Is Your Estate Plan Doomsday Ready?
There’s been a lot of news of disasters this year, like the California wildfires, Florida hurricanes and devastating flooding in the Carolinas. It’s difficult to imagine how someone can lose everything in a moment. However, it really could happen to any of us, at any time. As a result, we all should have a plan for how to access important information, if we are suddenly forced out of our home and need to rebuild a life.
Forbes’s recent article, “How To Make Your Estate Plan Doomsday Ready,” looks at a couple in their 80s, who recently had their house in North Carolina destroyed by Hurricane Florence. They depended on their adult children who were all in other states to help—but there were many obstacles. The couple didn’t have access to a computer and couldn’t remember their account information or their passwords or even how to access their email. They asked their daughter to go online and pretend to be them to begin accessing information. OK, that may not be legal, but desperate times can call for desperate measures.
Let’s look at how to prevent this from happening in your family. First, decide how you will store the data you’d need in an emergency. It could be using online cloud-based technology such as password vaults, online storage systems, or keeping passwords on a piece of paper in a purse or wallet. Many use fireproof strong boxes that can be reached immediately. All of these are good options, and whatever method you implement, here’s the information you need to secure.
- Account numbers and passwords. Keep this information separate for security reasons.
- Copies of legal documents. These are your will, trusts, powers of attorney, health care proxies and HIPAA waivers. You should also have copies of deeds and titles to assets, such as cars and boats.
- Contact info for advisors. This includes your estate planning attorney, CPA, financial advisor, and insurance agent.
- Copies of insurance policies. You’ll need quick access to many of your insurance policies, like your homeowner’s and auto policies, if you just lost everything in a natural disaster.
- Tax returns. Include the previous year’s return, but it’s best to also have copies of the last three years of tax returns.
- Medical information. Keep a full list of all prescriptions and contact info for your healthcare providers.
Think of all the steps you’d need to take to rebuild your life and all the information you’d need to accomplish this. Your estate planning attorney will often have copies of your legal documents and information on your financial accounts and taxes, but you should also have a backup plan. Keep this information, so it’s readily available to your family to access in the event of your death. The same is true for doomsday prepping. Make sure that important information can be easily found (by you and your loved ones), if you need it to rebuild your life.
Reference: Forbes (December 3, 2018) “How To Make Your Estate Plan Doomsday Ready”
Is Your Estate Plan on Track?
“While the vast majority of Americans won't have a taxable estate ($22.4 million per couple under the 2018 Tax Cuts and Jobs Act) when they pass away, a little bit of estate planning with an attorney can go a long way toward avoiding potential issues for you and your family.”
Investopedia’s article from this fall, “How to Get Your Estate Plan on Track,” tells us what an estate plan accomplishes. A good estate plan accomplishes three objectives:
- End-of-life health care decisions are documented in a legally binding document;
- Assets will be distributed according to your instructions, rather than state law; and
- Loved ones avoid the time, expense and stress of the probate process.
A basic estate plan should include advanced directives, such as a health care proxy and power of attorney, will (perhaps a “pour-over” will and a revocable living trust). If you want to ensure that you have a valid will that follows the laws of your state, avoid pitfalls and best protect your family, hire an experienced estate planning attorney to make certain you have professional legal knowledge, when considering the nuances of trusts and estate law.
A health care proxy, also called a health care power of attorney, accomplishes two goals. First, it authorizes a designated individual to make health care decisions on your behalf, if you are ill or otherwise can’t make these decisions on your own. Without this, a judge would decide who has this authority in those circumstances. A health care proxy also allows you to document specific decisions for your health care, such as end-of-life decisions.
Your estate plan should also include a power of attorney, which allows you to authorize a person to make financial decisions in your stead. It’s used, if you’re not in a position to handle such affairs on your own (like a health care proxy).
Probate is the legal process where the court approves the distribution of your assets and gives creditors an opportunity to collect your debts. Going through probate can be stressful for your heirs. There are costs incurred and procedures that must be followed before assets are distributed. The probate process can take months and can be dragged out for more than a year in some situations.
Probate can be avoided with the right planning. For example, you can title certain assets like bank accounts, brokerage accounts, and property, so they pass directly by operation of law to your heirs, and bypass probate. Retirement assets are required to have beneficiaries and likewise will bypass probate. Make sure to have contingent beneficiaries, so these assets continue to bypass probate, if your beneficiaries predecease you.
For people with minor children, designating their potential guardian is one of the most critical elements of an estate plan. It is part of your will in most states. Remember, if you don’t name guardians in your will, and both you and your spouse pass away, the court will appoint a guardian, which may not be ideal for your children.
