Ken Kossoff - Estate Planning Blog

How an Estate Plan Protects Your Loved Ones

Everyone needs an estate plan, for their own peace of mind and for their loved ones.

The Huffington Post’s recent article confirms that “You Don’t Have to Own an Estate to Do Estate Planning!” As the article notes, estate planning concerns creating directions so your family understands what to do and when, if you’re not around to tell them.

More than money, an estate plan is about making sure your family is protected, making sure your wishes are executed and providing peace of mind for all.

The parts are very straightforward, but every plan is different. You need an advance directive that includes a living will. This document identifies the medical care you want to receive if you are unable to communicate and a medical power of attorney, which designates an individual to coordinate your wishes. Failing to do this could mean your care could be left to the interpretation of healthcare professionals and family members. You should also draft a financial power of attorney.

Work with an experienced estate planning attorney to help you create a plan that protects you, while maximizing your investment potential and minimizing your tax liability.

Here's another way to be sure your intentions are known by your family—an ethical will or legacy statement. An ethical will is different than your living will. In fact, it’s not really a will, but a statement that expresses your love, your hopes, your dreams and your wishes. It may be a letter or letters to individual people you love. You can also create a video or a scrapbook.

Think of your ethical will as a personal statement that contains important information about what you want to happen when you are gone. This may include advice for the guardians raising your children, wisdom that you want to share with nieces and nephews, or a statement of memories for loved ones.  It can include subjects such as important life lessons you learned, in both good times and bad, and how you overcame and learned from the difficult life experiences every one of us faces.

Estate planning is about protecting your loved ones and creating a legacy. It has less to do with the value of your estate than you think!

Reference: Huffington Post (August 7, 2017) “You Don’t Have to Own an Estate to Do Estate Planning!”

The Newest Estate Planning Asset: Your Digital Life

Treat your digital assets as you do any other assets during estate planning, and your heirs will thank you for it. That includes creating a notebook or a secure file on your computer with a list of accounts, user names and passwords. Haven’t done it yet? According to Kiplinger in “Leaving Your Digital Legacy,” leaving this part out could cause a considerable delay in their ability to settle your estate.

Most of us live at least some of our lives online. We have email and social media accounts, and we make purchases of digital books and music. We also pay our bills and conduct our banking online.

Unfortunately, much of our virtual property can’t be left to our heirs through a will. That’s because we don’t actually own them—we just have licenses to use those services. Even online accounts like email and social media sites aren’t ours either. Those providers control what happens when our contracts end at death.

Here’s what you can do to prepare to leave your digital legacies: make a list all your online accounts, which might include email accounts, financial accounts and utilities, banking accounts, retirement accounts, mortgages and insurance. Don’t forget any music, photos, or books stored online; any websites, blogs, or licensed domain names, merchants like eBay or Amazon and online communities or listservs where you’ve been active.

Consider what you’d want to have happen to those accounts. Would you want a loved one to have access to your music library or to your photos? What about your emails? Do you want your emails saved or deleted? The same thing is true with your social media accounts. They can be deleted or turned into “memorial” accounts, in some cases. On some sites, you can also have someone post a final status update after your death. With that in mind, you should consider nominating a “digital executor.”

You can allow your digital executor to know where you keep your passwords. Discuss your accounts with your digital executor and leave him or her detailed directions on where and how to find passwords, user names and other essential information.

Depending on the platform, it may be possible for you to include virtual items to people in your will. Speak with your estate planning attorney, so that all of your information on accessing these items is available and can be downloaded.

Another option is to place your digital items in a virtual vault. There are a number of companies that will place all of your digital information, including user names and passwords, on one online platform. Be sure to share this access information with your estate planning attorney and at least one of your heirs.

Reference: Kiplinger (August 2017) “Leaving Your Digital Legacy”

The Importance of Special Needs Planning

If you have a family member with special needs, you know that they cannot manage on their own, or function without the support of a team of healthcare and social support providers. What would happen to your family member if you died unexpectedly or became incapacitated? That is why you need to have a plan in place, long before it is needed, to protect them and provide for their care.

