The Petrosewicz Law Firm Estate Planning Blog

How Bad Can a Do-It-Yourself Estate Plan Be? Very!

Here’s a real world example of why what seems like a good idea backfires, as reported in The National Law Review’s article “Unintended Consequences of a Do-It-Yourself Estate Plan.”

Ann Aldrich wrote her own will, using a preprinted legal form. She listed her property, including account numbers for her financial accounts. She left each item of property to her sister, Mary Jane Eaton. If Mary Jane Eaton did not survive, then James Aldrich, Ann’s brother, was the designated beneficiary.

A few things that you don’t find on forms: wills and trusts need to contain a residuary, and other clauses so that assets are properly distributed. Ms. Aldrich, not being an experienced estate planning attorney, did not include such clauses. This one omission became a costly problem for her heir that led to litigation.

Mary Jane Eaton predeceased Ms. Aldrich. Prior to her death, Mary Jane Eaton had in turn named Ms. Aldrich as her beneficiary.  Ms. Aldrich, in response, created a new account to receive her inheritance from Ms. Eaton. Ms. Aldrich also took title to Ms. Eaton’s real estate.

However, Ms. Aldrich never updated her will after the death of Mary Jane Eaton to include the new account and the new real estate property.

After Ms. Aldrich’s death, James Aldrich became enmeshed in litigation with two of Ms. Aldrich’s nieces over the assets that were not included in Ms. Aldrich’s will. The case went to court.

The Florida Supreme Court ruled that Ms. Aldrich’s will only addressed the property specifically listed to be distributed to Mr. James Aldrich. All other assets passed in part to Ms. Aldrich’s nieces.

Ms. Aldrich did not name those nieces anywhere in her will, and likely had no intention for them to receive any property. However, the intent could not be inferred by the court, which could only follow the will.

This is a real example of two basic problems that can result from do-it-yourself estate planning: unintended heirs and costly litigation.

More complex problems can arise when there are blended families or other family structure issues, incomplete tax planning, or wills that are not prepared properly and that are deemed invalid by the court.

Even ‘simple’ estate plans that are not prepared by an estate planning lawyer can lead to unintended consequences. Not only was the cost of litigation far more than the cost of having an estate plan prepared, but the relationship between Ms. Aldrich’s brother and her nieces was likely damaged beyond repair.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: The National Law Review (Feb. 10, 2020) “Unintended Consequences of a Do-It-Yourself Estate Plan”

What If Only One Parent Is Willing to Plan?

Making matters much worse for one family, is the fact that while the mother is willing to speak with an estate planning attorney and make a plan for the future, the father won’t even discuss it. What should this family do, asks the article from nwi.com titled “Estate Planning: Can one spouse plan?”

Planning for your eventual demise and distribution of your worldly goods isn’t as much fun as planning a vacation or buying a new car. For some people, it’s too painful, even when they know that it needs to be done. There’s nothing pleasant about the idea that one day you won’t be with your loved ones.

 Although contemplating the reality is unpleasant, this is a task that creates all kinds of problems for those who are left behind, if it is not done.

Unfortunately, it is not unusual for one parent to recognize the importance of having an estate plan and the other parent does not consider it to be an important task or simply refuses. In that case, the estate planning attorney can work with the spouse who is willing to go forward.

Some attorneys prefer to represent only one of the spouses, especially in a case like this. Spouses’ interests aren’t always identical, and there are situations where conflicts can arise. When a couple goes to the estate planning attorney’s office and wishes the attorney to represent both of them, sometimes the lawyer will ask for an acknowledgment that the lawyer is representing both of them as a couple. In the event that a disagreement arises or if their interests are very different, some attorneys will withdraw their representation. This is not common, but it does happen.

The estate planning lawyer usually prefers, however, to represent both spouses. Married couple’s estates tend to be intertwined, with real property jointly owned as husband and wife, or husband and husband or wife and wife. Spouses are usually named beneficiaries of life insurance and retirement accounts. Even in blended family situations, this holds true.

If the father in the situation above won’t budge, the mother should meet with the attorney and create an estate plan. The problem is, she may not be able to plan effectively for the two most common and usually the most valuable assets: their jointly owned home and retirement accounts.

If the home is owned by the spouses as “entireties property,” that is, by the couple, she can’t make changes to the title, without her spouse’s consent. One spouse cannot sever entireties property, without both spouses agreeing. Some retirement plans are also subject to the federal law ERISA, which requires a spouse’s consent to change beneficiaries to someone other than the spouse.

Even with these issues, having a plan for one spouse is better than not having any plan at all.

