Perlin Estate Planning

Do I Have to Give Everything to My Spouse When I Die?

“Here's what you need to know about your estate plan, if you're married.”

There are probably more than a few people who want to ask this, but are uneasy with the question: when a husband or wife dies, are they required to leave some or all assets to the other spouse or can they give every asset to someone else?

nj.com’s recent article asks, “Do I have to leave any money to my spouse? Or can I give it all away?” The easy answer? There’s no requirement that spouses leave assets to each other, when they die.

However, it may not be that simple. That’s because in some states, the surviving spouse may be entitled to an "elective share" of the deceased spouse's estate, even if the surviving spouse is disinherited under the deceased spouse's will.

The surviving spouse usually can’t claim an elective share, if the spouses were living separate and apart in different residences, or had stopped living together as a married couple, or had a valid prenuptial or post-nuptial agreement that waived the elective share. In many states, the elective share is equal to one-third of the "augmented estate.”

The augmented estate is the deceased spouse's estate, less funeral and estate administration expenses and enforceable claims. Certain transfers of property for less than fair market value made by the deceased spouse are added back to this amount. The surviving spouse's assets are then deducted from the elective share.

If the surviving spouse's assets, including any assets that were inherited by the surviving spouse from the deceased spouse, are more a one-third of the augmented estate—then the surviving spouse isn’t entitled to an elective share.

A complaint for an elective share must be filed within six months of the appointment of an executor in the county where the appointment was made. That’s a pretty short time.

Because of the relatively short time in which to file the elective share complaint, an experienced estate planning attorney should be engaged immediately after the deceased spouse's death, to see if the surviving spouse is entitled to an elective share.

The burden is then on the omitted spouse to file an elective share action. For example, in New Jersey, if the complaint isn’t filed within six months from the time of probate, the surviving spouses loses the right to that share.

Reference: nj.com (April 25, 2018) “Do I have to leave any money to my spouse? Or can I give it all away?”

Don’t Make These Bonehead Estate Planning Mistakes

“Your error shall survive until you don’t–and then things can hit the fan.”

A bonehead is someone who’s stubborn or thick-skulled. You don’t need to be a bonehead, when it comes to estate planning. Work with a qualified estate planning attorney and don’t make these dumb errors.

The Hockessin (DE) Community News reports in a recent article, “The dumbest estate planning moves,” that the misuse of joint ownership is extremely frequent.

You probably know that settling an estate without a will, can be very time consuming and expensive. One way that people try to avoid probate is with property owned jointly with rights of survivorship.

That’s because the joint owner becomes the exclusive owner of that property, when the other owner passes away. This is the case for a bank account or a family home.

Many seniors say their joint owner, usually a son or a daughter, will gladly share the account with their siblings after the parent passes. But will the joint owner then tell their siblings that’s how Mom wanted it?

More often than we’d like to believe, the result is that the other siblings may get a lot less than Mom wanted—or nothing at all. If the surviving owner does follow through with Mom’s instructions and does truly square up with his brothers and sister, there may be other tax consequences.

That’s because the process of squaring up may be considered a gift for tax purposes.

In real estate, there’s a chance the remaining owner will be burdened with a low-cost basis. As a result, she will be hit with capital gains taxes, when later selling the asset. Mom’s effort to simplify things may have actually caused a lifetime of family conflict.

Instead, avoid these troubles with a transfer on death account or the use of a revocable living trust.

Talk with an attorney to get help with the title changes.  However, before the deed change is drafted and recorded, an estate planning attorney will be able to explain the tax consequences and the possible family conflict with those not on the receiving end. You will likely be better off with a properly prepared estate plan.

Reference: Hockessin (DE) Community News (April 24, 2018) “The dumbest estate planning moves”

When to Update Your Estate Plan? How About Right Now?

“Have you wondered when is the right time to update your estate plan?”

If any of the following five items have happened in your life, you need to reevaluate your estate planning documents: birth, death, marriage, divorce or a big change in your financial status.

