Perlin Estate Planning

Do You Have a Ticking Time Bomb in Your Estate Plan?

“There’s a time bomb ticking in many estate plans.”

Forbes’ recent article, “Defusing The Time Bombs In Your Estate Plan,” explains that the “bomb” that may be ticking and ready to explode is the person, or people, you name to act for you.

Whether they act during your lifetime or after you pass away, these individuals frequently can make or break your estate plan. They have the ability to determine the fates of family relationships and financial security.  However, most people don’t realize the potential consequences of their surrogates’ actions. As a result, they don’t give sufficient thought to whom they appoint to these important roles.

Let’s examine some of the major potential surrogates:

Agent: This is the person who acts for you under a power of attorney or advance medical directive.

Trustee: If you create a trust, you’ll create some limits in the trust agreement, and the trustee has the authority to make the final decisions about managing the investments, making distributions, paying taxes and other aspects of managing the trust.

Executor: This person manages and distributes your estate, after you pass away. Also known as a personal representative, the executor is charged with carrying out the wishes expressed in your will and other estate planning documents.

Social Security representative payee: Social Security will appoint someone to manage the benefits of someone who is unable to do so; usually it’s a family member or friend. The beneficiary can contact Social Security and ask that a particular individual be appointed, and they will consider the request.

Long-term care insurance lapse designee: Most insurers now allow the insured to choose an individual who’ll get a notice, if the LTC premiums aren’t paid. You also can name an alternate payee who’ll receive and manage benefit payments, when you can’t.

Agent for funeral decisions: States have varying regulations about who can make funeral decisions, and some have laws recognizing the appointment of an agent.

Financial account designees: When opening a financial account, some people like to select the transfer on death (TOD) option, or they open joint accounts with a relative or friend. This allows someone else to manage the account, when he or she isn’t able and who will inherit it without going through probate.

One issue with many of these surrogate designations is that different people frequently are named for tasks and responsibilities which overlap. Another issue is that people often are appointed without being asked or even told until they have to act. Finally, the person named to handle these responsibilities must be qualified.

Speak with your estate planning attorney to be sure you have consistency and avoid conflicts between the different surrogates.

Reference: Forbes (July 23, 2018) “Defusing The Time Bombs In Your Estate Plan”

How Does the IRS Treat My Out-of-State Vacation Home, When I Pass it to my Kids at Death?

“The basis of property is primarily an income tax term and is important for determining gain or loss on the sale of property, or, for example, the amount of depreciation that can be taken.”

It’s not uncommon for a family to have a cabin or vacation home in another state. It’s also not uncommon for the parent and owner of that vacation home to ask if the out-of-state vacation home receives a step-up in basis, when his or her children inherit it.

The IRS says that to determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of property inherited from a decedent is generally one of the following:

• The fair market value (FMV) of the property on the date of the decedent's death.
• The FMV of the property on the alternate valuation date, if the executor of the estate chooses to use the alternate valuation.

They refer to the Instructions for Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. The IRS suggests that for information on the FMV of inherited property on the date of the decedent’s death, you should contact the executor of the decedent’s estate. The agency also notes that in 2015 Congress passed a new law that, under certain circumstances, requires an executor to provide a statement identifying the FMV of certain inherited property to the individual receiving that property.

When a person passes away, the property he or she owns or controls, like what’s included in their taxable estate, will be valued as of the date of death. Children who inherit the property will take the property or asset with the date of death value as his or her basis.

The step-up in basis doesn’t depend on whether or not you pay state or federal estate or inheritance tax on the property.  However, if you file a federal estate tax return, the value of the property reported on the return must be the same as the value reported by the children for the property as their basis in reportable transactions.

If a person only owns part of the real property at his or her death, it’s possible only that portion will get a step-up in basis.

With the owner living out-of-state, it’s important that the owner and the heirs understand the so-called "exit tax." For example, when New Jersey residents sell their homes and prepare to move out of state, they must pay a standard tax rate on the profit from the sale. This tax must be paid when you move, not when you’d usually file a state income tax return.

Reference: nj.com (July 24, 2018) “Cost Basis for and Inherited Vacation Home”

What’s JTWROS?

“It's a common practice for couples and business partners to take title to each other's bank accounts, brokerage accounts, real estate and/or personal property as joint tenants with rights of survivorship (JTWROS).”