There are other unique situations that may warrant creating additional documentation and planning. These include having a business, adult children from a previous marriage, a potential liability against your estate or a special needs child. In any of these situations, you’ll definitely need to review your circumstances with an attorney.
Those assets held jointly (your home perhaps) and assets that have a beneficiary (life insurance) aren’t included in the will. Each state has its own rules about where the property goes, when a person dies without a will.
Estate planning is an ongoing process. Review your plan every few years or if you’ve had any major life changes, like a birth or adoption of a child, a divorce or a death of a family member.
Having your affairs in order can help prevent making things worse after you pass away.
Reference: Investopedia (October 17, 2018) “How to Get Your Estate Plan on Track”
Why Do I Need a Medical Directive?
“If you have not executed a medical directive, I strongly recommend doing so. If you do have a living will, I suggest you review your document periodically to be sure it still provides the best options for carrying out your wishes.”
An important part of estate planning is a medical directive. This can include a living will, which details your wishes for end-of-life care; and a health care power of attorney that appoints a person to make medical decisions, if you’re unable to do so. A medical directive addresses important issues that are inevitable. However, many people just don’t want to think about them or discuss them with family. As a result, they’re left for to family members and medical providers to work through without any guidance.
The Watertown Public Opinion’s recent article, “Keep medical directives up to date,” says that it’s not uncommon to find situations, where medical directives that were valid when they were executed, become potentially useless. A family member could choose to make end-of-life decisions but then fall victim to dementia, which impacted their competency to make those decisions.
If your medical directive names your spouse, you should also name an alternate since your spouse, who’s aging along with you, may not be the best person to make hard decisions when the time comes.
In addition, you should communicate your specific wishes to both your primary and alternate designees. Ask them if they think they’ll be able to carry out your wishes. These conversations aren’t easy, but they’re essential.
On one hand, it may not be really hard for a family member to consent to become the designated representative in a medical directive. However, if the agent named in a healthcare power of attorney is in good health, the need to make hard decisions is somewhere in the future and can feel almost theoretical. When a medical emergency or an extended final illness occurs, a family member who’s frightened, grieving, and exhausted may then find actually making those decisions to be the toughest thing they’ve ever had to do.
You should provide your family with clear directions to make end-of-life decisions for you. This means you need to do more, than simply write their names into a document.
It requires selecting a person who’s willing to carry out your wishes. Tell that person about your wishes in a robust and meaningful conversation, and check in periodically to make certain they remain willing and able to carry out the solemn promise that a living will entails.
Reference: Watertown Public Opinion (November 20, 2018) “Keep medical directives up to date”
Should I Have a Prenup Before I Marry?
Many people think that prenups (prenuptial agreements) kill the romance. However, the CT Post asks, in its article, “Millennial Millionaires and Their Prenups-What They Need to Be Thinking About,” would you still think the same if you had a lot to lose, if your marriage ended in divorce?
The use of prenups has increased five times in the past two decades for millennials, according to the American Academy of Matrimonial Lawyers (which defines millennials as those ages 18 to 34). Celebrities like Kylie Jenner and Justin Bieber have signed premarital agreements with their partners, and many young marrieds active in the startup world think that premarital agreements are a wise move.
A prenup lets entrepreneurs protect what they have worked so hard for. Up-and-coming millennials and entrepreneurs are waiting longer to get married. As a result, they typically have more assets, accumulated wealth from a 401(k) and stock options and possibly real-estate ventures. They could potentially lose a lot, if a prenup isn’t put into place. They also need to protect their intellectual property, and the very idea of a business has to be protected. For example, with Kylie Jenner and her makeup line, she decided to shield what assets she has now and those she’ll accumulate throughout her marriage. Her business won’t be communal property.
A marriage is a two-person team, so a couple should carve out some partnership in their marriage. This is commonly the family home or the greater salary, but investment properties are best left undivided. If you think a prenup is good for you and your fiancé, remember these guidelines:
Work with a business attorney. Your legal counsel must be business savvy and understand how to best plan for future contingencies. Each party should also have their own separate attorney for a prenup to be valid.
Plan ahead with a prenup. Don’t begin arranging for a prenup a month before your wedding. If you have significant assets, it will take some time to draft.
Look at the details. Determine if your partner has offshore accounts. It also matters where you will reside. Some techies, originally from China or India, have international attorneys that increases the time required to draft an agreement.
Every prenups is unique. There’s no one size fits all. There are many variables and they’re unique to each relationship.
Experiencing a divorce is a difficult time, and a prenup may give you some well-deserved protection.
