Planning for Incapacity … or not?

I’ve spoken many times about “Planning for Incapacity” and I even have a book on that topic.  You can order it on Amazon, or come by the office to get a copy for free.

But, as many times as I talk or write about it, it is still worth mentioning again.

What happens to my stuff when I die?

When it comes to estate planning, most people automatically think about taking legal steps to ensure the right people inherit their stuff when they die. And these people aren’t wrong.

Putting strategies in place to protect and pass on your wealth and other assets is a fundamental part of the planning equation. However, providing for the proper distribution of your assets upon your death is just one part of the process.

And it’s not even the most critical part.

Incapacity may be the big issue

Planning that’s focused solely on who gets what when you die is ignoring the fact that death isn’t the only thing you must prepare for. You must also consider that at some point before your eventual death, you could be incapacitated by accident or illness.

Like death, each of us is at constant risk of experiencing a devastating accident or disease that renders us incapable of caring for ourselves or our loved ones. But unlike death, which is by definition a final outcome, incapacity comes with an uncertain outcome and timeframe.

Incapacity can be a temporary event from which you eventually recover, or it can be the start of a long and costly event that ultimately ends in your death. Indeed, incapacity can drag out over many years, leaving you and your family in an agonizing limbo. This uncertainty is what makes incapacity planning so incredibly important.

In fact, incapacity can be a far greater burden for your loved ones than your death. This is true not only in terms of its potentially ruinous financial costs, but also for the emotional trauma, contentious court battles, and internal conflict your family may endure if you fail to address it in your plan.

The goal of effective estate planning is to keep your family out of court and out of conflict no matter what happens to you. So if you only plan for your death, you’re leaving your family—and yourself—extremely vulnerable to potentially tragic consequences.

Where to start?

Planning for incapacity requires a different mindset and different tools than planning for death. If you’re incapacitated by illness or injury, you’ll still be alive when these planning strategies take effect. What’s more, the legal authority you grant others to manage your incapacity is only viable while you remain alive and unable to make decisions about your own welfare.

If you regain the cognitive ability to make your own decisions, for instance, the legal power you granted others may be revoked. The same goes if you should eventually succumb to your condition—your death renders these powers null and void.

To this end, the first thing you should ask yourself is, “If I’m ever incapacitated and unable to care for myself, who would I want making decisions on my behalf?” Specifically, you’ll be selecting the person, or persons, you want making your healthcare, financial, and legal decisions for you until you either recover or pass away.

You must name someone

The most important thing to remember is that you must choose someone. If you don’t legally name someone to make these decisions during your incapacity, the court will choose someone for you. And this is where things can get extremely difficult for your loved ones.

Although laws differ by state, in the absence of proper estate planning, the court will typically appoint a guardian or conservator to make these decisions on your behalf. This person could be a family member you’d never want managing your affairs, or a professional guardian who charges exorbitant fees. Either way, the choice is out of your hands.

Furthermore, like most court proceedings, the process of naming a guardian is often quite time consuming, costly, and emotionally draining for your family. If you’re lying unconscious in a hospital bed, the last thing you’d want is to waste time or impose additional hardship on your loved ones. And this is assuming your family members agree about what’s in your best interest.

For example, if your family members disagree about the course of your medical treatment, this could lead to ugly court battles between your loved ones. Such conflicts can tear your family apart and drain your estate’s finances. And in the end, the individual the court eventually appoints may choose treatment options, such as invasive surgeries, that are the exact opposite of what you’d actually want.

This potential turmoil and expense can be easily avoided through proper estate planning and conversations.

An effective plan would give the individuals you’ve chosen immediate authority to make your medical, financial, and legal decisions, without the need for court intervention. What’s more, the plan can provide clear guidance about your wishes, so there’s no mistake or conflict about how these vital decisions should be made.

What won’t work

Determining which planning tools you should use to grant and guide this decision-making authority depends entirely on your personal circumstances. There are several options available, but choosing what’s best is something you should ultimately decide after consulting with an experienced lawyer like us.

That said, we can tell you one planning tool that’s totally worthless when it comes to your incapacity: a will.

Sounds strange for an estate planning attorney to say, right?  But look at it from the legal perspective … A will only goes into effect upon your death, and then it merely governs how your assets should be divided, so having a will does nothing to keep your family out of court and out of conflict in the event of your incapacity.

The proper tools for the job

There are multiple planning vehicles to choose from when creating an incapacity plan. And this shouldn’t be just a single document; instead, it should include a comprehensive variety of multiple planning tools, each serving a different purpose.

Though the planning strategies you ultimately put in place will be based on your particular circumstances, it’s likely that your incapacity plan will include some, or all, of the following:

  • Healthcare power of attorney: An advanced directive that grants an individual of your choice the immediate legal authority to make decisions about your medical treatment in the event of your incapacity.
  • Living will: An advanced directive that provides specific guidance about how your medical decisions should be made during your incapacity.
  • Durable financial power of attorney: A planning document that grants an individual of your choice the immediate legal authority to make decisions related to the management of your finances, real estate, and business interests.
  • Revocable living trust: A planning document that immediately transfers control of all assets held by the trust to a person of your choosing to be used for your benefit in the event of your incapacity. The trust can include legally binding instructions for how your care should be managed and even spell out specific conditions that must be met for you to be deemed incapacitated.

Don’t let a bad situation become much worse

You may be powerless to prevent your potential incapacity, but proper estate planning can at least give you control over how your life and assets will be managed if it does occur. Moreover, such planning can prevent your family from enduring needless trauma, conflict, and expense during this already trying time.

Next Steps

If you’ve yet to plan for incapacity, meet with us as your Personal Family Lawyer® right away. We can counsel you on the proper planning vehicles to put in place, and help you select the individuals best suited to make such critical decisions on your behalf. If you already have planning strategies in place, we can review your plan to make sure it’s been properly set up, maintained, and updated.