JTWROS, or Joint Tenants with Rights of Survivorship, is a form of asset ownership, whereby an asset is owned by at least two people, all owners have an equal right to the account's assets and are afforded survivorship rights, if one account holder dies. In other words, if one partner or spouse dies, the other receives all the money or property. This is why many married couples and business partners go with this option.  However, there are some things you should think about before entering joint tenancy.

Investopedia’s recent article, “The Benefits And Pitfalls Of Joint Tenancy,” examines the advantages and disadvantages of this arrangement.

ADVANTAGES

Avoiding Probate. When an individual dies his or her will is reviewed by a probate court. The court decides if the will is valid and legally binding and determines what liabilities and assets the deceased may have left. Any remaining assets after all debts are settled, are then distributed to heirs. If the individual dies without a will, the laws of intestacy apply. The probate process can take weeks, months, or even years, to sort through the deceased's estate. It will take even longer for beneficiaries to receive their inheritance.  However, with JTWROS, ownership automatically transfers to the other spouse or business partner upon the death of the first partner. There’s no probate.

Equal Responsibility. When a married couple or two business partners own an asset that is titled JTRWOS, both individuals are responsible for that asset. They both enjoy its benefits and share in the liabilities equally. It also means that neither party can incur a debt on the asset, without indebting themselves.

Continuity. When someone dies, his or her assets are often frozen, until the probate court determines whether the assets are encumbered, or until a determination is made about how to distribute them to heirs. This can be a problem for a surviving spouse who has outstanding debt or expenses.  However, by owning an asset as a joint tenant, the surviving spouse or business partner may use the property in any way he or she sees fit. The law also states that immediately upon the death of one tenant, ownership is transferred to the survivor.

DISADVANTAGES

Deteriorating Relations. Two people who own the entire asset together can be a disadvantage in an unstable relationship. Neither party can sell or encumber the asset, without the other party's consent.

Frozen Bank Accounts. If the deceased is heavily in debt, and the probate court is concerned that the surviving spouse or business partner may liquidate the funds to avoid paying the obligations, the court could freeze the account. An account may also be frozen, if there is a question as to whether the surviving spouse or business partner actually contributed to the account, or if the ownership was merely for convenience. In some cases, the asset may still be frozen upon the death of either partner or spouse.

Partner Asset Control. When the surviving spouse or business partner assumes control over the joint asset upon the death of the co-tenant, he or she may then sell it, or bequeath it to someone else: the deceased loses control over the ultimate disposition of the asset entirely.

Another Option. The alternative to joint tenancy is tenancy in common. Some of the benefits to this account are that the asset is divvied up, and each owner may own one half of the asset (or a percentage or fractional ownership can be created). Each party can also legally sell his or her share, without the other party's approval or consent. In addition, the asset will pass to heirs. Unlike with JTWROS, ownership of the asset will not automatically transfer to the surviving account owner upon the first owner's death. The asset will instead pass, according to provisions made in the deceased's will. The assets can also be accessed. If one owner becomes disabled or dies, the other owner should still be able to access his or her portion of the assets. Consequently, he or she can sell a portion of the asset or dispose of it, without needing to wait on a judgment from a probate court.

Reference: Investopedia (March 20, 2018) “The Benefits And Pitfalls Of Joint Tenancy”

Are You in the “Sandwich Generation”?

“Have you ever wondered if you are part of the sandwich generation?”

The “sandwich generation” is a generation of people, who are usually in their 30s and 40s. They are caring for their aging parents, while supporting their own children. If this sounds like you, then this means you’ve got a lot to worry about. Even if you are not taking financial responsibility for your parents, you are dedicating time and energy, usually willingly.  However, that means there’s less of both for you, your family and your career.

The Press-Enterprise’s article, “3 tips for anyone in the sandwich generation,” offers the following tips to make the “sandwiching” easier on you and your family:

1.     Talk About Money Issues. Discuss finances with your children and parents. Perhaps you could go with them to meet with their estate planning attorney. He or she can make sure your parents have all the proper estate planning documents, such as a will, trust, living wills and powers of attorney.

This legal professional will create a plan to lessen or avoid estate taxes and work to ensure that your life's savings and assets are protected from your beneficiaries' creditors after your death, and that your legacy is assured.

