California Probate - Law Offices of Janet Brewer Blog

Does My Adult Child Really Need a Will?

“You may have spent part of the pandemic updating your estate plan and getting your financial house in order. However, did you ever stop to think about whether your adult child needs a will?”

Most people believe their adult children do not require a will, until they get married or have a child of their own. However, realistically, if your adult children have any assets in their name, they should have a will.

Forbes’ recent article entitled “Does Your Adult Child Need A Will?” says that most of us don’t want to think about a will for our children because it requires us to think about our child’s death.

Most people cannot even think about their own mortality, let alone their child’s death. However, for most young adults, a simple will and updated beneficiaries on retirement accounts and life insurance policies (perhaps through their job) is all that’s required to transfer their property, in case they die unexpectantly.

The child will need to designate individuals to receive their assets on their death (like siblings or other family members), and they must name an executor, in many cases a parent or sibling.

If you have your children sit down and draft a will with the help of an experienced estate planning attorney, you should also have them sign a health care proxy and power of attorney. The health care proxy designates a person, usually a family member, to make health care decisions, in the event they cannot make them for themselves. The power of attorney will let a named agent access to the children’s financial assets, in the event they are incapacitated.

It is not uncommon for parents to set up bank accounts for their children, and their grandparents may have also given the children financial assets over the years. Even if your children have not received any financial gifts, they may be working and saving money in their own accounts. These are all situations in which children should have a will.

This will probably be your children’s first experience with estate planning, but it will not be the last. As their assets grow, the planning will become more complex.

Moreover, if your children have families, that will also change the plan. Beginning the estate planning process now also starts their education as to what they should know to properly manage the assets they’ll inherit from you and eventually leave for their own children. You can contact our office today to schedule your consultation.

It also introduces your children to your team of advisors so if something happens to you, your children already know where to go for assistance.

Reference: Forbes (Dec. 21, 2020) “Does Your Adult Child Need A Will?”

How to Plan for a ‘Black Sheep’ Kid in Will

“There are several myths about how estates must be distributed that can lead to lots of worry about what will happen to a “wild child” in the future and stress about family dynamics.”

Every family has unique circumstances as far as wealth, financial planning, and plans for the future. Therefore, it is critical that you consider your individual beneficiaries’ circumstances when it comes to estate planning.

Kiplinger’s recent article entitled “Estate Planning for ‘Black Sheep’ Beneficiaries” explains that this may take the shape of a child with a substance abuse issue, a lack of financial acumen and responsibility, or a mental illness. You also may want to reward certain behaviors in the future. All these situations can be addressed thoughtfully and effectively in your estate planning documents with the help of an experienced estate planning attorney. Let’s dispel some of the common myths surrounding these issues:

Myth #1: You are required to split your estate evenly among your children. Disinheriting a beneficiary happens a lot. It can occur for a variety of reasons that have nothing to do with the disapproval of a potential beneficiary’s lifestyle choices. Regardless of the reason for disinheriting completely or making unequal distributions, it’s best to discuss this in your estate documents or in a separate letter. Give the reasons for your decision to head off any possible claim against the estate or even just hard feelings among family members.

Myth #2: Once you’ve disinherited your black sheep, it’s irreversible. Not so. You should review your estate planning choices regularly because situations change (hopefully for the better), and you can revise your estate plan to provide incentives for your beneficiary to continue making progress.

Myth #3: You have no control of the issue after you pass away. While there’s no direct control after you die, you can, however, make specific instructions in your trust to reward and motivate your black sheep to behave in a certain fashion. You can also treat the share of inheritance for one beneficiary differently than others. Therefore, a financially responsible child may be allowed to access such a share of the estate in one lump sum; but you create a trust for the second child who has issues.

Myth #4: Trusts are a huge hassle. Certain trusts permit you to name a person to help your beneficiary manage their inheritance. This can be a family member or friend, as well as a professional trustee who will assume the administrative responsibilities of a trust.

Don’t avoid the subject of estate planning. Work with an experienced estate planning attorney and discuss the options available. You can read more about how our process works, how we can make sure we are a good fit for your needs, and how to get started today right here.

Reference: Kiplinger (Dec. 8, 2020) “Estate Planning for ‘Black Sheep’ Beneficiaries”

Will I Get A Bill as My Inheritance?