Reference: CT Post (November 5, 2018) “Millennial Millionaires and Their Prenups -- What They Need to Be Thinking About”
Glen Campbell’s Kids Give Up Will Contest
The Tennessean mentions in its article, “Glen Campbell’s children give up challenge to singer’s will,” that Glen Campbell died August 8, 2017, at age 81, in the final stages of Alzheimer's disease.
Campbell's will left his estate to Kimberly, his wife of 34 years, and five of his eight adult children. However, he omitted three children from prior marriages—William Campbell, Kelli Campbell and Wesley Campbell.
The three siblings agreed to dismiss their fight for a portion of their father's estate. Their filing in Davidson County Probate Court didn’t provide any details. The three had contested the validity of the 2006 will, bringing into question their late father's capacity.
The legal dispute involving Glen Campbell's widow versus three of his children has delayed the final resolution of the singer's final affairs, including the question of who has the rights to future royalties on his music.
Campbell was known for songs such as "Gentle On My Mind," "Galveston," "Wichita Lineman" and "Rhinestone Cowboy." However, he was not the composer of any of his hits.
Kimberly Campbell issued a statement through her legal counsel that said she was glad to put the matter behind her. "The filing of a will contest last January came as a shock to me," the statement said. "There was never any merit to these claims.”
"I am pleased to finally put this difficult experience behind me, so that I may focus on my family, my continued mission to educate, destigmatize and raise awareness for Alzheimer's disease—and to honor my husband and his amazing music legacy."
However, Kimberly's statement noted that there was no settlement made with the adult children, and the attorneys for the three adult children contesting Campbell's will could not immediately be reached.
Unofficial estimates initially placed the value of the Campbell estate in the millions, but the more recent estimates provided to the probate court listed an estimated value of $420,221. This figure does not include the future royalties from Campbell's music.
Reference: The Tennessean (November 22, 2018) “Glen Campbell’s children give up challenge to singer’s will”
What Can I Do If I Was Left Out of a Will?
“Being left out of a will, is not a situation most people want to be in. However, sometimes when a will comes to light, its contents are unexpected. They can exclude those who assumed they would be included. If you are left out of a will, there are some time-sensitive steps you should take to at least clarify what has happened, and perhaps contest it.”
In most will contest cases, you are required to show coercion, diminished mental capacity or outright fraud to have a will's terms dismissed, according to Investopedia’s article, “What To Do When You're Left Out Of A Will.”
Before making a federal case out of it, cool down for a few days and think things through. If you aren’t a family member and were never named in a previous will, you can’t contest the will. If the deceased talked to you about an inheritance before, write down as much as you can remember and estimate the dollar value (whether in money or possessions). If it was never discussed but was implied, you’ll need to give a high and a low estimate on what you could have reasonably received based on your knowledge of the estate. If this amount doesn’t cover your legal fees, forget it. You may even walk away, if it’s twice as much as the retainer, because some estate battles cost more in legal fees than the inheritance. Again, consider this carefully.
The person who creates the will has the final word on who is and who is not in the will. If you have reason to believe that the will has changed, maybe because the person was under duress or suffering from diminished mental capacity, you can try to find out the details. You can ask the executor for the current will, any previous versions and a list of assets.
A sharp executor will compare copies of the will and note any significant changes. Therefore, it’s possible that a notice from the executor will be your first signal that you were removed from the will. If you aren’t told before the will goes to probate, you’ll be able to get a copy from the probate court. In addition, you’ll be told how long you have to contest the will. Each state has different rules and time limits, so ask a local estate planning attorney to help you get the copy and file the contest.
To contest the will, you need a valid reason. You need to reasonably prove that the testator lacked the mental capacity to understand what he was doing when the current will was signed, was pressured into changing it or that the will fails to meet state requirements and isn’t legal.
Your attorney will honestly tell you if you have a winnable case on these grounds. If you don't have grounds, there’s still a chance you can make a claim on the estate. For instance, if you did unpaid work for the testator, you may be able to claim costs. Again, look at the value of the claim versus the costs of moving forward.
With sufficient grounds, your attorney will file a contest against the will with the objective of invalidating the current will and enforcing a previous will that lists you as a beneficiary. If you’ve been left out of several revisions of the will, your chances of winning the dispute will be less because multiple wills must be invalidated. The burden of proof is on you, so be ready for a tough fight.
Instead of a court battle that will deplete your finances and those of the estate in legal costs, your attorney may be able to get the estate to agree to mediation. Mediation may be a better and faster resolution than a lengthy court battle.
With all of this, take into account the emotional stress. Being left out of a will is a bitter pill to swallow, but wasting time, money, and effort with heaps of stress fighting a losing battle will be much worse.