The Middletown Transcript’s article, “Caring for family member with special needs requires planning,” begins with a child born with a lifelong condition.

The hardest thing is the 24/7 aspect of a job that you love doing. It is important to understand, however, that it will wear you out. Parents must not only find support and breaks for the care, but also must determine what to do when they pass away.

There is usually state agency help or aid from a government program. However, the aid is always at the whim of politicians, so you must plan for the child’s inheritance. That means a type of estate planning to preserve certain benefits for your child and allow any funds you’ve saved for them to supplement their lifestyle.

Another type of special needs is for those family members with substance abuse issues. This type of condition leaves parents knowing that any day could be ‘the’ day. However, similar to special needs from birth, this loved one must be protected from having access to large sums of money.

Over the long term, the issues are similar to a traditional special needs scenario.  However, there’s always a chance of a full recovery. That hope often turns to despair, but it doesn’t mean a family wants to stop supporting their loved one.

While it is unpleasant to contemplate, there are many instances of healthy people who are incapacitated by an accident, stroke or another serious medical condition. If such an event should happen to a family member, you’ll also need to create a special needs plan and update your estate plan .

An estate planning attorney who has worked with special needs families will be able to help you plan ahead for these issues, structure your estate plan properly, and help your family navigate through whatever challenges lie ahead. The important concept: don’t wait to address these matters.

Reference: Middletown (DE) Transcript (August 1, 2017) “Caring for family member with special needs requires planning”

Yes, Even You Need to Have a Will

Most of us are hard-wired to avoid situations that might lead to our death. While some thrive on sky diving or swimming with sharks, death is something most of us prefer to avoid.

Unfortunately, trying to ignore our own mortality can wreak havoc for our loved ones. That is, if we don’t take the time to have a will and an estate plan properly prepared, as detailed in The Rivard Report’s article, “Why Everyone Needs a Will.”

A recent survey found that just 36% of adults with young children have a will. The national average of adults with a will isn’t much better. In fact, just 42% of all adults have estate planning documents, like a will or living trust. Half of those surveyed who didn’t have a will, said they just “had not yet gotten around to it.”

Those without a will need to rely on state intestacy laws to dispose of their assets. However, this is about being thoughtful rather than just financial planning or wealth distribution. It’s for your family that you need to plan ahead and create a will. This can reduce the stress and anxiety, when it’s time to settle your affairs.

Estate planning isn’t just for those with substantial assets. Wills deal with the distribution of your estate, but they also can provide contain other detailed instructions for other important topics. Work with a qualified estate planning attorney to draft your will to be certain that the will, witness requirements, and its execution comply with state law. Tell your attorney the specifics of how you want your estate to be distributed. If you have children under age 18 when you die, you should designate a guardian for their care.

You also need to carefully consider who you select as your executor. This person needs to be comfortable with adhering to the instructions in your will. They must also be able to work with your banking and insurance accounts, as well as your debts.

A will can also be used to state any posthumous gifts and donations to charities. Gifts up to a certain amount can be excluded from estate taxes, so there are some tax benefits for incorporating charitable gifting into your will.

Having a will and all of the documents that make up an estate plan prepared with the assistance of an estate planning attorney, can alleviate a great deal of stress for your family.

Are you one of those folks who like living on the edge? That’s fine—just make sure your estate plan is in place!

Reference: Rivard Report (July 31, 2017) “Why Everyone Needs a Will”

Estate and Farm Succession Planning: Costly and Common Mistakes

Without properly prepared estate and succession plans in place, many farm families find themselves in a bind from a financial and legal standpoint. In many cases, the family farm must be sold. Estate planning attorneys who work with non-farm privately-held business owners see many of the same mistakes.

The Minnesota Farm Guide, in the recent article, “Four common mistakes in estate and succession planning,” says one mistake is having no estate or farm succession planning at all. Many families don’t do anything. Experienced estate planning attorneys see many difficult situations where individuals have made mistakes in their planning, leaving the successors to pay the price for those unforeseen consequences.