The only last argument that may be made to the father, is that if he does not make a plan, the laws of the state will be used, and few people actually like the idea of the state taking care of their estate.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: nwi.com (Nov. 17, 2019) “Estate Planning: Can one spouse plan?”

What Is Probate and How to Prepare for It?

The word probate is from the Latin word, meaning “to prove.” It is the court-supervised process of authenticating the last will and testament of a person who has died and then taking a series of steps to administer their estate. The typical situation, according to the article “Some helpful hints to aid in navigating the probate process” from The Westerly Sun, is that someone passes away and their heirs must go to the Probate Court to obtain the authority to handle their final business and settle their affairs.

Many families work with an estate planning attorney to help them go through the probate process.

Regardless of whether there is a will, someone, usually a spouse or adult child, asks the court to be appointed as the executor of the estate. This person must accomplish a number of tasks to make sure the decedent’s wishes are followed, as documented by their will.

People often think that just being the legally married spouse or child of the deceased person is all anyone needs to be empowered to handle their estate, but that’s not how it works. There must be an appointment by the court to manage the assets and deal with the IRS, the state, creditors and all of the person’s outstanding personal affairs.

If there is a will, once it is validated by the court, the executor begins the process of identifying and valuing the assets, which must be reported to the court. The last bills and funeral costs must be paid, the IRS must be contacted to obtain an estate taxpayer identification number and other financial matters will need to be addressed. Estate taxes may need to be paid, at the state or federal level. Final tax returns, from the last year the person was alive, must be paid.

It takes several months and sometimes more than a year to settle an estate. That includes distributing the assets and making gifts of tangible personal property to the heirs. Once this task is completed, the executor (or their legal representative) contacts the court. When everything has been done and the judge is satisfied that all business on behalf of the decedent has been completed, the executor is released from their duty and the estate is officially closed.

When there is no will, the process is different. The laws of the state where the deceased lived will be used to guide the distribution of assets. Kinship, or how people are related, will be used, regardless of the relationship between the decedent and family members. This can often lead to fractures within a family, or to people receiving inheritances that were intended for other people.

The Petrosewicz Law Firm can assist you with your estate planning and probate needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: The Westerly Sun (Nov. 16, 2019) “Some helpful hints to aid in navigating the probate process”

Start the New Year with Estate Planning To-Do’s

Families who wish their loved ones had not created an estate plan are far and few between. However, the number of families who have had to experience extra pain, unnecessary expenses and even family battles because of a lack of estate planning are many. While there are a number of aspects to an estate plan that take some time to accomplish, The Daily Sentinel recommends that readers tackle these tasks in the article “Consider These Items As Part of Your Year-End Plan.”

Review and update any beneficiary designations. This is one of the simplest parts of any estate plan to fix. Most people think that what’s in their will controls how all of their assets are distributed, but this is not true. Accounts with beneficiary designations—like life insurance policies, retirement accounts, and some bank accounts—are controlled by the beneficiary designation and not the will.

Proceeds from these assets are based on the instructions you have given to the institution, and not what your will or a trust directs. This is also true for real estate that is held in JTWROS (Joint Tenancy with Right of Survivorship) and any real property transferred through the use of a beneficiary deed. The start of a new year is the time to make sure that any assets with a beneficiary designation are aligned with your estate plan.

Take some time to speak with the people you have named as your agent, personal representative or successor trustee. These people will be managing all or a portion of your estate. Make sure they remember that they agreed to take on this responsibility. Make sure they have a copy of any relevant documents and ask if they have any questions.

Locate your original estate planning documents. When was the last time they were reviewed? New laws, and most recently the SECURE Act, may require a revision of many wills, especially if you own a large IRA. You’ll also want to let your executor know where your original will can be found. The probate court, which will review your will, prefers an original. A will can be probated without the original, but there will be more costs involved and it may require a few additional steps. Your will should be kept in a secure, fire and water-safe location. If you keep copies at home, make a note on the document as to where the original can be found.

Create an inventory of your online accounts and login data for each one. Most people open a new account practically every month, so keep track. That should include email, personal photos, social media and any financial accounts. This information also needs to be stored in a safe place. Your estate planning document file would be the logical place for this information but remember to update it when changing any information, like your password.

If you have a medical power of attorney and advance directive, ask your primary care physician if they have a means of keeping these documents, and explain how you wish the instructions on the documents to be carried out. If you don’t have these documents, make them part of your estate plan review process.

A cover letter to your executor and family that contains complete contact information for the various professionals—legal, financial, and medical—will be a help in the case of an unexpected event.