“Debts, just like assets, are considered part of a person’s estate. When that person passes away, their estate is responsible for paying any and all remaining debts. The money to pay those debts comes from the asset side of the estate.”

When someone dies and leaves debts, you may ask if you have any personal liability to pay them. The answer is typically no, even though those debts don’t automatically disappear. However, there are situations in which you may have to address issues with a loved one’s creditors after they are gone, says KAKE’s recent article entitled “Can I Inherit Debt?”

The responsibility for ensuring the estate’s debts are paid, is typically that of the executor. An executor performs several tasks to wrap up a person’s estate after death. They include:

• Obtaining a copy of the deceased’s will, if they had one, and filing it with the probate court
• Notifying creditors and other entities of the person’s death (like the Social Security Administration to stop benefits)
• Creating an inventory of the deceased’s assets and their value
• Liquidating assets to pay off any debts owed by the estate; and
• Distributing the remaining property to the individuals or organizations named in the deceased’s will (if they had one) or according to inheritance laws, if they didn’t.

In terms of debt repayment, executors must notify creditors who may have a claim against the estate. Creditors are given a set period of time to make a financial claim against the estate’s assets for repayment of debts. It’s not that uncommon for a disreputable creditor to attempt to get paid by the deceased’s relatives.

Any assets in the estate that have a named beneficiary, such as a life insurance policy, a 401(k), individual retirement account, payable on death accounts or annuity, would be transferred to that beneficiary automatically and cannot be touched by creditors.

You typically don’t inherit debts of another like you might inherit property or other assets from them. Thus, if a debt collector tries get money from you, you’re under no legal obligation to pay.

However, if you cosigned a loan with the deceased or opened a joint credit card account or line of credit, those debts are legally yours, just as much as they are the person who died. If they pass away, you’d be solely responsible for repaying them.

You should also know that you may be liable for long-term care costs incurred by your parents, while they were alive. Many states require children to cover nursing home bills, although they aren’t always enforced.

As for spouses, the same rules of debt responsibility apply. However, for debts that are in one spouse’s name only, it’s important to understand how living in a community property state can impact your liability for marital debts. If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), debts incurred after the marriage by one spouse can be treated as a shared financial obligation.

Reference: KAKE (December 2, 2020) “Can I Inherit Debt?”

Is a Tax Change a Good Time to Check My Will?

A last will and testament can make certain that your goals for legacy and asset disposition are satisfied and carried out. However, what most people fail to grasp is that a will needs regular review—especially if the document was written or involved the creation of a trust prior to passage of tax reform, the Tax Cuts and Jobs Act (TCJA), in 2017, says Financial Advisor’s recent article entitled “Tax Changes Make This A Good Time To Revise A Will.”

Wills can pass on assets, but taxes have come to greatly impact how much money is passed on. People usually understand the primary components, including the tax implications, of their wills.

These include:

• The unlimited marital deduction
• Applying current rules to make non-taxable gifts of up to $15,000 per person
• The current estate tax exemption of $11.58 million
• Health care directives
• Naming trustees and executors; and
• Creating long-term trusts with non-taxable asset transfers.

Wills and trusts were created prior to the passage of the TCJA may not consider that reform changed the amount which can be exempted from estate taxes.

The law more than doubled the amount that can be exempted from estate taxes. The potential tax changes could cause many more Americans to have a taxable estate, and it’s important to have a full understanding of your assets and carefully decide who you want to receive them. You must also decide if you want them passed outright or through a trust.

Privacy is a good reason why some people often prefer trusts. They also like the quick processing and avoiding probate.

Estate plans should be reviewed every few years, and wills should be reviewed more frequently because life changes are the biggest reason for trouble in revising wills.

Divorce, separation or marriage; the birth or adoption of children, as well as a child reaching adulthood; and changes to finances, location, and health all can play important roles.

Reference: Financial Advisor (Nov. 9, 2020) “Tax Changes Make This A Good Time To Revise A Will”

What Kind of Estate Planning Do I Need During the Pandemic?

“The COVID-19 pandemic has made 2020 a nightmare for many people, and inadequate estate planning can exacerbate the pain.”

Having a valid will and a complete estate plan is important for everyone, but it’s crucial as you approach retirement.