Estate planning attorneys are accustomed to working with families and navigating the issues between adult children and their aging parents. There is little chance that yours is a unique situation.  It does not mean it is easy, but a skilled attorney will be able to help you and your family deal with whatever situation you face, with dignity and compassion.

2.    Get (More) Help. You may get support or assistance to help your parents, your kids, or even yourself. Odds are good that your parents will be reluctant to accept help, so start the process yourself. This could involve hiring a housekeeper for yourself to free up some of your time for things that are more important.

This will give you more time, and your parents won’t feel you are using your finances to assist them. If you have friends and relatives that offer help, take them up on it. Don’t try to do everything yourself.

If your children are old enough, you can also get them involved. Children are surprisingly capable, and sometimes grandparents are more comfortable having grandchildren help with minor chores around the house, where their children’s own actions may seem intrusive.

3.    Don’t Feel Guilty. It’s impossible to get to everything. Be sure to take it one day at a time and to take care of yourself.

Reference: (Riverside CA) Press-Enterprise (June 28, 2018) “3 tips for anyone in the sandwich generation”

Apollo Astronaut Suing Kids Who Say He Has Dementia

“Apollo 11 moonwalker Buzz Aldrin is suing two of his children and a former business manager, accusing them of misusing his credit cards, transferring money from an account and slandering him by saying he has dementia.”

Buzz Aldrin, the second man to step on the moon, filed a lawsuit in June in Florida, a week after his children Andrew and Janice filed a petition claiming their father was suffering from memory loss, delusions, paranoia and confusion.

Stuff says in a recent article, “Buzz Aldrin sues children, alleging misuse of his finances,” that the two children requested that the judge name them his legal guardians. They said Buzz was associating with new friends who were trying to alienate him from his family and that he had been spending his assets at "an alarming rate.''

The 88-year-old Aldrin underwent his own mental evaluation that was conducted by a geriatric psychiatrist at UCLA last April. The doctor said Aldrin scored "superior to normal'' for his age on tests.

"I also believe that he is perfectly capable of providing for his physical health needs, food, clothing and shelter, and is substantially able to manage his finances and resist fraud and undue influence,'' said Dr. James Spar in a letter to Aldrin's attorney.

Aldrin asked a judge to remove Andrew from control of his financial affairs, social media accounts and several nonprofit and business enterprises. Andrew was a trustee of his father's trust. Buzz said in the complaint that despite revoking the power of attorney he had given his son, Andrew continued making financial decisions for him.

"Specifically, defendant Andrew Aldrin, as trustee, does not inform plaintiff of pending or future business transactions, removes large sums of monies from plaintiff’s accounts and continues to represent plaintiff in business and social capacities, despite plaintiff's repeated requests for such representations to be terminated,'' the lawsuit said.

In his complaint, Aldrin accused Janice of not acting in his financial interests and conspiracy. Buzz also accused his former manager, Christina Korp, of fraud, exploitation of the elderly and unjust enrichment. Several businesses and foundations operated by the family are also named in the lawsuit.

Buzz Aldrin was a member of the Apollo 11 crew that landed the first two people on the moon. Aldrin joined Neil Armstrong on the lunar surface in July 1969.

Reference: Stuff (June 26, 2018) “Buzz Aldrin sues children, alleging misuse of his finances”

English Showbiz Legend’s Estate Plan Has Nothing For His Kids

“He was one of Britain’s favorite entertainers.  However, it looks like Sir Bruce Forsyth may not have left his millions to his children after he died.”

Bruce Forsyth, an English showbiz legend, passed away last year. However, the details of his will and his vast fortune now show that he intended to leave his entire $15.4 million to his wife, Wilnelia.

Starts at 60’s recent article, “Millionaire performer Sir Bruce Forsyth leaves kids nothing in will,” says that his children didn’t inherit a single dime of his estate. According to The Daily Mail report, it was Forsyth’s strategy to avoid estate tax. In the United Kingdom, money that’s passed from a husband to a widow isn’t subject to inheritance tax. However, an inheritance from a parent to a child is taxed.

In addition to the money left for his wife, the entertainer left about $130,000 in a trust fund to split between his nine grandchildren when they turn 21 and roughly $26,000 to the two executors of his estate.