Reference: Investopedia (May 31, 2018) “What To Do When You're Left Out Of A Will”
What’s the Latest on Comic Book Icon Stan Lee’s Estate?
The 95-year-old former Marvel Comics publisher and chairman, Stan Lee, was ill for the last year. He was survived by his 68-year-old daughter J.C. and had other challenges in the past few years, in addition to ill health: his wife of nearly 70 years died in July 2017, and earlier in 2018, Lee was accused of sexually harassing nurses and home aides. He also said that $1.4 million dollars went missing from his bank accounts. Lee said that $850,000 of the stolen money was used to purchase a condo.
MarketWatch’s recent article, “Stan Lee’s tangled web of estate planning and how to avoid it in your own life,” reports that Lee had also hired and fired several business managers and attorneys in this time.
“I learned later on in life, you need advisors, if you’re making any money at all,” he told the Daily Beast in a 2018 interview. He also remarked that he’d done much of his own money management at the start of his career.
“But then, a little money started coming in, and I realized I needed help. And I needed people I could trust. And I had made some big mistakes. And my first bunch of people were people that I shouldn’t have trusted.”
It’s not known at this point, if Lee had a will or any trusts in place. If he did not, then he’s joining other late celebrities like performers Aretha Franklin and Prince who failed to draft these documents. As a result, their heirs and potential beneficiaries have had to go to court to straighten things out.
Keeping track of an estate plan can become harder as a person ages because he or she could suffer cognitive decline, or a professional or family member may think he or she is suffering from this. Stan Lee was the subject of this type of inquiry: in February, he signed a document declaring that his daughter spent too much money, yelled at him, and befriended three men who wanted to take advantage of him, the Hollywood Reporter reported. However, a few days later, Lee took it back.
Seniors can become get less confident in what they’re doing, and they are more susceptible to the influence of others, who may not have the best of intentions. However, you can easily create an estate plan with which you’re comfortable, with the help of an experienced estate planning attorney.
A big rat’s nest that will need to be addressed by Lee’s daughter, will be dealing with the many business documents that may be floating around from his current and past business managers and attorneys. To avoid this, work with an estate planning attorney and ask some specific questions, such as:
- How do we organize and simplify my assets?
- Will we need a trust, and how will they be managed?
- How will you coordinate with my executor and/or attorney-in-fact while I’m well, and after I’m sick or gone?
- How do you determine cognitive decline in an individual? What would you do, if you believed my ability to answer questions and manage my funds was diminished? What would you do once you’ve made this decision?
- How often will we review my beneficiary designations and estate planning documents?
- Do you work with a team of professionals, like a CPA?
- When should we include my family members or other beneficiaries in our conversations?
Reference: MarketWatch (November 17, 2018) “Stan Lee’s tangled web of estate planning and how to avoid it in your own life”
What Does Microsoft Co-founder Paul Allen’s Will Tell Us?
Paul Allen’s last will and testament doesn’t give us many details on the late billionaire’s assets. Instead, it refers to a trust established years ago.
The Seattle Times reports, in its article “Paul Allen’s will sheds little light on what will happen to estate,” that Allen’s six-page will was filed with King County on October 24—the same day his sister Jody announced she was named the executor and trustee of his estate.
Allen died on October 15 at age 65, from complications of non-Hodgkin lymphoma.
He was a Microsoft co-founder, who operated a long list of business and philanthropic initiatives that helped shape the Puget Sound region. His business concerns included owning the Seattle Seahawks, donating significantly to the arts community and scientific research, and running the multifaceted Vulcan Inc., which reshaped the real-estate landscape of South Lake Union.
Allen’s will places his assets into a 25-year-old living trust, where their disposition is not expected to be made public. It is important to remember that wills are public records, but trusts are not.
Forbes estimated his wealth at roughly $20 billion.
The will also sets out a list of successors, if Jody Allen declines or is unable to serve as executor.
Jody can appoint someone, or it would next fall to Nancy Peretsman, the managing director of investment firm Allen & Co., which is not connected to Allen. After him, the duty would fall to lawyers Allen Israel and Nicholas Saggese.
Jody Allen said in October that she “will do all that I can to ensure that Paul’s vision is realized, not just for years, but for generations.”
Numerous tributes for Allen have been held in the past month. One was an attempt to light much of the Seattle skyline blue.
Reference: The Seattle Times (November 8, 2018) “Paul Allen’s will sheds little light on what will happen to estate”
How Can a 529 College Savings Plan Work with My Estate Plan?
“Assets in 529 plans have grown significantly in recent years, due to their college planning potential. However, there’s another side to 529 plans that may appeal to you—potential estate planning benefits.”