Contact us today to get started.

919-883-2800

Thinking of serving as a trustee?

Understand What’s At Stake Before Agreeing to Serve as Trustee

When my office creates an estate plan for families, we often end up using one sort of trust or another.  The most important conversation in that planning is not really about who gets what, but who will act as the trustee.

Being asked by a family member or close friend to serve as trustee for their trust upon their death can be an incredible honor. At the same time, however, serving as a trustee can be a massive responsibility—and the role is not for everyone.

In fact, depending on the type of trust, the assets held by the trust, the specific terms of the trust, and the beneficiaries named, the job can require you to fulfill a wide range of complex (and potentially unpleasant) duties over the course of many years. What’s more, trustees are both ethically and legally required to properly execute those duties or face liability.

Given this, agreeing to serve as trustee is a decision that shouldn’t be made lightly. Indeed, sometimes the best thing you can do for everyone involved is to politely decline the job. Remember, you don’t have to take it. That said, depending on who nominated you (mom or dad, for example), declining to serve may not be an easy or practical option. Or you might enjoy the opportunity to be a trustee, so long as you understand what it entails.

It’s best to make your decision about serving as trustee with eyes wide open.

Here’s a brief look at what the job will likely entail, along with some situations where you might want to seriously think twice about agreeing.

What a trustee does

As mentioned earlier, a trustee’s duties can vary tremendously depending on the size of the estate, the type of trust, and the trust’s specific instructions.  All trusts are not the same. That said, every trust comes with a few core requirements, primarily revolving around accounting for, managing, and distributing the trust’s assets to its named beneficiaries.

Regardless of the type of trust or the assets it holds, some of a trustee’s key responsibilities include:

  • Identifying and protecting the trust assets (for example, digital assets, physical property, special collections, IRAs, and so on)
  • Determining what the trust’s terms actually require you to do
  • Managing the trust assets for the term specified and distributing them properly
  • Filing income and estate taxes for the trust
  • Communicating regularly with beneficiaries
  • Being scrupulously honest, highly organized, and keeping detailed records
  • Closing the trust when the trust terms specify

Ultimately, trustees have a fiduciary duty to properly manage the trust in the best interest of all the trust beneficiaries. Consult with us for more in-depth details regarding the duties and responsibilities a specific trust will require of you as trustee.

Can I get help?

Fortunately, you’re not expected to go it alone: Trustees are encouraged to seek assistance from outside professionals to fulfill their duties. Remember, you do NOT need experience in law, finance, or taxes to serve as trustee. And while you won’t be able to profit from the job, you are able to be paid for your role as trustee.

That said, many trustees, especially family members, choose not to accept any payment beyond what’s required to cover the trust expenses. Yet, this all depends on your personal situation and relationship with the trust’s creator and beneficiaries, and of course, the nature of the assets in the trust. In either case, however, you won’t have to use your own funds to get the job done.

How do I know if the trustee role might be a bad idea?

Given the sense of loyalty and filial responsibility that’s often involved, it might feel difficult to turn the trustee role down. But for a number of reasons, saying “no thanks” can sometimes be the best decision, not only for you, but for all parties involved.

Of course, this is an entirely personal decision and one you’ll ultimately have to make for yourself after considering all of the factors. That said, here are a few red flags that can signal the role might be better fulfilled by someone other than you:

  • Your job, family, and/or health situation is such that you won’t be able to give the job the time and attention it deserves. Some trusts can require far more work than others, and if the role would seriously impede your own life, you might consider declining.
  • You don’t get along with the beneficiaries. If there are underlying conflicts or bad blood with the people you’ll be required to serve, this could make the job incredibly difficult and unpleasant for everyone. It can be even worse if the trust calls for you to manage funds for a person you can’t communicate with.
  • The trust’s terms are vague and/or unclear, leaving you in the position to make difficult decisions you don’t feel qualified to make. Such grey areas are especially troublesome when it comes to distributing trust assets to young adult beneficiaries, who might not be the most responsible with their spending and/or lifestyle.  And, Special Needs Trusts may have specialized language or  requirements.
  • It’s not clear exactly what assets the trust creator (grantor) owned, and/or the estate is highly unorganized. Tracking down and managing unorganized and/or poorly funded assets can be a massive undertaking—and potential liability.
  • Lawsuits are likely or already underway. As trustee, it’s your duty to defend the trust against lawsuits, and just doing this can be a huge expenditure of your time and energy. What’s more, if a lawsuit against the trust is successful, it could seriously reduce the trust’s value, making your job infinitely more challenging.

We can help you decide

Given the serious nature of a trustee’s responsibilities, you can meet with us as your Personal Family Lawyer® for help deciding whether or not to accept the job. We can offer a clear, unbiased assessment of what will be required of you based on the specific trust’s terms, assets, and beneficiaries.

And if you do decide to accept the trustee role, we can guide you step-by-step through the entire process, ensuring you effectively fulfill all of the grantor’s wishes with minimal risk. Serving as trustee can be a lot of work, but if you go into the job with eyes wide open and have the proper guidance, it can be an immensely rewarding experience. Contact us today to learn more.

Call us today at 919-883-2800

 

Planning for Incapacity

Luke Perry’s Death Demonstrates the  Importance of Planning for Incapacity

In late February 2019, Luke Perry, who became famous starring in the 1990s TV series Beverly Hills 90210, suffered a massive stroke at age 52. He was hospitalized under heavy sedation, and five days later, when it became clear he wouldn’t recover, his family decided to remove life support.

Perry died on March 4th, 2019 surrounded by his two children—21-year-old Jack and 18-year-old Sophie—along with his fiancé, ex-wife, mother, siblings, and others.

