situations where not having a will can make a mess of things:
Minors and developmentally delayed heirs. Minors and individuals with special needs may not legally contract or represent themselves in court. Therefore, they cannot agree to the disposition of assets. When a minor or individual with special needs inherits assets directly, the court must appoint a neutral person, often an attorney, to oversee that person’s best interests. It may also require the appointment of a guardian, so the court can monitor the use of the assets in the child’s best interest, until they are of age.
Bad relationships between surviving spouse and children. Under intestate law, the spouse inheriting reduces the amount the children inherit. If the spouse is a second wife, this can make a bad situation worse. A will can plan out the distribution of assets to care for the spouse and ensure that the children receive the assets, as determined by their parent.
Extramarital children. Children who are not born to legally wed parents have the right to inherit, regardless of whether their parents were married. What if an unknown offspring shows up and demands his share? This does happen.
You hate your next-of-kin. Not every family is as happy as their Facebook photos. If you don’t want your lawful next of kin inheriting your assets, you need a will. Remember that as time passes and people enter and exit the family, through birth, death, marriage and divorce, the person who is your next-of-kin will likely change over time.
Do you want to give specific gifts? Under the intestacy laws, your relatives (next-of-kin) inherit your property in percentages that are based on their degree of relationship to you and the number of other relatives at that same degree. Outside of designating a beneficiary or joint owner of an assets, having a will that is properly prepared under the laws of your state, is the only way to ensure that you can determine who gets what.
You know how you want things to work after you die. If you want to have any control over what happens to your assets, how you want your funeral to be paid for, what you want to happen to personal property, etc., a will may be the best way to do this. The person named to be your executor is legally responsible to carrying out your wishes, unless it’s impossible, impractical or illegal for them to do so.
You have a living trust. If you took the trouble to have a living trust, then you should also have a will. You need, specifically, a “pour-over” will. This ensures that any assets not titled in the name of the trust at the time of your death, are transferred into the trust. Otherwise, your non-trust assets are subject to intestacy law.
The ONLY reason you may not need a will? If every single asset you own has either joint ownership or beneficiary designations. That’s very unusual, in part because it takes a lot of detail to make sure that every asset is titled correctly. You can leave real property to another person through a joint ownership deed, which establishes that person as the co-owner of the property. Accounts can be left to a person of choice, by naming a person as beneficiary.
Joint ownership and beneficiary designations do supersede the intestacy laws. However, what happens if a beneficiary dies before you do and you neglect to change the name on the asset? There are also gift and tax implications.
A will can be as complex or as simple as you want. Speak with an experienced estate planning attorney, who can make sure that your will and any other documents are prepared to achieve your wishes for your estate, protect your family, and don’t leave anything to chance.
“While everyone from brand new parents to great grandparents can benefit from the advice of a competent estate planning lawyer, frequently the individuals making sure that their affairs are in order, are those in their golden years. They have a common concern: what about their grandbabies?”
Leaving money or real estate to a child under the age of 18 requires careful handling, usually under the guidance of an estate planning attorney. The same is true for money awarded by a court, when a child has received property for other reasons, like a settlement for a personal injury matter.
According to the article “Gifts from Grandma, and other problems with children owning property” from the Cherokee-Tribune & Ledger News, if a child under age 18 receives money as an inheritance through a trust, or if the trust states that the asset will be “held in trust” until the child reaches age 18, then the trustee named in the will or trust is responsible for managing the money.
Until the child reaches age 18, the trustee is to use the money only for the child’s benefit. The terms of the trust will detail what the trustee can or cannot do with the money. In any situation, the trustee may not benefit from the money in any way.
The child does not have free access to the money. Children may not legally hold assets in their own names. However, what happens if there is no will, and no trust?
A child could be entitled to receive property under the laws of intestacy, which defines what happens to a person’s assets, if there is no will. Another way a child might receive assets, would be from the proceeds of a life insurance policy, or another asset where the child has been named a beneficiary and the asset is not part of the probate estate. However, children may not legally own assets. What happens next?
The answer depends upon the value of the asset. State laws vary but generally speaking, if the assets are below a certain threshold, the child’s parents may receive and hold the funds in a custodial account. The custodian has a duty to manage the child’s money, but there isn’t any court oversight.
In Georgia, the threshold is $15,000. Check with a local estate planning attorney to determine your state’s limitations.
If the asset is valued at more than $15,000, or whatever the threshold is for the state, the probate court will exercise its oversight. If no trust has been set up, then an adult will need to become a conservator, a person responsible for managing a child’s property. This person needs to apply to the court to be named conservator, and while it is frequently the child’s parent, this is not always the case.
The conservator is required to report to the probate court on the child’s assets and how they are being used. If monies are used improperly, then the conservator will be liable for repayment. The same situation occurs, if the child receives money through a court settlement.
Making parents go through a conservatorship appointment and report to the probate court is a bit of a burden for most people. A properly created estate plan can avoid this issue and prepare a trust, if necessary, and name a trustee to be in charge of the asset.
Another point to consider: turning 18 and receiving a large amount of money is rarely a good thing for any young adult, no matter how mature they are. An estate planning attorney can discuss how the inheritance can be structured, so the assets are used for college expenses or other important expenses for a young person. The goal is to not distribute the funds all at once to a young person, who may not be prepared to manage a large inheritance.
“Complaints about stolen homes have shot up from 44 in 2013 to 136 in 2018, according to the city Department of Records. The department is making changes to its security system in the aftermath of the Inquirer stories, but it declined to detail the upgrades, fearing it would tip off scammers.”