The FDL Reporter recently published an article, “Best reasons to update estate plans include marriage, divorce, move, birth.” It discusses these life events and how they can impact your estate planning.

Marital Status. A change in your marital status definitely requires significant changes to your estate plan. If you've recently married, state law on marital property will now apply to the division and distribution of your estate upon your death. If you've recently divorced, your estate plan should be updated to see that your ex is removed as a beneficiary and fiduciary, as well as any of his or her relatives.

Financial Status. If you're fortunate enough to have won the lottery or received an inheritance, you need to look at your existing estate plan to see that it still satisfies the needs of your now larger estate. If the opposite has occurred and your estate has declined in value, you also need an estate plan review.

Birth or Death of a Beneficiary or Fiduciary. You need to remove the individual's name.  However, if a spouse has died, your plan may need a complete overhaul. If you or a beneficiary have adopted or had a child, you need to add that child.

A Move to a New State. This is one of the most overlooked reasons to update your estate plan. Every state has different probate, tax, and estate laws.

Time Passes. If your beneficiaries were younger when you created your plan, consider their status as they get older. They may now even be ready to take on the fiduciary roles in your estate plan, like power of attorney for finances and health care, or even as the Personal Representative of your Will. Your estate planning documents should reflect the changes brought by the passage of time.

Reference: FDL Reporter (April 24, 2018) “Best reasons to update estate plans include marriage, divorce, move, birth”

Financial Reminders Before Remarriage

“Getting remarried gives people a fresh start, an opportunity to learn from the past and to move forward. Unfortunately, for most couples, the next trip down the aisle can also come with a host of new financial challenges.”

Nasdaq’s recent article, “Getting Remarried? 5 Financial Steps to Take Before Tying the Knot (Again)” provides some financial steps to consider before getting remarried.

Create a consolidated net worth statement. One fundamental mistake many couples make is failing to look at their combined net worth, until they start talking about how they will pay for their wedding or another big-ticket item. Those who remarry frequently have more complex financial responsibilities, such as child support, liquid and illiquid investment assets, as well as estate planning and tax-planning strategies. The best course is to be upfront from the start to avoid damaging your relationship in the long run. Take time to review your individual financial situations, including liabilities, before you create a consolidated statement of net worth.

Sign a pre or postnuptial agreement. This can be uncomfortable but can be valuable for both parties, if there’s a divorce. A pre or postnuptial agreement is particularly important, since it's the only way to legally claim specific assets within a marriage. In addition, a prenuptial agreement may ensure that any children within the marriage are financially protected, in the event one spouse dies. It’s also important to remember, even if you're recently married and don't have a formal prenuptial agreement, state law will often have one for you.

Think about all of your kids. Some spouses who were married previously may bring children into their new relationship. This creates many financial issues. Determine as a couple how you’ll financially address major expenses, like health care, child care, and tuition. When you've decided, discuss your plan of action with an attorney to be sure you're considering all potential options and their long-term implications.

Update your beneficiary designations. This is a common error. Assuming you want to name your new spouse as a beneficiary, you should review all your accounts and update the documents.

Update your estate plan. Estate plans can be forgotten with all of the details of a wedding. Talk with an experienced estate planning attorney to review your situation and update or create wills, powers of attorney, and health care directives to be certain that your new spouse, or another trusted person, has the decision-making authority that reflects your wishes.

Reference: Nasdaq (April 20, 2018) “Getting Remarried? 5 Financial Steps to Take Before Tying the Knot (Again)”

How Do I Choose An Executor?

“Your executor has many duties to perform for your estate.”

Are there any ramifications for making your attorney the third-party executor of you will? No, as nj.com asks and answers in its article, “Who should be executor of your will?” You’re free to choose almost anyone to be your executor.

An executor is a person you name in your will or who is appointed by the court and is given the legal responsibility to address a deceased person's remaining financial obligations. An executor is responsible for paying debts and creditors, filing tax returns, paying taxes, and distributing the estate's assets, pursuant to the deceased person's wishes as stated in the will.