Life and Death happen in a moment

Whether or not you were a Luke Perry fan, it’s hard not to be somewhat shocked when someone so young, successful, and seemingly healthy passes away so suddenly. In these moments, the fragile impermanence of life becomes glaringly obvious. It’s life’s way of reminding us that incapacity and death can strike at any time, no matter who you are.

Such reminders can make you feel extremely vulnerable. And they can also be a precious reminder to make the most of life now.

Reminders of the fleeting nature of life can actually be a wonderful thing, if it motivates you to savor life now AND take the proper action to protect the ones you love through proper estate planning. And while we don’t yet know exactly what levels of planning Perry had in place, it appears he was thoughtful and responsible enough to have at least covered the basics.

Planning for incapacity and death

Perry was reportedly inspired to create his own estate plan following a fairly recent health scare. In 2015, after discovering he had precancerous growths during a colonoscopy, Perry created a will, leaving everything to his two children. Since Perry was worth an estimated $10 million, divorced with kids from the first marriage, and about to be married again, creating a will was the very least he could do.

But wills are just a small part of the planning equation. Wills only apply to the distribution of your assets following death, and even then, your will must go through the court process known as probate for your assets to be distributed. Because a will only comes into play upon your death, if you’re ever incapacitated by accident or illness as Perry was, it offers neither you nor your family any protections.

In Perry’s case, he was incapacitated by a stroke and on life support for nearly a week before he died. During this period, the fact Perry had a will was irrelevant because he was still alive. But given how events unfolded, it appears Perry had other planning vehicles in place to prepare for just this situation.

The power over life and death

During the time he was incapacitated, someone was called upon to make crucial medical decisions for Perry’s welfare, while his family was summoned to his side. To this end, it’s likely that Perry designated someone to serve as his medical decision-maker by granting them medical power of attorney. He may have also created a living will, which would provide specific instructions to this individual regarding how to make these medical decisions.

Granting medical power of attorney gives the person you name the authority to make healthcare decisions on your behalf in the event of your incapacity. The document that does this is known as an advance healthcare directive, and it’s an absolute must-have for every adult over age 18.

Perry was put on life support for nearly a week, and then he was removed from it and allowed to die without ever regaining consciousness—and without any apparent conflict between his loved ones. This indicates that someone in his family likely had the legal authority to make those heart-wrenching decisions over Perry’s life and death.

Without medical power of attorney, if any of Perry’s family were in disagreement over how his medical care should be handled, the family may have needed a court order to terminate life support. This could have needlessly prolonged the family’s suffering and made his death even more public, costly, and traumatic for those he left behind.

The power over your money

Along with medical power of attorney, every adult should also have a financial durable power of attorney. In the event of your incapacity, financial durable power of attorney is an estate planning tool that gives the person you choose immediate authority to manage your finances, such as paying your bills, collecting government benefits, and overseeing your bank accounts.

We can’t be sure at this point whether or not Perry put in place durable power of attorney, but since this planning document goes hand-in hand with medical power of attorney, it’s almost certain he did. Yet seeing that Perry was only incapacitated for five days before his death, durable power of attorney may not seem totally necessary in his case.

But what if Perry’s incapacity had lasted a lot longer?

Given that Perry could have lingered on life support for months or years, it’s crucial that someone he trusted had the authority to manage his finances during his incapacity. Without durable power of attorney, the court will choose someone to manage your finances, and that someone might be a person you wouldn’t want anywhere near your life savings or checkbook.

What’s more, that someone could even be a “professional” who gets paid hefty hourly fees to handle things, even if you have family members who want to serve.

Learn from Perry’s example

While Perry’s death is certainly sad, if it inspires you to put the proper estate planning in place, it can ultimately prove immensely beneficial. Whether you already have a basic plan in place or nothing at all, meet with us as your Personal Family Lawyer® to get educated about the specifics necessary to keep your family out of court and out conflict if and when something happens to you.

We’ll help ensure that in the event of your incapacity, or when you die, your loved ones will have the same protections Perry’s had—and more. Contact us today to attend one of our live educational events or get started with a private Family Wealth Planning Session.

Why You Might Actually Owe Taxes in 2018

Was the 2018 tax year what you expected?

Like many taxpayers, if you’ve already filed your federal income taxes for 2018, you may be surprised to discover you’re not getting a refund this time.  If so, this was almost certainly due to the sweeping tax overhaul made by the 2017 Tax Cut and Jobs Act (TCJA).

Since personal tax rates were lowered by the TCJA, it’s natural to assume you would owe less taxes, not more. But as you may have discovered, this isn’t always the case.

Seeing that the TCJA was promised to offer most people a tax break, understanding why you might owe more taxes in 2018 (rather than less) can be confusing.  It is more complex than a blog post can really dive into, but the following questions and answers are designed to shed some light on this situation, so you can start revising your tax strategies for the coming years.

Q: What changed?

A: In addition to lowering personal income tax rates, the TCJA doubled the standard exemption to $12,000, added limits to deductions for state and local taxes (SALT), eliminated personal exemptions, set limits on deductions for home-mortgage interest, among many other changes.

Given all of the changes, you may find that you’re no longer withholding the proper amount of taxes from your paycheck and/or quarterly installments to the IRS. When filing, this can result in either overpaying your taxes (and getting a refund) or underpaying (and owing money).

Q: What does this mean for me?

A: In light of these new changes, you should carefully review your withholding and make adjustments if necessary. To help with this, the IRS published new withholding tables and updated its withholding calculator into which you can input your current tax data to see if you need to make any changes.

Q: How do I change my withholding?

A: If you work as an employee, you change your withholding by making adjustments to your W-4. If you work for yourself, you either increase or decrease your estimated quarterly payments.

A W-4 determines how much income tax is withheld from your pay by your employer. You fill out a W-4 when you start a new job, but you can change it at any time. Specifically, the form asks you for the number of allowances you want to claim based on personal factors, such as being married and/or having children and filing as head of household.