Remember that life is always changing, and the same estate plan that worked so well ten years ago, may be out of date now. Speak with an experienced estate planning attorney in your state who can help you create a plan to protect yourself and your loved ones.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: The Daily Sentinel (Dec. 28, 2019) “Consider These Items As Part of Your Year-End Plan”

How Does the SECURE Act Change Your Estate Plan?

The SECURE Act has made big changes to how IRA distributions occur after death. Anyone who owns an IRA, regardless of its size, needs to examine their retirement savings plan and their estate plan to see how these changes will have an impact. The article “SECURE Act New IRA Rules: Change Your Estate Plan” from Forbes explains what the changes are and the steps that need be taken.

Some of the changes include revising wills and trusts which include provisions creating conduit trusts that had been created to hold IRAs and preserve the stretch IRA benefit, while the IRA plan owner was still alive.

Existing conduit trusts may need to be modified before the owner’s death to address how the SECURE Act might undermine the intent of the trust.

Rethinking and possibly completely restructuring the planning for the IRA account may need to occur. This may mean making a charity the beneficiary of the account, and possibly using life insurance or other planning strategies to create a replacement for the value of the charitable donation.

Another alternative may be to pay the IRA balance to a Charitable Remainder Trust (CRT) on death that will stretch out the distributions to the beneficiary of the CRT over that beneficiary’s lifetime under the CRT rules. Paired with a life insurance trust, this might replace the assets that will ultimately pass to the charity under the CRT rules.

The biggest change in the SECURE Act being examined by estate planning and tax planning attorneys is the loss of the “stretch” IRA for beneficiaries inheriting IRAs after 2019. Most beneficiaries who inherit an IRA after 2019 will be required to completely withdraw all plan assets within ten years of the date of death.

One result of the change of this law will be to generate tax revenues. In the past, the ability to stretch an IRA out over many years, even decades, allowed families to pass wealth across generations with minimal taxes, while the IRAs continued to grow tax tree.

Another interesting change: No withdrawals need be made during that ten-year period, if that is the beneficiary’s wish. However, at the ten-year mark, ALL assets must be withdrawn, and taxes paid.

Under the prior law, the period in which the IRA assets needed to be distributed was based on whether the plan owner died before or after the RMD and the age of the beneficiary.

The deferral of withdrawals and income tax benefits encouraged many IRA owners to bequeath a large IRA balance completely to their heirs. Others, with larger IRAs, used a conduit trust to flow the RMDs to the beneficiary and protect the balance of the plan.

There are exceptions to the 10-year SECURE Act payout rule. Certain “eligible designated beneficiaries” are not required to follow the ten-year rule. They include the surviving spouse, chronically ill heirs and disabled heirs. Minor children are also considered eligible beneficiaries, but when they become legal adults, the ten year distribution rule applies to them. Therefore, by age 28 (ten years after attaining legal majority), they must take all assets from the IRA and pay the taxes as applicable.

The new law and its ramifications are under intense scrutiny by members of the estate planning and elder law bar because of these and other changes. Speak with your estate planning attorney to review your estate plan to ensure that your goals will be achieved in light of these changes.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected]. 

Reference: Forbes (Dec. 25, 2019) “SECURE Act New IRA Rules: Change Your Estate Plan”

How to Keep Giving After We Are Gone

Americans are a generous people, giving of our time and resources, through donations and volunteering. However, according to the article “Charitable conundrum: Why do we give up on giving at death?” from the Austin Business Journal, less than one out of nine individuals include a charitable donation as part of their estate plan.

Why do we stop giving at death? We know that the causes we care about continue to work after we are gone. There are many reasons for this, but perhaps the biggest reason behind his omission is that we tend to avoid estate planning. It’s an emotional challenge, preparing in a very real way to leave the world we enjoy with our loved ones. It’s not as much fun as going fly fishing or playing with the grandchildren.

Here are a few ways to include charitable giving in your estate plan, even when you aren’t having your estate plan created or reviewed.

Charitable beneficiaries. You can make a charity a beneficiary of a retirement account. They can be added as a primary beneficiary or as a contingent beneficiary. These changes can be made simply by contacting the custodian of the account and following their instructions for changing beneficiaries. Note that in certain states, spousal approval is required for any beneficiary changes. You can use this opportunity to also update your beneficiaries.

There’s a tax benefit in doing this. Charitable beneficiaries do not have to pay income tax on retirement distributions, although individuals do. Depending on the income level of an individual beneficiary, an heir could lose more than 40% of the inherited retirement account to state and local taxes.

The addition of a charitable beneficiary may restrict the ability for family members to stretch the receipt of retirement assets over time. Check with your estate planning attorney to make sure your good deed does not cause a hardship for family members.