The individual named as an executor in a will can refuse to accept this task. A person who originally accepted the role as executor, may resign at any point in time. Therefore, it’s a good idea to name alternative executors. If you don’t, a judge will appoint a replacement executor, if your original selection says no for any reason.

Most executors typically perform their duties without payment, but they are entitled to some renumeration. The reason that most executors don't ask for compensation, is because most executors are close family members and perform their duties out of respect for their deceased loved one. The amount an executor gets paid, is usually set by state law and what a probate court decides is reasonable under the circumstances.

For larger estates, it may be wise to select a professional, such as an attorney, who is familiar with the duties and obligations of serving as an executor. This can be extremely useful, when the deceased was the owner of a business and the estate may be complicated.

Executors will frequently engage attorneys to assist them. For example, in New Jersey, an attorney may serve and get paid as an executor and may be paid an additional fee for legal work performed by that attorney.

New Jersey law says that executors can receive 5% on the first $200,000 of the trust principal, 3.5% on the excess over $200,000 up to $1 million, and 2% on the excess over $1 million.

The executor is also entitled to receive 6% on all income received by the executor.

Reference: nj.com (April 16, 2018) “Who should be executor of your will?”

How Large Was the Rhinestone Cowboy’s Estate?

“After Glen Campbell passed in August 2017, news concerning his estate has been circulating.”

Rumors have surfaced that Glen included only five of his eight children in his will and that his widow Kimberly has brought a claim for more than $500K from the estate to pay medical bills.

Glen Campbell died in Nashville on August 8, 2017, at the age of 81. He suffered from Alzheimer's.

Wide Open Country recently published an article, “Glen Campbell’s Estate Might Not Be Worth as Much as You’d Think,” that gives details about what Glen left behind for his family.

An Arkansas native, Glen started his professional career as a studio musician in Los Angeles, spending several years playing with a group of world class musicians known as "the Wrecking Crew." Campbell played guitar on hundreds of hit records, many without credit. When he went solo, he placed a total of 80 different songs on either the Billboard Country Chart, Billboard Hot 100, or Adult Contemporary Chart—29 made the top 10 and nine reached number one on at least one of those charts.

There were some reports that Campbell’s assets came to roughly $50 million. However, more recent estimates say it’s worth around $410K.

The Tennessean reported that Campbell’s accountant and manager Stanley B. Schneider (who was appointed administrator ad litem by a judge earlier in 2018) filed paperwork that says Campbell’s combined assets reached a lower amount than many anticipated.

The claim says the stake in AZPB Limited Partnership holds the most value at $296,164, interest in AZ Baseball Broadcast Holdings totals $3,464, and the combined total of two bank accounts is just $959.

Funds from Glen Campbell Music, Inc. and Glen Campbell Enterprises total $109,634.

In addition, Schneider listed debts for state and federal taxes and legal fees totaling $118,200. He also reported that $43,448 of royalties were paid to the estate in the eight months after Campbell’s death. More than $76,000 is owed.

With the will contests and filed claims, the legal battle concerning Glen Campbell’s estate is expected to continue for some time.

Reference: Wide Open Country (April 26, 2018) “Glen Campbell’s Estate Might Not Be Worth as Much as You’d Think”

Do Entrepreneurs Need to Worry About Estate and Inheritance Taxes?

“Our research indicates that there is no simple way to characterize the effect of the estate tax on entrepreneurship.”

Recent research explores how estate and inheritance taxes (or wealth transfer taxes) impact entrepreneurs and would-be entrepreneurs. Efforts to repeal the “death tax”—or to slash the number of taxpayers subject to the estate tax, as recent federal legislation just did—may worry hard-working entrepreneurs concerned about losing their life’s work to taxes.

However,  the issue is not so cut and dried, says Forbes in “How Do Estate And Inheritance Taxes Affect Entrepreneurs?”