To understand the way in which a 529 college savings plan can work with an estate plan, it’s important to start with some basics on how a 529 plan works.
The Cary Citizen asks in a recent article, “529s and Estate Planning: What’s the Connection?” A 529 plan is a college investment program sponsored by a state government and administered by one or more investment companies. The investment options in the plan are usually mutual fund portfolios. They’re “age-based” asset allocations that are more conservative, as the beneficiary gets closer to attending college or static portfolios, with predetermined allocations that stay consistent over time.
Withdrawals from a 529 are tax-free, provided they’re used for qualified college expenses. Nonqualified withdrawals are subject to ordinary income taxes and a 10% additional federal tax penalty. The good news is that the eligibility to contribute to a 529 plan isn’t restricted by age or income.
As far as your taxes, a contribution to a 529 plan is considered a completed gift from the contributor to the beneficiary named on the account. A contributor can, therefore, potentially reduce the size of her taxable estate using a 529 plan. Contributions can be up to $15,000 per beneficiary annually and $30,000 per beneficiary, if you contribute jointly with a spouse without any federal gift tax.
Along the same lines, if you’d like to decrease the size of your taxable estate more quickly, you can make five years’ worth of gifts in a single year, provided you don’t make any additional gifts to the beneficiaries for the remainder of that period. Therefore, you can accelerate your contributions and gift $75,000 per beneficiary as an individual or $150,000 per beneficiary, if done jointly with a spouse. However, if you use this strategy, a prorated portion of the contribution may be considered part of your estate, if you don’t live beyond the five-year period.
Whether you contribute annually or on an accelerated basis, a 529 plan can give you a lot of flexibility as part of your estate plan. For example, although the money in the account is considered a gift to the beneficiary, you still have control over how it’s invested. If the beneficiary doesn’t attend college, you can name a new beneficiary who’s a relative of the original beneficiary.
If you’re dealing with estate planning and college financing decisions that affect a growing family, you may benefit by seeing how a 529 plan could play a role in both of these areas.
Reference: Cary (NC) Citizen (October 31, 2018) “529s and Estate Planning: What’s the Connection?”
How Do I Trade Options in My Roth IRA?
Roth IRAs are very popular. You pay taxes on the contributions today, and then investors can avoid paying taxes on capital gains in the future. It’s a really smart strategy, if you believe your taxes are likely to be higher after you retire.
In Investopedia’s article, “Trading Options in Roth IRAs,” the use of options in Roth IRAs and some important considerations for investors are examined. Unlike stocks themselves, options can lose their entire value, if the underlying security price doesn’t reach the strike price. This makes them much more risky than the traditional stocks, bonds, or mutual funds that are typically in Roth IRA retirement accounts.
Although risky, there are situations when they might be good for a retirement account. Put options can be used to hedge a long stock position against short-term risks, by locking in the right to sell at a certain price. Covered call option strategies can be used to generate income, if an investor is okay selling her stock.
Many of the riskier strategies in options aren’t permitted in Roth IRAs, because retirement accounts are designed to help individuals save for retirement—not become a tax shelter for risky speculation. Investors should understand these restrictions to avoid issues that could have potentially costly consequences. IRS Publication 590 has several of these prohibited transactions for Roth IRAs. The most important is that funds or assets in a Roth IRA can’t be used as security for a loan. Since it uses account funds or assets as collateral by definition, margin trading usually isn’t allowed in Roth IRAs to comply with the IRS’ tax rules and avoid any penalties.
Roth IRAs also have contribution limits that may prevent the depositing of funds to make up for a margin call, placing more restrictions on the use of margin in these accounts. In addition, the IRS rules imply that many different strategies are off-limits, such as call front spreads, VIX calendar spreads and short combos. These all involve the use of margin.
It’s also important to note that different brokers have different regulations, when it comes to what options trades are permitted in a Roth IRA. The brokers permitting some of these strategies, have restricted margin accounts, where some trades that traditionally require margin are permitted on a limited basis.
The use of these strategies also depends on separate approvals for certain types of options trades, based on their complexity. Therefore, some strategies may be forbidden to an investor regardless. Many of these applications require that traders have knowledge and experience as a prerequisite to trading options, in order to reduce the likelihood of excessive risk-taking. Roth IRAs aren’t usually made for active trading, but experienced investors can use stock options to hedge portfolios against loss or generate extra income. These strategies can help improve long-term risk-adjusted returns and reduce portfolio churn. You should guard against using options as a mere speculative tool in these accounts, in order to avoid potential issues with the IRS and assuming excessive risks for funds designed to finance retirement.
Reference: Investopedia “Trading Options in Roth IRAs”