The more allowances you claim, the less federal income tax your employer will withhold, which translates to more money in your paycheck. The fewer allowances you claim, the more federal income tax your employer will withhold, lowering your take-home pay.

It’s important that you withhold the proper amount from your paycheck or make quarterly payments. Don’t withhold enough, and you’ll owe the IRS at the end of the year. Withhold too much, and you might get a big refund, but you’ve basically given the government an interest-free loan for that year.  Although for some folks, having the IRS save funds for them is the best alternative!

Q: What if I employ caregivers?

A: Many of our clients are at the point at which some amount of in-home or personal care is necessary.  Sometimes, that comes in the form of caregivers hired via an agency, or directly by the family.  Often, friends of the family or local neighbors, or church members offer their time to assist.  What you pay the caregiver might be tax deductible in some cases.

But, please note this very important fact.  If you pay that person for services, then you are also required by IRS rules to withhold taxes and submit that to the IRS on a quarterly basis.  The caregivers are actually “family employees” and should be treated correctly, from a wage and tax standpoint.  If you use an agency, they will take care of taxes.  If you hire them yourself, you will need to make the filings.

If you employ caregivers who are “independent contractors” then you must submit A “1099” form that specifies what you paid them.  Remember that the caregivers should be employees, not contractors.  But, if they ask you to pay on a 1099 basis, you still need to report and send them the right form.  They can use that form to self-report taxes.

Some people do not want the burden of wages and tax reporting.  Payment in cash “under the table” is common but presents a number of issues.  First of all, it is illegal according to the IRS and the NC Department of Revenue.  Secondly,  the employee caregiver will not receive workers compensation or insurance, and if s/he has an accident at your home, you may be liable personally for a large settlement.  Third, such cash payments cannot be hidden from Medicaid and if you need Medicaid in the future those cash payments may actually create a sanction penalty.  So, our advice is that you always pay caregivers W2 wages.

Maximize your tax savings

Adjusting your withholding is just one of many strategies you can use to save on your taxes.  As you might guess, the TCJA also changed tax laws that have the potential to affect your estate planning strategies as well. In light of this, when the 2018 tax season wraps up, we’ll be pairing up with one of our trusted local CPAs to bring you support and guidance that you can use to maximize your tax savings in 2019 and beyond. Contact us as your Personal Family Lawyer® to learn more.

Downsizing your aging loved ones

The Downsizing Generation: How to Handle a Surplus of Stuff When a Loved One Ages

The baby boomer generation is aging – and downsizing – which means that more and more adult children will be tasked with going through their loved one’s belongings to decide what to do with everything. As more and more people downsize after retirement, china sets, furniture, heirlooms, and other belongings are often left behind and unwanted.

Traditionally, these items have been passed down to the next generation. But today, the next generation has different needs, tastes, and wants. As a result, there is a surplus of “stuff” baby boomers don’t need or have room for, and their adult children don’t want. Maybe that includes you.

This is an all too common problem with a few helpful solutions.

The thought of tossing a lifetime of belongings in the trash is more than many can bear, which explains the advent of the senior move management industry. Today, there are a plethora of professionals who can help your loved one go through each item to decide what should be kept, what should be given away, and what should go to charity or donated.

The cost of this professional service is very reasonable for typical estates, but can be up to $5,000 for a large estate.  Regardless of the cost, it eases the burden on the adult children and ensures the loved one’s wishes are listened to and honored.

Too Many Donations?

Interestingly, as the baby boomer generation ages, charities and nonprofits that typically accept used furniture and other belongings are faced with the burden of too much stuff. The dated styles baby boomers preferred during their prime don’t fit the tastes and needs of today’s generation.

The current generation views belongings like furniture and dishes as functional and more disposable, better suited to their urban, fast-paced lives where minimalism and portability are more prized than sentimentality and tradition.

What is an heirloom?

Another way to decrease the time and effort it takes to dispose of all your belongings is to be very clear about what you consider to be heirlooms and valuable items by indicating in your will, or in a separate writing ancillary to your will, exactly what’s important to you and what isn’t.  In that way, your family can see, in the Will, what matters to you and they can handle things accordingly.

One of my clients has gone through several downsizes … each time losing items that were of sentimental value.  In the next version, she will end up in skilled nursing, with very little space.  To the extent possible she has been able to give away most of the items she cared about.  That softens the loss.  But, be aware that some aging elders will have significant grief associated with the loss of sentimental items.  Try to give things away that matter to your loved ones so you can enjoy their delight at receiving a treasured item.

Have the conversation!

Most importantly, talk to your children or other heirs to see what they want and don’t want. And to make sure they know what’s important to you, and what isn’t. The more you can communicate about this now with your loved ones, the better.

You may be surprised to discover that many family fights that break up families aren’t over money at all, but over mom and dad’s personal property … the fight arises because there were no clear instructions.

Plan ahead

As more baby boomers age and non-profits turn away dated donations,  the need for thoughtful estate planning is greater than ever. A comprehensive estate plan can ensure your belongings either go to those who will cherish them or to charities that will benefit from them.

Contact us!

If you need assistance with finding the right resource, or just a way to facilitate a conversation about possessions, we are here to help.

Call us at 919-883-2800, or schedule a meeting.

What is an IRA Trust? And, do you need one?

Could an IRA Trust Benefit Your Family?
Four reasons you should consider the IRA Trust.

Unlike most of your assets, individual retirement accounts (IRAs) do not pass to your family through a will. Instead, upon your death, your IRA will pass directly to the people you named via your IRA beneficiary designation form. Unless you take extra steps, the named beneficiary can do whatever he or she wants with the account’s funds once you’re gone. The beneficiary could cash out some or all of the IRA and spend it, invest the funds in other securities, or leave the money in the IRA for as long as possible.