In farm families, it’s common for one or many children to stay and work the farm with the parents, while the other kids leave to start their own careers. The parents must try to figure out a fair plan for the other kids, while allowing the farming child to have the continued opportunity to farm the family land.

A farmer’s assets usually consist of farm equipment, machinery, grain inventory, and the land. If they want the child who’s farming to keep farming, they may decide to create a structure to get that child the machinery and equipment. However, they can get stuck because if they also want to give them the land, there’s nothing left to give the non-farming children.

Another issue is waiting too long to start estate or farm succession planning. It’s beneficial to everyone to begin early. A parent can buy a life insurance policy to pay out to the non-farming children with the value of the policy equal to the assets being passed on. If it is set up correctly, the policy’s proceeds can also be used to pay any estate tax. Waiting to start planning makes it too difficult or too expensive to get such insurance.

A third mistake is not working with an attorney who specializes in estate and succession planning.

Finally, it’s a mistake to think the only way to give the farming children the opportunity to continue to farm would be to not only give them all of the farm equipment, machinery, and inventory, but also all the farmland. This would be very unfair to the other children.

An experienced estate planning attorney can work with the family to create a strategy that will be fair to all of the children. This includes both those who intend to continue working on the farm and those who will be leaving to pursue other careers. One strategy is to transfer land ownership into a partnership, which then governs how the land is managed, or whether it is to be leased or sold. Every family, family farm and non-farm family business is different, so an estate planning attorney will need to create a plan specific to each family.

Reference: The Minnesota Farm Guide (August 2, 2017) “Four common mistakes in estate and succession planning”

Why an Estate “Directory” Can Help Your Family

Families are vulnerable when a loved one dies. It can be difficult to make decisions, long-standing family tensions may resurface, and sibling rivalries erupt into no-holds-barred battles. The damage can be permanent.

Successful Farming’s recent article, “Create an Estate Directory,” suggests that one way to avoid this is to make sure your wishes are known long before anything happens to you. Along with important documents, there’s a considerable amount of information that will need to be accessed and shared. Getting it organized now can help family members reduce stress and avoid frustration. An estate directory form is a warehouse of information that can help a family carry out a person’s wishes. It can give them everything they need to know, in the event that a loved one dies.

Every adult should organize an estate directory. This document can assist aging parents to help their children and loved ones when they need to reach this information. This important exercise can bring a sense of relief to a family. Those in grief at the loss of a loved one aren’t troubled by pressing financial and logistical issues. If you’re married, complete it with your spouse. It can lead to discussions about gaps in your planning.

The estate directory should have information such as birth date, place of birth, driver’s license number, marriages, children, citizenship information and Social Security number. There should also be any personal facts such as your parents’ burial location, your funeral preferences, as well as important contact info and account passwords. Make sure that the document lists contact information for your financial planner, estate planning lawyer, executor, accountant, stockbroker, insurance agent and clergy. It should also include important documents such as: birth and marriage certificates, tax records, vehicle and property titles and military records.

Here’s the final important step. Give copies of your estate directory to your spouse, or the person who will be in charge of your estate. Be realistic about your family’s dynamics. Should only the oldest or most responsible child get a copy of the estate directory, or should all of the children get a copy? If you only give one child the document, make sure the others know that the document exists, who has it, and why. You might also want to make a copy on a thumb drive and share it with a trusted relative or friend.

Like your estate plan, this estate directory should be reviewed and updated every few years.

Reference: Successful Farming (August 2, 2017) “Create an Estate Directory”

Is a Trust Right for Your Estate Plan, and What Kind of Trust is Best?

Here’s something that most people don’t know: if you listed your spouse or a child as a beneficiary on a bank account, from a technical standpoint, you have created a simple trust. A recent article from Madison.com, “3 Types of Trusts That Can Cover Your Assets,” offers some practical information on three basic kinds of trusts that are commonly used by regular people in estate planning.

A trust is simply a device that is used to divide ownership of property between its legal title and its beneficial enjoyment. The trustee is responsible for managing the property and the terms of the trust will state directions for the benefit of the named beneficiary. A trust can be revocable, which means that you can change your mind about the beneficiaries or you can even cancel the trust entirely.  However, an irrevocable trust doesn't let you modify the terms once the trust has been established (except in limited circumstances and, hopefully, only with the advice and counsel of a lawyer). The distinction is important, because some types of trusts won't work if you set them up with the wrong kind of revocability.