Richmond Times-Dispatch’s recent article entitled “Estate planning during the pandemic” says that it’s because you’ll probably have more assets at this stage of your life, and it’s important to consider whom you’d like to inherit.

It is critical that you plan to be sure your spouse and family will be cared for financially, in the event that something happens to you. This can be accomplished with proper estate planning with the help of an experienced estate planning attorney.

If you die without a will or estate plan, state probate laws of succession may direct the way in which your assets are distributed. This can be an expensive process, but it can also be a significant burden on your family during a time of grieving and sadness.

Even with a will, going through the court-supervised probate process of passing assets through a will can be time consuming and expensive.

One way to avoid probate is to ask an experienced estate planning attorney to help you set up a trust. A frequently used trust is a revocable living trust, which lets you modify the terms if you like.

Individuals with children or real estate can particularly benefit from setting up a trust. A trust allows you to avoid probate and makes certain that your assets are transferred to the intended people. It also lets you control exactly how the money can be used. You can also name someone to take control when you’re not available, known as a secondary trustee.

The executor of a will is really an administrator who transfers assets from one person to another. In contrast, a trustee is more of a decision-maker who will take your place and make decisions you would want to make, if you were still around to make them.

After you set up your estate plan, you should review it every few years.

You can read more about how our process works, how we can make sure we are a good fit for your needs, and how to get started today right here.

Reference: Richmond Times-Dispatch (Nov. 19, 2020) “Estate planning during the pandemic”

What Happens If You Fail to Submit a Change of Beneficiary Form?

“The financial institution is obligated to distribute the CD to the person or entities that otherwise would be entitled to receive it.”

Wealth Advisor’s recent article entitled “I’m being denied an inheritance. Can they do that?” explains the situation where an individual, Peter, was given a CD/IRA by a friend named Paul.

Paul told Peter that he wanted him to have it, in case anything happened to him. Paul was married and didn’t tell his wife about this. Paul’s wife was the beneficiary of several other accounts.

Paul told Peter to sign a document before he died, and they got it notarized.

Paul died somewhat unexpectedly, and Peter took the signed and notarized beneficiary designation form to the bank to see about collecting the money.

However, the bank told Peter that there was no beneficiary designation given to them prior to Pauls’ death.

Is there anything that Peter can do?

The article explains that it’s a matter of timing, and it’s probably too late. That’s because it looks like Paul failed to submit a written beneficiary change form to the financial institution prior to his death.

As a result, the financial institution must distribute the CD to the person or entities that otherwise would be entitled to receive it.

In most states, you can choose any IRA beneficiary you want. However, in nine community property states, you are required to name your spouse as your heir. If you want to name anyone else, your spouse must give written permission. The same laws apply, if you want to change your beneficiary designation.

The nine community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

The only way for Peter to see the money, is if he can show that Paul intended for him to receive the asset. That bank doesn’t want to be sued by another person, who claims they’re entitled to the CD.

In this situation, it’s best to speak with an experienced estate planning attorney who can examine the specifics of this type of issue. If you have any questions about your current estate plan, please call or email us today.

Reference: Wealth Advisor (Nov. 24, 2020) “I’m being denied an inheritance. Can they do that?”

Advice If You are Named Executor of a Family Estate

“After a loved one passes, one of the biggest hurdles that families face, is passing wealth onto the next generation. Unfortunately, family dynamics can spur conflict and infighting among descendants.”

More than 75% of advisors polled by Key Private Bank said the most difficult part of estate planning is dealing with interfamily dynamics, according to a survey released in 2019.

Channel 10 Boston’s recent article entitled “Executor of a Family Estate? Here's How to Avoid Infighting Over Inherited Wealth” reports that the bank surveyed 130 of its client-facing advisors about their experience with individuals who are doing estate planning.

"The sensitivities of talking about estate planning often present emotional hurdles to putting a plan in place — especially when multiple marriages and blended families are involved," stated Karen Arth, Head of Trust with Key Private Bank, in the survey release.

Many family conflicts surrounding assets and estate planning are caused by miscommunication. The older generation should ask their children to join the conversation. Without this step, there can be a lack of clarity and transparency from generation to generation. The older generation believes that it did everything right in their estate planning, but often they don't explain their reasoning to their children and didn't give their children a chance to offer any input.