Nothing was left to daughters Debbie, Laura, and Julie, who Forsyth fathered in his first marriage to Penny Calvert. His daughters Louisa and Charlotte from his second marriage to Anthea Redfern also weren’t included in the will. Likewise, his son Jonathan from his third marriage won’t inherit anything.

Forsyth died last year with his six children by his side at age 89. The star had been sick for an extended period of time and had been admitted to hospital earlier in the year with a severe chest infection.

Bruce Forsyth had a record-breaking 78-year career in British film and television. He made his first TV appearance at the age of 11, taking up tap dancing after being inspired by a Fred Astaire film.

Forsyth received a knighthood in 2011. His last appearance on TV was at Christmas 2015, when he sent a festive message to fans.

Social media was flooded with tributes to Forsyth upon his death last year. The London Palladium promised to dim its lights, celebrities shared their memories of working with the entertainer and fans wrote of their experiences they had had with him.

Forsyth isn’t the first celebrity who decided not to leave money for their children. Reports are that Gordon Ramsay, Elton John, Bill Gates, and Simon Cowell are a few some of the stars who have decided not to bequeath their millions to their children.

Reference: Starts at 60 (June 19, 2018) “Millionaire performer Sir Bruce Forsyth leaves kids nothing in will”

What’s an Ethical Will?

“Sometimes an inheritance is more about the legacy than the assets being passed down, and sometimes it's a little bit of both.”

An ethical will, also known as a "legacy letter" or "living legacy," is a document that is often given to family and loved ones, while the writer is still alive to go over matters not covered in the will.

Investment News’ recent article, “Advisers use ethical wills to look beyond client assets,” says that a legacy letter helps the writer explain to younger generations his or her reasons for setting up the will in a certain way and what they hope to accomplish through the estate plan. In writing the letter, the donor is also adding to the probability that his or her wishes will be followed.

Some don’t like the term ethical will, and prefer to call it a legacy letter.  However, the purpose is the same. Regardless of what it's called, the ethical will is simply a letter.

It’s not a binding legal document.  It is often written to accompany a formal will.

An ethical will can help uncover character assets and the values that a person holds dear. It can explain that what they have to pass on to loved ones can be much more valuable than finances.

These letters are designed to be unique and personal, even if they’re used to clarify how and why an estate is being allocated in a certain way.

The goal of an ethical will is to pass along, in a person’s own words, what they're hoping to accomplish with their estate.

Reference: Investment News (June 19, 2018) “Advisers use ethical wills to look beyond client assets”

Business Owners Need a Succession Plan

“There is a silent killer of many businesses in the United States, and our area is certainly not immune.”

Statistics say that about 80 to 90% of U.S. businesses are family-owned.  However, less than a third will survive into the second generation, with just one in ten making it to the third.

KRCU’s recent article, “Business Succession Planning is Very Important,” reminds us that business succession planning is a process in which business owners research and consider a strategy to move forward in the event of death, illness, or simply transition.

Business succession planning implements several estate planning strategies. There is no “one size fits all” plan. A business owner should carefully consider his or her options. Without a plan in place, there’s a good chance for failure.

There are several factors to be examined. There are questions like estate taxes, liquidity, ownership percentages, family disagreements and the management capabilities of those relevant individuals.

The uncertainty of a transition can impact the business internally among staff and externally with customers. As a result, it’s vitally important to create a business succession plan and communicate that plan to your team and family.

There are many succession planning vehicles and succession planning concerns. Seek the advice of an expert on these matters and do it sooner rather than later. Work with an experienced estate planning attorney, who can walk you through the issues that must be addressed.

Many experts think that business succession planning is at least as important (and maybe more important) than individual estate planning.

Your employees, customers, and family members are trusting you to create a smooth transition. Don’t disappoint them.

Reference: KRCU (June 17, 2018) “Business Succession Planning is Very Important”

How Do I Write My Will?

“Follow this road map to ensure that your loved ones are taken care of after you're gone.”

A will should be a well-written document that describes how you’d like your property to be distributed after you pass away.

US News & World Report’s article entitled “10 Steps to Writing a Will” says that if you've been procrastinating on completing the task, here's your opportunity to cross it off your list. You can get going with these simple steps.