Prosecutors report that in 2016, William Johnson allegedly forged Harrison’s signature and that of a notary on the deed to Harrison’s home. He sold it to a developer for $89,000, who flipped it for $250,000. Johnson was arrested in February 2019, on charges of stealing Harrison’s home and six others.
In 2017, the Register of Wills accepted Donnie McLaurin as Harrison’s rightful heir, even though both her signature and that of a notary appeared to be fake. Johnson beat him to the house, so he didn’t get it.
These and other scammers have learned to work a system that depends on people being honest. However, when determining the disposition of the property of someone who has died, that’s not enough to go by. Not only was Harrison’s signature on the deed and the will forged, but so are the notaries’ signatures.
The notary is the one person who is believed by any government agency to be authenticating a document’s legal validity. However, the people who work in various government agencies don’t authenticate the notaries. They should do so, as this example demonstrates.
City officials in Philadelphia say they check to see if documents are properly notarized and require a photo ID from anyone filing them. They also say they don’t have enough staff to check a notary’s status.
The Pennsylvania Department of State, like most states, does have an online search page to verify the status of a notary. The state also has records showing notaries’ signatures, which should be digitized so that workers can immediately see, if they match the ones on the documents.
Another reason this scam is easy: death certificates are not that difficult to come by in Pennsylvania. In the case of the forged will, the person presented a genuine death certificate to the Register of Wills. The state has admitted that it mails death certificates to people who say they are relatives of the deceased. That’s a hole that needs to be plugged.
Another way to protect the assets of loved ones, is to be sure that they have an estate plan in place. While this may not stop every scammer, having the estate assets distributed in a timely fashion, with legitimate heirs through an estate plan, will preclude a scammer taking advantage of a vulnerable person’s property, after they have passed.
It’s a very easy thing to forget, because it’s so unpleasant to consider. The idea of becoming seriously ill or even dying while your children are young, is every parent’s worst fear. But putting off having an estate plan with a will that prepares for this possibility is so important. Doing it will provide peace of mind, and a road forward for those who survive you, if your worst fears were to come true.
Start with a will. In a will, you’ll name a guardian, the person who would be in charge of rearing your children and have physical custody of them. Don’t assume that your parents will take over, or that your husband’s parents will. What if both sets of parents want to be the custodians? The last thing you want is for your in-laws and parents to end up in a court battle over custody of your children.
Another important document: a trust. You should have life insurance that will be the source for paying for the children’s education, including college, summer camps, after-school activities and their overall cost of living. In addition, proceeds from a life insurance policy cannot be given to a minor.
However, what if your son or daughter turned 18 and were suddenly awarded $500,000? At that age, would they know how to handle such a large sum of money? Many adults don’t. A trust allows you to give clear directions regarding how old the child must be, before receiving a set amount of money. You can also stipulate that the child must complete college before receiving funds or reach certain milestones.
An estate plan with young children in mind, must have a Power of Attorney for financial decisions and one for medical decisions. That allows a named person to make important financial and medical decisions on behalf of the child. You may not want to have their legal guardian in charge of their finances; by dividing up the responsibilities, a checks and balances system is set into place.
However, for medical decisions, it is best to have one primary person named. In that way, any care decisions in an emergency can be made swiftly.
While you are creating an estate plan with your children in mind, make sure your estate plan has the same documents for you and your spouse: Power of Attorney, medical Power of Attorney, a HIPAA release form and a living will.
Speak with a local estate planning attorney who has experience in planning for young families.
“Gerald Cotten, the Canadian behind cryptocurrency exchange Quadriga CX, filed a will 12 days before his death listing substantial assets, according to court documents.”
The death of this 30-year-old cryptocurrency exchange founder, has exposed a key estate planning issue for anyone who owns digital assets and especially cryptocurrency: he did not leave a way for anyone to retrieve the cryptocurrency. He also died only 12 days after completing his will, as reported by Bloomberg in “Crypto Exchange Founder Filed Will 12 Days Before He Died.”
His unexpected death left $145 million in Bitcoin and other digital assets protected by his passwords and thorough security efforts. No provisions were made for anyone to retrieve the assets. His wife Jennifer Robertson was his sole heir and executor to his estate.
The Canadian press reported that a Nova Scotia Supreme Court Justice granted the company a 30-day stay on Tuesday to halt any lawsuits from proceeding at this time, and the Vancouver-based firm was granted protection from creditors.
The business was launched late in 2013, and users deposited cash or cryptocurrency through its online trading platform, storing digital currency on blockchain ledgers that are only accessible through a code. There were 363,000 registered users and 92,000 have account balances owing to them, in either cash or cryptocurrencies.
Cotten, the sole owner and director, did an excellent job of protecting his assets. This was fine while he was alive, but now presents a serious situation for account holders. He was very conscious about security. Everything, from his laptop, email addresses and messaging system, was encrypted. He was the only one who handled funds, coins and the banking and accounting side of the business. He also moved most of the digital coins into storage that was not connected to the internet, to avoid being hacked.
His wife can’t find his passwords or any business records for the company. Experts who attempted to hack into the system were only partially able to do so. Attempts to open an encrypted USB key have also failed. Some clients who claim that they are owed money, have retained counsel to represent them during creditor protection proceedings.
Cotten and his wife had no children. The assets that he left to her include several properties, an airplane, a yacht, a luxury car and his two pet chihuahuas. He died as a result of complications, due to Crohn’s disease.
This is an extreme example of what can go wrong, when digital assets are not made part of an estate plan. Most people today do have digital assets and need to address them in their estate plan to prevent the loss of both financial assets and sentimental items, like photos and videos.