The research shows two primary effects of wealth transfer taxes. One, by reducing the size of after-tax bequests, it makes heirs less likely to start or maintain a business. Two, the prospect of future estate or inheritance taxes appears to speed up a business owner’s retirement date, but also discourages labor force participation for wage earners. This indicates that there’s no simple way to characterize the effect of the estate tax on entrepreneurship.

The estate tax might impact the decision to start a business or keep it going, if business owners are looking ahead and want to leave the company to their heirs. However, the evidence on this is surprisingly ambiguous.

For example, most wealthy people don’t take full advantage of opportunities to transfer limited amounts of wealth through tax-free gifts during their lifetimes, which is a very basic tax avoidance strategy. The estate tax also impacts heirs by decreasing the size of after-tax bequests.

The current federal estate tax applies to a fairly exclusive class with a generous exemption from the unified estate and gift tax—$11.2 million for singles and double that amount for couples. Many deductions reduce the amount of wealth subject to the tax, including unlimited deductions for charitable donations, transfers to spouses and “valuation discounts” that reduce the amount of family-owned business and farm assets that are subject to the estate tax. However, anything over the exclusion limit and deductions is taxed at 40%.

The research finds that receipt of an inheritance raises the likelihood of having active business income by about 13%. The size of the inheritance is also a major factor, but is usually less important than the fact that an inheritance exists. In addition, the thought of future estate taxation reduces the likelihood of remaining self-employed, but not because people elect wage employment over self-employment.  It is actually because it makes employment less attractive. Taxing bequests reduces the payoff to working (and saving) for those with bequest motives, which makes both self-employed people and wage earners slightly more likely to retire.

Therefore, the research shows that the impact of wealth transfer taxes on entrepreneurship appears to be small.  However, the researchers point out that there are several important caveats to their conclusions. One is that self-employment is not the same as entrepreneurship, and most survey data can’t distinguish between entrepreneurs who innovate and take risks from business owners who don’t.

Another factor is that many heirs have parents or grandparents, who were themselves successful business owners from whom they might have inherited entrepreneurial inclination and skill. Last, even if estate and inheritance taxes are distorted, it’s not clear that they’re more burdensome than other politically-feasible taxes. As a result, they contend that replacing the federal estate tax with higher personal income taxes could cut overall social welfare. Repealing or replacing the estate tax, would almost surely make the tax system less progressive.

Reference: Forbes (March 7, 2018) “How Do Estate And Inheritance Taxes Affect Entrepreneurs?”

How to Plan After a Divorce

“To avoid post-divorce financial trouble, I recommend that you and your ex, through your attorneys, create an action plan setting forth what steps you will each take, and by when, to enact your settlement agreement.”

Negotiating a divorce settlement can be a real chore. In addition, with a contentious, financially-complex divorce, the process can take months or even years.

Forbes recently published an article, “A Checklist To Help You Manage Post-Divorce Finances.” According to the article, many women are disappointed to learn that all their divorce-related financial troubles aren’t neatly resolved, when their ex signs the settlement documents.

 It is true that your agreement will say exactly what must be divided and how much goes to whom.  However, you’ll need to work through the practical details of how the agreement is implemented.

Some of the post-divorce financial matters you’ll face, like changing your name, address, and emergency contact, are simple enough. You only need a copy of your divorce decree.  However, other issues can be more complex and serious.

If you haven’t done so already, you should take care of the following:

• Watch your credit and cancel any joint credit cards. You should establish credit in your name alone;
• Disinherit your ex. See your estate planning attorney to make changes to legal documents;
• Change beneficiary designations on your insurance policies, retirement accounts, pensions, trusts, and annuities;
• Sell or refinance the marital home. You may agree to sell it, with the proceeds divided between you, or if you are keeping the home, refinance the mortgage in your name alone.

To avoid post-divorce financial trouble, you and your ex, through your attorneys, should draft an action plan that details what steps you will each take with deadlines to enact your settlement agreement.