1. Do-it-yourself? You can use online software to help you write your will. However, there are many horror stories of people who wrote their own wills with financially devastating consequences. Consider the late Supreme Court Justice Warren Burger. Wouldn’t you think he, of all people, could write a will? Nope, His will was just 450 words and had a ton of errors. His family spent a fortune in legal fees and more than $450,000 in taxes to collect their assets. Work with an experienced estate planning attorney. He or she will know how to help you efficiently and effectively.
2. Beneficiaries. When you pass away, your beneficiaries will receive your assets. Be sure that this list is up-to-date.
3. Executor. This individual will make sure the wishes in your will are carried out. Select a person who’s responsible.
4. Guardian. If you have minor children, you need to designate a friend or family member as a guardian.
5. Be specific. Don’t be vague in your will and think everyone will know what you want. If you leave your will open to interpretation, it may end up in court.
6. Be realistic. Even if you want to distribute your assets fairly, it still isn't easy. It’s best to talk to your heirs about your assets. Tell them that if they have their eye on anything other than house and cars, to let you know so you can write that down and make sure they get it when you die. This gives them some input.
7. Attach a letter to the will. It’s okay to attach a personal letter to the will, as a way to say goodbye and make your wishes clear and personal.
8. Witnesses. Be sure you have the witnesses required to sign your will. They can't be people who stand to inherit anything in the will. Witnesses also need to be at least 18 years old, and ideally, they'll be people who are likely to be around after you’re gone. That’s because if something’s amiss, and your will is contested in court, the judge may want to call a witness to testify.
9. Keep your will safe. Be sure that someone you trust knows the location of your will, as well as any other important papers and passwords to financial institutions. Keep the original copy somewhere secure.
10. Review and update your will. After drawing up your will, you'll want to update it, especially after any major life event, like a marriage, divorce or a birth.

Reference: US News & World Report (June 19, 2018) “10 Steps to Writing a Will”

Do I Need a Health Care Directive?

“If you want to make sure someone other than your estranged spouse is able to plan your funeral, you need to have a new Health Care Directive put in place.”

Kate Spade and Anthony Bourdain were both separated from their spouses at the time of their deaths. Although it’s believed that these separations were amicable, the couples still weren’t legally divorced. This can make for some interesting estate planning issues.

Forbes’s recent article, “Kate Spade, Anthony Bourdain And Estate Planning When You Are Separated” explains that when spouses decide to divorce, it’s usually a legal process. However, it’s becoming more common for spouses to remain permanently separated but not divorced. This is a gray area for both family law and estate law, where many don’t realize the legal implications.

Although the details of Kate Spade’s separation aren’t known, Bourdain’s separation from his second wife are, and his situation is a common one. He and his estranged spouse were together for years, but their work and other commitments caused them to move in separate directions. They had one child, whom they wanted to co-parent together.

However, with his untimely death, it brings up an odd result: his estranged spouse is his beneficiary.  She will also be the owner of his legacy. In terms of immediate issues, she controls his remains and his funeral. Bourdain’s mother told the media that she was unsure of funeral plans with his estranged spouse still legally his next of kin. She said, “Although they are separated, she’ll be in charge of whatever happens.”

While this might be okay for the Bourdain family, in the event you consider a permanent separation, it may be wise to consider the pros and cons of an estranged spouse’s rights. When you get married, spouses are given rights previously unavailable to them in their single status with their partner.  Separation doesn’t mean your spousal rights are immediately wiped out. Only a final divorce decree can fully terminate spousal rights. If there’s a death prior to a divorce, in most situations the surviving spouse will have legal control.

Even if the separation is amicable, there are a few things to consider. Make sure someone other than your estranged spouse is able to plan your funeral. To do that, you need to have a new Health Care Directive put in place. That’s a legal document, in which a person specifies what actions should be taken for their health, if they’re unable to make those decisions. It also address the disposition of the body in the event of death. Include your funeral plans in your health care directive and make sure the relevant people have copies of it, especially when there is a separation. In contrast to changing beneficiary designations or your estate plan in a divorce proceeding, you can make a new directive, and you aren’t required to name your spouse.

If you make a change, alert the key people. You and your estranged spouse should consider all the areas where spousal rights exist. It should be part of your planning process as you work through separation issues. Be sure your family law attorney and estate planning attorney also communicate with each other.

Reference: Forbes (June 12, 2018) “Kate Spade, Anthony Bourdain And Estate Planning When You Are Separated”