Create a charitable IRA of your own. Another way to use retirement funds for a donation, is to roll some assets out of a main retirement account into a smaller retirement account with only charitable beneficiaries. Instead of consolidating accounts, you are doing the opposite, but for a good reason. This will allow you to manage the amount of money being left to the charity and take required or discretionary distributions from whichever account you choose.

Life insurance and annuities. Both of these vehicles use beneficiary designations, so the same strategy can be used for these accounts. Typically, the annuity must still be in the deferral state—not annuitized—and the life insurance contract must allow for changes to be made to the beneficiaries, which is true for most accounts. Note that life insurance proceeds are non-taxable to individuals and charities, and annuity proceeds are generally partially tax-free to individual heirs (amount of basis in the contract).

Talk with your estate planning attorney about the optimal strategies for making charitable giving part of your estate plan. Your situation may differ, and there may be other ways to maximize the wealth that is shared with charities and with your family.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Austin Business Journal (October 2, 2019) “Charitable conundrum: Why do we give up on giving at death?”

When Selecting Beneficiaries Gets Overlooked

Here’s one way to mess up your estate plan: naming beneficiaries not by name, but by the generic term “children.” If yours is a blended family, your stepchildren may be out of luck, according to the article “Five mistakes to avoid when naming beneficiaries” from Delco Times. In many states, stepchildren aren’t recognized if the word “children” is used. Use your beneficiaries’ full names.

Here are more mistakes that people make about beneficiaries:

Failing to name a beneficiary on every account. The great thing about beneficiary designations as that they do not go through probate and beneficiaries receive assets directly from the custodian of the account. However, if you fail to name a beneficiary, the asset, whether life insurance proceeds or the entire balance of a 401(k) account will go to your estate, and then it will need to go through probate.  For retirement accounts, your heirs will also lose the ability to stretch withdrawals.

Failing to name a contingency beneficiary. What if the first person passes away before you and there’s no contingency beneficiary named? The asset goes through probate, as if there were no beneficiary named at all.  If both people die at the same time, all of the funds must go through probate.

Neglecting to review beneficiary selections on a regular basis. Beneficiary designations override a will, so it’s very important to keep them current. Every few years, review the accounts that you own and see what your beneficiary designation choices are. This is especially necessary, if you have been divorced, widowed or remarried. If you fail to take your ex-spouse off an insurance policy, for instance, there’s little that can be done when you die—even if you put your wishes that a new spouse or children receive the proceeds in your will. If the dispute goes to court, your new spouse or children won’t be likely to win, no matter what your intentions may have been.

Not communicating with your partner and family members. Talking with family members and loved ones about your wishes for your legacy and asset distribution is an important way to let them know what to expect when you die. It’s not an easy conversation, but it will be helpful to all. Knowing you have a plan will alleviate them from the worry of the unknown. There’s no need to talk specific dollar amounts, unless you want to. Instead, give them a high-level overview of what your intentions are.

Some families find these conversations easier in the presence of an objective third party, like your estate planning attorney. If your estate plan includes trusts or any complex planning strategies, a family meeting provides a means of explaining the plan and the processes involved.

The Petrosewicz Law Firm can assist you with your estate planning and probate needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Delco Times (October 6, 2019) “Five mistakes to avoid when naming beneficiaries”

Microsoft’s Co-Founder Paul Allen’s Billions Estate

It’s been a little more than a year since billionaire Paul Allen’s passing, but the course he charted to give away his fortune remains a private secret, described as a complicated work in progress by the Seattle Times in the article that asks and answers the question “What’s happening to Paul Allen’s billions? A year after his death, it’s complicated.”

There’s been some recent chatter that Jeff Bezos, founder of Amazon, was interested in buying an NFL team, and possibly the Seattle Seahawks. This has sparked renewed curiosity about what has happened to the Allen empire.

Paul Allen was a philanthropist and interested in many different endeavors, from sports to fine art, pop culture and nonprofits, real estate investing and science. What will be kept within the family, what will be sold and what shape will the promised philanthropy take?

The answer to the question of when all of this might happen, is perhaps the only clear answer: not yet, and maybe not for a while. Experts say that it can take years for such a vast empire to be unwound. His estate includes businesses, investments, properties, world-class fine art and other valuable assets.  Giving away what might be as much as $10 billion or more, is not something to be done quickly.

As to who is in charge, that is Jody Allen, trustee, sister, and along with her family, the sole heir. A biography on the website of Vulcan, the business that Paul and his sister Jody co-founded, says that she has the responsibility for preserving and implementing his vision for generations to come. Jody’s intentions are unknown, outside of a tight and protective inner circle.