One way to prevent drama, as well as ways to remedy conflicts already started, is to begin the communication while everyone is alive.

When a person dies, they may leave an entire estate, with a lifetime of items to family. However, many of these items might not be listed in the will. As a result, the family must divide them up among themselves. Conflicts around sentimental value can arise. It is a good idea to seek help from a third party, so they can bring clarity and allow everyone to cool down. There are facilitators who can help. They are not just financial advisors and family dynamics experts but also professional mediators, who can help the family come to an agreement.

It is critical to have an open dialogue when it comes to dividing up assets. One way to avoid conflict is for the heirs to create wish lists of items they’d like, that can then be reviewed by the executor of the estate. Some people categorize items into groups of equal value, and others decide who gets what by rolling the dice. Whatever the method, open communication is vital to avoiding conflict.

Reference: Channel 10 Boston (Nov. 12, 2020) “Executor of a Family Estate? Here's How to Avoid Infighting Over Inherited Wealth”

What Do You Do with a Big Inheritance?

“Let’s start with the numbers: 10 and 1,000,000,000,000. Over this decade, $1 trillion is expected to change hands through inheritance. The majority of that will end up in the hands of baby boomers.  While one study found that the average inheritance was only $50,000, there will be a lot of inheritances in the $1 million-plus range.”

Wealth Advisor’s recent article entitled “Death by inheritance: Windfall can cause complications” cautions that in a community property state, if you’re married, your inheritance is separate property. It will stay separate property, provided it’s not commingled with community funds or given to your spouse. That article says that it is much harder to do than it looks.

One option is for you and your spouse to sign a written marital agreement that states that your inheritance (as well as any income from it) remains your separate property. However, you have to then be careful that you keep it apart from your community property.

If your spouse doesn’t want to sign such an agreement, then speak to an attorney about what assets in your inheritance can safely be put into a trust. If you do this, take precautions to monitor the income and keep it separate.

Another route is to put your inheritance into assets held in only your name and segregate the income from them. This is important because income from separate property is considered community property.

Another tip as far as the overall management of the inheritance, is to analyze it by type of asset. IRAs and other qualified funds take very special handling to avoid unnecessary taxes or penalties. If you immediately cash out your inherited traditional IRA, you’ll forfeit a good chunk of it in taxes. If you don’t take the mandatory distribution of a Roth IRA, you’re going see a major penalty.

Inherited real estate has its own set of issues. If you inherited only part of a piece of real property, then you’ll have to work with the other owners as to its use, maintenance, and/or sale. For example, your parents’ summer home is passed to you and your three siblings. If things get nasty, you may have to file a partition suit to force a sale, if your siblings aren’t cooperative. Real estate can also be encumbered by an environmental issue, a mortgage, delinquent taxes, or some other type of lien.

Some types of assets are just a plain headache: timeshares, partnership, or entity interests that don’t have a buy-sell agreement, along with Title II weapons (which may be banned in your state).

You can also refuse an inheritance by use of a disclaimer. It’s a procedure where you decline to take part or all of an inheritance.

Finally, speak with an experienced estate planning attorney, so you can incorporate your inheritance into your own estate plan. Contact our office today to schedule your consultation.

Reference: Wealth Advisor (Nov. 10, 2020) “Death by inheritance: Windfall can cause complications”

What Key Estate Planning Terms Should I Know?

“Estate planning is an incredibly important tool, not just for the uber-wealthy or those thinking about retirement. On the contrary, estate planning is something every adult should do.”

Estate planning can help you accomplish several objectives, including naming guardians for minor children, choosing healthcare agents to make decisions for you should you become ill, minimizing taxes so you can give more wealth to your heirs, and saying how and to whom you would like to pass your estate at death.

Emmett Messenger Index’s recent article entitled “13 Estate Planning Terms You Need to Know” provides some important terms to understand as you consider your own estate plan.

Assets: This is anything a person owns. It can include a home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, collectibles, art, and clothing.

Beneficiary: This is an individual or entity (like a charity) that gets a beneficial interest in an asset, such as an estate, trust, account, or insurance policy.

Distribution: A payment in cash or asset(s) to the beneficiary who’s designated to receive it.

Estate: All of the assets and debts left by a person at death.

Fiduciary: An individual with a legal obligation or duty to act primarily for another person’s benefit, such as a trustee or agent under a power of attorney.