For a number of reasons that we’ll address more below, you might not want your heirs to receive your retirement savings all at once. One way to prevent this is to designate your IRA into a trust.

But you can’t just use any trust to hold an IRA; you’ll need to set up a special type of revocable trust specifically designed to act as the beneficiary of your IRA upon your death.

Such a trust is referred to by different names—IRA Living Trust, IRA Inheritor’s Trust, IRA Stretch Trust—but for this article, we’re simply going to call it an IRA Trust.

IRA Trust benefits

IRA Trusts offer a number of valuable benefits to both you and your beneficiaries. If you have significant assets invested through one or more IRA accounts, you might want to consider the following advantages of adding an IRA Trust to your estate plan.

1. Protection from creditors, lawsuits, & divorce

While IRAs are typically protected from creditors while you’re alive, once you die and the funds pass to your beneficiaries, the IRA can lose its protected status when your beneficiary distributes the funds to him or herself.

One way to counteract this is to leave your retirement assets through an IRA Trust, in which case your IRA funds will be shielded from creditors as long as they remain in the trust.

IRA Trusts are also useful if you’re in a second (or more) marriage and want your IRA assets to be used for the benefit of your surviving spouse while he or she is living, and then to distributed or be held for the benefit of your children from a prior marriage after your surviving spouse passes. This would ensure that your surviving spouse cannot divert retirement assets to a new spouse, to his or her children from a prior marriage, or lose them to a creditor before the funds ultimately get to your children.

2. Protection from the beneficiary’s own bad decisions

In addition to outside creditors, an IRA Trust can also help protect the beneficiary from his or her own poor money-management skills and spending habits. If the IRA passes to your beneficiary directly, there’s nothing stopping him or her from quickly blowing through the wealth you’ve worked your whole life to build.

When you create an IRA Trust, however, you can add restrictions to the trust’s terms that control when the money is distributed as well as how it is to be spent. For example, you might stipulate that the beneficiary can only access the funds at a certain age or upon the completion of college. Or you might stipulate that the assets can only be used for healthcare needs or a home purchase. With our support, you can get as creative as you want with the trust’s terms.

3. Tax savings

One of the primary benefits of traditional IRAs is that they offer a period of tax-deferred growth, or tax-free growth in the case of a Roth IRA. Yet if the IRA passes directly to your beneficiary at your death and is immediately cashed out, the beneficiary can lose out on potentially massive tax savings. Not only will the beneficiary have to pay taxes on the total amount of the IRA in the year it was withdrawn, but he or she will also lose the ability to “stretch out” the required minimum distributions (RMDs) over their life expectancy.

A properly drafted IRA Trust can ensure the IRA funds are not all withdrawn at once and the RMDs are stretched out over the beneficiary’s lifetime. Depending on the age of the beneficiary, this gives the IRA years—potentially even decades—of additional tax-deferred or tax-free growth.

4. Minors

If you want to name a minor child as the beneficiary of your IRA, they can’t inherit the account until they reach the age of majority. So without a trust, you’ll have to name a guardian or conservator to manage the IRA until the child comes of age. When the beneficiary reaches the age of majority, he or she can withdraw all of the IRA funds at once—and as we’ve seen, this can have serious disadvantages.

With an IRA Trust, however, you name a trustee to handle the IRA management until the child comes of age. At that point, the IRA Trust’s terms can stipulate how and when the funds are distributed. Or the terms can even ensure the funds are held for the lifetime of your beneficiary, to be invested by your beneficiary through the trust.

Find out if an IRA Trust is right for you

While IRA Trusts can have major benefits, they’re not the best option for everyone. Laws regarding IRA Trusts vary widely from state to state, so in some places, they’ll be more effective than others. Plus, the value of IRA Trusts also varies greatly depending on your specific family situation, so not everyone will want to put these trusts in place.

If you have more than $150,000 in retirement accounts, consult with us as your Personal Family Lawyer® to find out if an IRA Trust is the most suitable option for passing on your retirement savings to benefit your family.

Estate Planning Must-Haves for Unmarried Couples

4 Estate Planning Must-Haves for Unmarried Couples

Estate planning is often considered something you only need to worry about once you get married. But the reality is every adult, regardless of age, income level, or marital status, needs to have some fundamental planning strategies in place if you want to keep the people you love out of court and out of conflict.

In fact, estate planning can be even more critical for unmarried couples. Regardless if you’ve been together for decades and act just like a married couple, you likely aren’t viewed as one in the eyes of the law. And in the event one of you becomes incapacitated or when one of you dies, not having any planning in place can have disastrous consequences.

If you’re in a committed relationship and have yet to get—or even have no plans to get—married, the following estate planning documents are an absolute must:

Wills and trusts

If you’re unmarried and die without planning, the assets you leave behind will be distributed according to your state’s intestate laws to your family members: parents, siblings, and possibly even other, more distant relatives if you have no living parents or siblings. North Carolina’s laws would provide NO protection for your unmarried partner. Given this, if you want your partner to receive any of your assets upon your death, you need to – at the very least – create a will.

A will details how you want your assets distributed after you die, and you can name your unmarried partner, or even a friend, to inherit some or all of your assets. However, certain assets like life insurance, pensions, and 401(k)s, are not transferred through a will. Instead, those assets will go to the person named in the beneficiary designation, so be sure to name your partner as beneficiary if you’d like him or her to inherit those assets.

However, there could be an even better way.

Although wills and beneficiary designations offer one way for your unmarried partner to inherit your assets, they’re not always the best option. First and foremost, they do not operate in the event of your incapacity, which could occur before your death. In that case, your partner may not have access to needed assets to pay bills, or he or she could potentially even be kicked out of your home by a family member appointed as your guardian during your incapacity.