Asset Protection Trust. This trust is designed to protect money from creditors. The trust creator transfers ownership of cash or property to a trustee. The property is now owned by someone else and creditors arguably can't reach it. This type of trust must be irrevocable. Work with a trust attorney to set it up exactly the way you want before you execute it.  Since not every state permits asset protection trusts, and since courts often (and often accurately) attribute bad motives to asset protection trusts, ask your attorney if this applies to your situation.

Bypass Trust. This trust is designed to help married couples avoid unnecessary estate tax liability. Each spouse creates their estate planning documents to leave property (up to the threshold of the estate tax exclusion) to the bypass trust. They then bequeath everything else that they own to the other spouse. Any property left to a spouse qualifies for a marital deduction to the estate tax. Thus, when one spouse dies, the other gets the bequeathed property tax-free. The property in the trust is covered by the estate tax exclusion but is not subject to estate tax in the surviving spouse's estate. Therefore, as the property increases in value, it can safely grow above the exclusion amount without any estate tax at the death of the surviving spouse (though the assets of the bypass trust will be subject to capital gains taxes upon the sale of the assets).

Totten Trust. The bank account set up with a beneficiary is a Totten trust. It’s used to avoid probate. Totten trusts won’t work for real property like a house. That calls for a specialized trust.

There are a number of other kinds of trusts designed for more specific situations. A charitable trust is used to make charitable gifts and create an income stream. A spendthrift trust is just what it sounds like: protecting assets for someone who cannot control their spending. A Special Needs Trust (SNT) is created to allow a family member to continue to receive government benefits, without being disqualified because of income levels.

A knowledgeable estate planning and trust attorney can help you to determine what kind of trust is best for your family’s situation.

Reference: Madison.com (August 1, 2017) “3 Types of Trusts That Can Cover Your Assets”

Here’s What You Need to Know about Roth IRAs

You may encounter them at work or at family gatherings. These are people who insist on telling you how smart they are about avoiding taxes through retirement accounts. But before you listen to another earful, let’s look at the facts first.

It may be, says The Central Penn Business Journal, that this person is talking about their Roth IRA savings techniques and how beneficial its tax-free savings are for their estate planning. The article, “There's more than one way to save in a Roth,” explains that what you save in a Roth IRA represents post-tax savings. It grows tax-deferred, and then in retirement, the growth that’s never been taxed can be distributed tax-free.

For those savers who anticipate being in a higher income tax bracket in retirement than they are now, the benefits can be significant. Even for those savers who think their tax rate today is higher, there are still worthwhile benefits to the Roth IRA.

Roth IRAs don’t require “minimum distributions” after age 70 ½ like traditional IRAs. Roth IRAs can also be passed on in a tax-efficient way.  With proper beneficiary designations, they supersede a will and avoid the probate process. This makes a Roth a helpful estate planning tools for transferring wealth. The savings made into Roth IRAs can be accessed five years after the initiation of the Roth—even if the owner is under 59½. Early distributions from the Roth may be free of penalties and double taxation, if they represent the investor’s savings into it.

Most 401(k) plans now come with traditional and Roth options. That means the best part about the Roth savings option is that it comes with nearly all of the benefits of the Roth IRA and a few more. 401(k) plans allow for significant annual participant savings ($18,000 or $24,000 for those over 50 years old in 2017). If the participant decides to save all of that in the Roth side of the plan, he can do so regardless of his family’s income, with a $24,000 limit in 2017 into a Roth 401(k) for those 50 years old or older, and the Roth IRA income limits don’t apply.

 It is important to remember that if you decide to leave money in a Roth 401(k) after you are 70½, you will be required to make minimum distributions as long as you are alive. What most investors do is pretty simple; they roll their Roth 401(k)s into a Roth IRA upon retirement.

Reference: Central Penn Business Journal (July 14, 2017) “There's more than one way to save in a Roth”