Reference: Forbes (February 12, 2018) “A Checklist To Help You Manage Post-Divorce Finances”

Consider an Integrity Monitor for Your Special Needs Trust

“If you’re planning a trust or are a beneficiary of a trust, you should insist upon imposing an “Integrity Monitor” or independent fiduciary to oversee the investment program, as well as the service providers retained to implement that program.”

An Integrity Monitor can be a carefully defined role for an individual who has the unique skills required to fulfill certain duties and add significant protection to a Special Needs Trust.

Forbes reported on this in its article titled “Trusts, Special Needs Trusts, Family Offices All Need Integrity Monitors But Don't Know It.”

An Integrity Monitor should have the investment management industry and forensic expertise needed to prevent any wrongdoing with the administration of the trust.

If you don’t have an expert in money management malfeasance dedicated to overseeing the investment program of your trust, you may be taken advantage of daily throughout the lifetime of the trust.

It’s common practice for major companies, agencies, and governments to hire “inspector generals” to oversee their operations and prevent the occurrence or reoccurrence of illegal or unethical business practices, as well as to detect fraud.

Courts and regulators also often require that such a monitor be placed within a company to prevent future abuses as part of a legal settlement, when the company has engaged in past wrongdoing.

You shouldn’t wait until something goes wrong with the administration of a special needs trust to add this important layer of independent protection.

The annual cost is fairly insignificant and an integrity monitor who’s doing his or her job will more than pay for that expense.

Reference: Forbes (January 30, 2018) “Trusts, Special Needs Trusts, Family Offices All Need Integrity Monitors But Don't Know It”

The Joy of Planning Your Own Funeral

“The idea of planning a funeral is generally not at the top of anyone's "to do" list. It's a job that almost always falls to the spouse, children, or close friend of a deceased. Expressing your preferences or actually making the formal arrangements can truly be a gift to your family and friends.”

It’s not uncommon for an estate planning attorney to get a phone call from a personal representative of the estate of a recently departed, asking if the attorney has any documentation about the decedent’s wishes for a memorial service. Unless some sound planning took place, chances are there are no instructions.

Inside Indiana Business’ recent article, “The Gift of Pre-Planning a Funeral” explains that if your wishes are documented, it can help eliminate your family’s stress during a highly emotional time. A 2017 study by the National Funeral Directors Association found that while 66% of Americans believe that pre-planning is important, only 21.4% had actually completed the exercise.

Pre-planning does not have to be complicated. It can be as simple as a written statement of your desires or a legal Funeral Planning Declaration.

There are several reasons why pre-planning makes good sense. Let’s take a look at them:

Decreasing stress. Pre-planning can eliminate some of the stress on family or friends. It also can avoid emotionally charged conflicts right after your passing. Spend some time now to make your preferences known or make the actual arrangements.

Avoid spending excessively. If you pre-plan, you can select appropriately. Your family may not consider the cost as they decide right after your passing—a time when they can barely think. Some may mistakenly feel the amount spent shows the amount of respect and love they have for you. Either way, it often means overspending.

Specify detailed instructions. You can provide some peace to your family by knowing that your final wishes will be carried out. You might consider things like burial or cremation, your attire, the location, service participants, music, readings, flowers and photographs. Some feel that this level of detail is unnecessary, but if you don’t specify your wishes, someone else will make these decisions.

Reimbursement of family expenses. If you want to reimburse long-distance family members and friends for their travel, you can add that into your pre-planning documentation. Talk to your attorney about including this provision in your will.

You should also think about how you’ll pay for your funeral expenses. Perhaps you can designate funds in your savings or investment account or use life insurance proceeds. By pre-paying, you can lock-in today's funeral prices but be sure your funds are safe. Ask if the sales person is an agent of your funeral home and how and where your money will be held.

Once you decide on the details of your pre-planning, share the details with your family. Pre-planning your funeral is an act of kindness for your family and friends. It’s also a chance to express your personal desires and to potentially avoid issues that can arise after your death.

Reference: Inside Indiana Business (January 15, 2018) “The Gift of Pre-Planning a Funeral”