Moreover, a will requires probate, a court process that can take quite some time to navigate. And finally, assets passed by beneficiary designation go outright to your partner, with no protection from creditors or lawsuits. To protect those assets for your partner, you’ll need a different planning strategy.

Trusts may be the best option

A far better option would be to place the assets you want your partner to inherit in a living trust. First off, trusts can be used to transfer assets in the event of your incapacity, not just upon your death. Trusts also do not have to go through probate, saving your partner precious time and money.

What’s more, leaving your assets in a continued trust that your partner could control would ensure the assets are protected from creditors, future relationships, and/or unexpected lawsuits.

Consult with us for help deciding which option – a will or trust – is best suited for passing on your assets.

Durable power of attorney

When it comes to estate planning, most people focus only on what happens when they die. However, it’s just as important – if not even more so – to plan for your potential incapacity due to an accident or illness.

If you become incapacitated and haven’t legally named someone to handle your finances while you’re unable to do so, the court will pick someone for you. And this person could be a family member, who doesn’t care for or want to support your partner, or it could be a professional guardian who will charge hefty fees, possibly draining your estate.

Since it’s unlikely that your unmarried partner will be the court’s first choice, What can you do?  If you want your partner (or even a friend)  to manage your finances in the event you become incapacitated, you would grant your partner (or friend) a durable power of attorney.

Durable power of attorney is an estate planning tool that will give your partner immediate authority to manage your financial matters in the event of your incapacity. He or she will have a broad range of powers to handle things like paying your bills and taxes, running your business, collecting government benefits, selling your home, as well as managing your banking and investment accounts.

Granting a durable power of attorney to your partner is especially important if you live together, because without it, the person who is named by the court could legally force your partner out with little to no notice, leaving your partner homeless.

Most people tend to view estate planning as something only married couples need to worry about. However, estate planning can be even more critical for those in committed relationships who are unmarried.

Because your relationship with one another is frequently not legally recognized, if one of you becomes incapacitated or when one of you dies, not having any planning can have disastrous consequences. Your age, income level, and marital status makes no difference – every adult needs to have some fundamental planning strategies in place if you want to keep the people you love out of court and out of conflict.

So far, we discussed wills, trusts, and durable power of attorney. Next, we’ll look at two more must-have estate planning tools, both of which are designed to protect your choices about the type of medical treatment you’d want if tragedy should strike.

Medical power of attorney

In addition to naming someone to manage your finances in the event of your incapacity, you also need to name someone who can make health-care decisions for you. If you want your partner to have any say in how your health care is handled during your incapacity, you should grant your partner medical power of attorney.

This gives your partner the ability to make health-care decisions for you if you’re incapacitated and unable to do so yourself. This is particularly important if you’re unmarried, seeing that your family could leave your partner totally out of the medical decision-making process, and even deny your him or her the right to visit you in the hospital.

Don’t forget to provide your partner with HIPAA authorization within the medical power of attorney, so he or she will have access to your medical records to make educated decisions about your care.

Living will

While medical power of attorney names who can make health-care decisions in the event of your incapacity, a living will explains how your care should be handled, particularly at the end of life. If you want your partner to have control over how your end-of-life care is managed, you should name them as your agent in a living will.

A living will explains how you’d like important medical decisions made, including if and when you want life support removed, whether you would want hydration and nutrition, and even what kind of food you want and who can visit you.

Without a valid living will, doctors will most likely rely entirely on the decisions of your family or the named medical power of attorney holder when determining what course of treatment to pursue. Without a living will, those choices may not be the choices you—or your partner—would want.

We can help

If you’re involved in a committed relationship – married or not – or you just want to make sure that the people you choose are making your most important life-and-death decisions, consult with us as your Personal Family Lawyer® to put these essential estate planning tools in place.

With our help, we can support you in identifying the best planning strategies for your unique needs and situation. Contact us today to get started with a Family Wealth Planning Session.

Call 919-883-2800

And, if you have friends who are unmarried, ask them to call us too!

 

Scams prey on the Elderly

Don’t Let Your Elderly Parents Become Victims of the Grandparent Scam

A recent client was concerned about guardianship scams and other news recently being circulated.  It is a fair concern and she is being very wise to think about how this might affect her elderly parent.  Scams are nothing new, but do you know how they work?

Imagine this… You are an elderly grandparent who lives alone.

You get a call in the middle of the night from your college-aged granddaughter. She’s frantic and crying, telling you she was mistakenly arrested while vacationing in Cancun.

She says she needs you to pay her $1,800 bond, or she’ll be transferred to a dangerous Mexican prison. The Mexican police told her she only has a few hours before she’s transferred, so she needs you to wire the money immediately.

She’s petrified about her parents finding out she was arrested and begs you not to tell them. Because she only has a couple of minutes to use the police station phone, the call ends abruptly before you can get any further details.

What do you do?

If you’re like the thousands of others (including me) who’ve gotten just such a call, you’d probably wire the money in a heartbeat. It is your grandchild’s life after all. However, just like the others, you’d soon find out that your granddaughter hasn’t been arrested and was never in Mexico.

The Grandparent Scam

Known as the Grandparent Scam, this con has been around for years, and while it may seem far fetched, it has tricked many caring seniors. And in recent months, there has been an uptick in the number of people falling prey to the deception.

The details can vary, but the scam typically works like this:

  1. You get a call from someone pretending to be your grandchild. The “grandchild” explains he or she is in trouble and needs money immediately. They might be in jail and need bond or be stranded in a foreign country and need money to get out.
  2. The caller asks you to wire money to a specific location or give it to a third party, usually someone posing as a lawyer or police officer.
  3. The “grandchild” will often plead with you not to tell their parents they’re in trouble.
  4. Once you send the money, the caller breaks off all contact, making it impossible to recover your funds.