Funding: The process of transferring or retitling assets to a trust. Note that a living trust will only avoid probate at the trustmaker’s death if it’s fully funded. A trustmaker also may be known as a grantor, settlor, or trustor.

Incapacitated or Incompetent: The situation when a person is unable to manage her own affairs, either temporarily or permanently, and often involves a lack of mental capacity.

Inheritance: These are assets received from someone who has died.

Probate: This is the orderly court-supervised process of distributing the assets of a person who has died.

Trust: This is a fiduciary relationship where a trustmaker gives a trustee the right to hold property or assets for the benefit of another party, known as the beneficiary. The trust is a written trust agreement that directs how the trust assets will be distributed to the beneficiary.

Will: A written document with directions for disposing of a person’s assets after their death. A will is enforced by a probate court. A will can provide for the nomination of a guardian for minor children.

We can help walk you through creating and fully understanding every element of your estate plan; call or email us today to schedule a consultation.

Reference: Emmett Messenger Index (Oct. 28, 2020) “13 Estate Planning Terms You Need to Know”

Incorporating Gifting with an Estate Plan

“Gifting sounds pretty simple, but there are many ways to do it. There are also several tax ramifications to be aware of.”

Kiplinger’s recent article entitled “Gifting sounds pretty simple, but there are many ways to do it, and several tax ramifications to be aware of as well” explains that no matter if a gift is made this year or in future years, there are some important questions to consider.

Increased exemption. The Tax Cuts and Jobs Act significantly upped the lifetime gift, estate and generation-skipping tax exemption to $11.58 million per individual ($23.16 million per couple). It’s set to expire at the end of 2025. Thus, there’s the prospect of possibly losing an opportunity to transfer wealth out of your estate and save on future estate taxes earlier than anticipated.

When to Give. A big question is whether a person should give away assets during their lifetime or at their death. Those who opt to gift while they’re alive often do so to reduce their estate and to share in the joy of seeing the effect it makes in the lives of the recipients. Others decide to gift after death for the security of having the assets on hand, if they’re needed. Gifting after death also gives recipients time to prepare for the responsibility that comes along with inheriting wealth.

Unified Federal Estate & Gift Tax Exemption. There are many ways to distribute assets. What works for one family isn’t necessarily the wisest strategy for another. Note that any transfer is gift tax-free up to the annual exclusion amount ($15,000 per person per donor in 2020). Any gift over this amount will count against the donor’s lifetime exemption amount. After that lifetime exemption is used, the gift will be subject to gift tax.

Outright cash gifts. This appears to be the most uncomplicated way of gifting. However, for those with significant wealth, this approach could have some drawbacks. These concern the ability and experience gift recipients have to manage money, outside risks, such as a spouse or high-risk professions, and demotivating recipients to live off their inheritance, instead of becoming productive on their own. Therefore, distributing large amounts of money—particularly at a young age—is generally discouraged.

Trusts. These are used frequently for larger gifts to provide for beneficiaries, while using controls by the grantor. These parameters can include things like distributing trust assets in stages (when the beneficiary reaches a certain age or achieves a specific goal). You can also leave assets in a discretionary lifetime trust, which would maintain the assets in a trust for the beneficiary’s entire lifetime. When set up by an experienced estate planning attorney, this offers a high level of protection from divorcing spouses, lawsuits, poor financial decisions and outside influences. It can also let the grantor create a lasting family legacy for many generations.

Gifts for education or medical expenses. Direct payments for college tuition or for medical expenses have no gift tax consequences. Educational gifts can also be made by funding a 529 educational savings plan. While there are no contribution limits for a 529 plan, gifts over the annual exclusion amount can have gift tax consequences or count against the lifetime exemption. You can also pre-fund an account up to $75,000 and it will receive the same tax treatment, as if it were gifted in $15,000 increments over five years.

Uniform Trust to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA). These custodial accounts are generally less restrictive than trusts and let minor beneficiaries access funds at age a specific age depending on state of residence.

You can read more about how our process works, how we can make sure we are a good fit for your needs, and how to get started today right here.

Reference: Kiplinger (Oct. 30, 2020) “Gifting sounds pretty simple, but there are many ways to do it, and several tax ramifications to be aware of as well.”