Another variation asks for funds to help refugees, or to confirm the taxes on your lottery winnings, and more.  The information they use to run the scam is usually posted right on Facebook or other social media.  There, anyone can find the names of your family, where you live, and whether you are on vacation (because so many of us post pictures from our current vacation spot!)

Truth be known, my grandchildren actually live in Mexico, so this could be very hard to ignore at our house!  But, like any scam, every call like this should be evaluated carefully.  I’ve received half a dozen emails or phone calls with this general type of scam over the past few years, and of course, none of them has been real.

Preying on the vulnerable

While just about anyone can fall for such scams, the elderly are the ones targeted most often. This is due to the fact that seniors are frequently lonely and eager to hear from family. And whether it’s because their hearing is failing or because they haven’t seen their family members in a while, they’re more likely to not recognize voices.

Due to their advanced age, seniors are also less likely to think clearly in a crisis, making them more susceptible to fear and panic. Finally, the elderly are less familiar with technology and social media, so they don’t realize how easy it is to access enough of someone’s personal details to make the scenario seem realistic.

What to do

In most cases, the best course of action is to simply hang up and contact the authorities. However, if the caller really does sound like the family member they claim to be, here are some steps you can take to help verify the situation is legitimate:

  1. Don’t panic. It’s far easier to be deceived if you’re nervous or scared.
  2. Be wary of calls from unknown or blocked numbers. Ask to call them back on the person’s own phone, and never accept requests sent solely by email or text.
  3. Verify the caller’s identity by asking them questions only the actual person would know the answer to, such as the name of their first pet.
  4. Beware of urgent demands that money be sent immediately. Reputable sources don’t try to pressure you into making split-second financial decisions.
  5. Call other family and friends to verify where the person is. A reputable source will respect your caution and give you the opportunity to verify the facts.
  6. Requests for money to be wired are often scams, as it’s nearly impossible to get your money back in cases of fraud. Request a more secure transaction method, such as through a bank or PayPal. Legitimate sources are likely to offer multiple payment options.

Comprehensive protection

Please share this article with any seniors in your life. There are countless other scams out there that work in much the same way, so even if it’s not this particular con, by becoming aware how these deceptions work, they’ll be much less likely to fall for them.

Of course, scams and cons are just one threat to seniors’ financial security. Without comprehensive estate planning, there are numerous other ways your family’s wealth and assets can be squandered or lost through financial abuse which have nothing to do with fraud.

Consult with us as your Personal Family Lawyer® to put planning strategies in place to safeguard your family’s finances and other assets, both tangible and intangible. Contact us today to get started with a Family Wealth Planning Session.

How will you pay for your funeral?

Use Estate Planning to Ensure Your Family Isn’t Stuck Paying For Your Funeral

The cost of a funeral is averaging $7,000 and steadily increasing each year; a client recetly told me they had paid $16,00 for a “no-frills” funeral.  I beleive that every estate plan should include enough money to cover this final expense. Yet it isn’t enough to simply set aside money in your will.

Your family won’t be able to access money left in a will until your estate goes through probate, which can last months or even years. Since most funeral providers require full payment upfront, this means your family will likely have to cover your funeral costs out of pocket, unless you take proper action now.

If you want to avoid burdening your family with this hefty bill, you should use planning strategies that do not require probate. Here are a few options:

Prepaid funeral plans
Many funeral homes let you pay for your funeral services in advance, either in a single lump sum or through installments. Also known as pre-need plans, the funeral provider typically puts your money in a trust that pays out upon your death, or buys a burial insurance policy, with itself as the beneficiary.

While such prepaid plans may seem like a convenient way to cover your funeral expenses, these plans sometimes can have serious drawbacks. As mentioned earlier, if the funeral provider buys burial insurance, you’re likely to see massive premiums compared to what the plan actually pays out. And if they use a trust, the plan might not actually cover the full cost of the funeral, leaving your family on the hook for the difference. Plus, your money might be at risk if the funeral provider closes or is bought out by another company.  In North Carolina, the funeral plans are usually held by the state in a pool of such policies that give you excellent protection.

I like this type of plan, but not all groups do.  In fact, the Funeral Consumers Alliance (FCA), a nonprofit industry watchdog group, advises against purchasing such plans. The only instance where prepaid plans are a good idea, according to the FCA, is if you are facing a Medicaid spend down before going into a nursing home. This is because prepaid funeral plans funded through irrevocable trusts are not considered a countable asset for Medicaid eligibility purposes.  This is limited in North Carolina to $15,000 in most situations.

If you’re looking to buy a prepaid funeral plan in order to qualify for Medicaid, be sure to consult with us first, as not all pre-paid funeral plans are actually Medicaid compliant, even if the funeral home says they are. Moreover, if the irrevocable trust is not set up correctly, it may violate Medicaid’s look-back period, delaying your eligibility.  I am licensed to sell insurance products including pre-need funeral trusts, if that seems like a fit for your family.

Insurance
You can purchase a new life insurance policy or add extra coverage to your existing policy to cover funeral expenses. The policy will pay out to the named beneficiary as soon as your death certificate is available. But you’ll likely have to undergo a medical exam and may be disqualified or face costly premiums if you’re older and/or have health issues. I do recommend various kinds of insurance for most families, and can assist you in tailoring it for your needs.

There is also burial insurance specifically designed to cover funeral expenses (different from the funeral trusts I mentioned above). Also known “final expense,” “memorial,” and “preneed” insurance, such policies do not require a medical exam. However, you’ll often pay far more in premiums than what the policy actually pays out.

Because of the sky-high premiums and the fact such policies are sold mostly to the poor and uneducated, consumer advocate groups like the Consumer Federation of America consider burial insurance a bad idea and even predatory in some cases.

But whatever insurance or trust-based plan you have … make sure your family knows about it! These policies are often never cashed in because the family didn’t know they existed.

Payable-on-death accounts
Many banks offer payable-on-death (POD) accounts, sometimes called Totten Trusts, that you can set up to fund your funeral expenses. The account’s named beneficiary can only access the money upon your death, but you can deposit or withdraw money at any time.

A POD does not go through probate, so the beneficiary can access the money once your death certificate is issued. POD accounts are FDIC-insured, but such accounts are treated as countable assets by Medicaid, and the interest is subject to income tax.

Another option is to simply open a joint savings account with the person handling your funeral expenses and give them rights of survivorship. However, this gives the person access to your money while you’re alive too, and it puts the account at risk from their future creditors.

What can happen?  We know one client who lost the money in a joint account she shared with her granddaughter over a single bad business decision. The granddaughter was sued over a lease default, and when she lost the case, her creditors were able to go after the joint account.

Living trusts
With us as your Personal Family Lawyer®, you don’t need to buy a pre-built trust from a funeral provider. We can create a customized living trust that allows you to control the funds until your death and name a successor trustee, who is legally bound to use the trust funds to pay for your funeral expenses exactly as the trust terms stipulate.

With a living trust, you can change the terms at any time and even dissolve the trust if you need the money for other purposes. Alternatively, if you need an irrevocable trust to help qualify for Medicaid, we can create that too and help you ensure the trust stays totally compliant with all of Medicaid’s requirements.

Don’t needlessly burden your family
To help decide which option is best suited for your particular situation, consult with us as your Personal Family Lawyer®. We can put an estate plan in place that includes adequate funding to ensure your funeral services are handled just as you wish—and your family isn’t forced to foot the bill.

Improve your family relationships

4 Ways Estate Planning Can Improve Relationships with Loved Ones

With the holiday season just past, you probably spent lots of time with your family and friends. During these moments, you were likely reminded of just how important these relationships are. And as we grow older, you begin to realize how precious little time we have to spend with one another.

Given life’s fleeting nature, using this time with family to talk about estate planning is vital for ensuring you and your loved ones will be provided and cared for no matter what happens. Though death and incapacity can be uncomfortable subjects to discuss, with a comprehensive plan in place, you’ll almost certainly experience a huge sense of relief and peace, knowing this critical task has been discussed and documented.

Planning Builds Communication

Though you might not realize it, estate planning also has the potential to enhance your relationship with loved ones in some major ways.

Planning requires you to closely consider your relationships with family and friends – past, present, and future – like never before. Indeed, the process can be the ultimate forum for heartfelt communication and prioritizing what matters most in life.

Communicating clearly about what you want to happen in the event of your incapacity or death (and asking your loved ones what they want to happen) can foster a deeper bond and sense of intimacy than just about anything else you can do.

Here are just a few of the valuable ways estate planning can improve the relationships you cherish most:

1) It shows you sincerely care

Taking the time and effort to carefully plan for what will happen to you in the event of your incapacity or when you die is a genuine demonstration of your love. It would be far easier to do nothing and simply let your family and friends figure it out for themselves. After all, you won’t be around to deal with any of the fallout.   Some of my clients choose that approach, but most, like you, want to plan it for the family.

Planning in advance, though, shows that you truly care about the welfare of your loved ones, even when you’re no longer around to benefit from their love and companionship. Such selfless concern and forethought equates to nothing less than a final expression of your unconditional love.

2) It inspires honest communication about difficult issues

Sitting down and having an honest discussion about life’s most taboo subjects – incapacity and death – is almost certain to bring you and your loved ones closer. By forcing you to face immortality together, planning has a way of highlighting what’s really important in life – and what’s not.

In fact, our clients consistently say that after going through our estate planning process they feel more connected to the people they love the most. And they also feel more clear about the lives they want to live during the short time we have here on earth.

Planning offers the opportunity to talk openly about matters you may not have even considered. When it comes to choices about distributing assets and naming executors and trustees, you’ll have a chance to engage in frank discussions about why you made the choices you did.

While this can be uncomfortable, clearly communicating your feelings and intentions is crucial for maintaining healthy relationships. In the end, it might just be the first step in actively addressing and healing any problems that may be lurking under the surface of your relationships.

3) It builds a deep sense of trust and respect

Whether it’s the individuals you name as your children’s legal guardians or those you nominate to handle your own end-of-life care, estate planning shows your loved ones just how much you trust and admire them. What greater honor can you bestow upon another than putting your own life and those of your children in their hands?

Though it’s often challenging to verbally express how much you love your family and friends, estate planning demonstrates your affection in a truly tangible way. And once these people see exactly how much you value them, it can foster a deepening of your relationship with one another.

4) It creates a lasting legacy

While estate planning is primarily viewed as a way to pass on your financial wealth and property, it can offer your loved ones much more than just financial security. When done right, it lets you hand down the most precious assets of all – your life stories, lessons, and values.

The wisdom and experience you’ve gained during your lifetime are among the most treasured gifts you can give. Left to chance, these gifts are likely to be lost forever. In light of this, we’ve built in a process, known as Family Wealth Legacy Passages, for preserving and passing on these intangible assets.

With this service, which is included in every estate plan we create, we guide you to create a customized recording in which you share your most insightful memories and experiences with those you’re leaving behind. Family Wealth Legacy Passages can not only ensure you’re able to say everything that needs to be said, but that your legacy carries on long after you—and your money—are gone.

The heart of the matter

With us as your Personal Family Lawyer®, we can help guide and support you in having these intimate discussions with your loved ones. And as our Family Wealth Legacy Passages service shows, we offer a wide array of customized planning options designed to enrich your family and friends with far more than just material wealth.

With our help, estate planning doesn’t have to be a dreary affair. When done right, it can put your life and relationships into a much clearer focus and ultimately be a tremendously uplifting experience for everyone involved. Contact us today to learn more.

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