A Vulcan spokesperson said that the company is committed to tackling the world’s toughest problems, but nothing more.

The expectations are great, based in part on the long and varied record of philanthropy from Jody and Paul Allen. He gave away $2 billion during this lifetime to business, scientific, and cultural entities.

One of the main channels for philanthropy is the Paul G. Allen Family Foundation, which has given away at least $575 million. At the end of 2018, the foundation had assets worth more than $931 million and made more than $48 million in contributions.

Vulcan, the company, and the family foundation will continue to exist for many years, putting their stamp on science, the arts, environmental causes and educational programs.

Reference: Seattle Times (November 26, 2019) “What’s happening to Paul Allen’s billions? A year after his death, it’s complicated”

If You’re Going to Die, You Need an Estate Plan

If you switch the term “estate” for “stuff,” maybe you’ll have a better idea of why you need to have an estate plan. It’s so you can have a legally enforceable plan for your stuff. Estate planning is not just for millionaires and billionaires, says the Hawaii Reporter in the article “Wills and Trusts for the Rest of Us.” After all, it’s not just millionaires and billionaires who die.

There are questions that everyone needs to have an answer to:

• Who do I want to make medical and financial decisions for me, when I can no longer do so for myself?
• Who do I want to care for my minor children or my dependent elderly parents, when I am gone?
• Who do I want to have my earthly possessions, no matter how many or how few?

Even if all you have is a car and some furniture, you will want to decide who gets those and not leave it up to a stranger.

Having a will properly prepared by an estate planning attorney is one of the most important things you can do as a parent. If you have dependents, whether they are children or adults, you need to have a plan in place for their care in the event you pass away before they do. That plan is the most basic part of an estate plan: a will.

Without it, your dependents will become wards of the state. The state will decide what happens to your children or adult dependents.

Trusts are not just for rich kids. A revocable living trust is a document used as a secure and easy way to have your “stuff” move from you to your beneficiaries, without them having to be subject to probate. With a trust, you get to decide who gets what through the trust, and can even control when they receive an inheritance. You can make the distribution dependent upon completing an important task, like finishing college, or reaching a certain age.

A home or a car can also be placed in a trust, with an heir named as the beneficiary of that trust. You can continue to use all of the things that are in a trust, while you are living. However, whatever is placed in a trust will automatically transfer to the person you name as a beneficiary of the trust.

For medical and financial decisions, everyone over the age of 18 needs a Power of Attorney designating a person to make decisions for them, in case of incapacity. For medical decisions, you should have a healthcare Power of Attorney. You should also have a document stating your wishes, in the case of a critical illness or injury that clarifies what kind of end-of-life care you want. This is known as a Living Will in some states and an Advance Directive in others.

An estate planning attorney can help you create a plan for what you want to happen in the case of incapacity and in the case of death. One is reasonably likely to occur and the other is a definite. Being prepared is the best thing you can do for yourself and your loved ones, no matter how much “stuff” you have.

The Petrosewicz Law Firm can assist you with your estate planning and trust needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: Hawaii Reporter (September 28, 2019) “Wills and Trusts for the Rest of Us.”

Have Your Will Done? That’s Not An Estate Plan

A last will and testament is an important part of an estate plan, and every adult should have one. However, there is only so much that a will can do, according to the article “Estate planning involves more than a will” from The News-Enterprise.

First, let’s look at what a will does. During your lifetime, you have the right to transfer property. If you have a Power of Attorney, or POA, it gives someone you name the authority to transfer your property or manage your affairs, while you are alive. In most states, this document expires upon your death.

When you die, a will is used to transfer your property, according to your wishes. If you do not have a will, the court must determine who receives the property, as determined by your state’s law. However, only certain property passes through a will.

Individually owned property that does not have a designated beneficiary must be transferred though the process of probate. This includes real property, like house or a land, if there is no right of survivorship provision within the deed. The deed to the property determines the type of ownership each person has.

Generally, when more than one person owns real property, such as a husband and wife, each owner owns only a portion of the property. When one owner dies, the remaining owner’s portion must be passed through probate to the beneficiaries of the decedent.

Assets that do not have a designated beneficiary do not pass through probate, but are paid directly to the beneficiary. These are usually life insurance policies, retirement accounts, investment and/or bank accounts. Your will does not control these assets.

Beneficiaries through the will only receive whatever property is left over, after all reasonable expenses and debts are paid.

If you wish to ensure that beneficiaries receive assets over time, that can be done through a trust. The trust can be the beneficiary of a payable-on-death account. A revocable trust avoids property going through the probate process and can be established with your directions for distribution.

A will is a good start to an estate plan, but it is not the whole plan. Speak with an estate planning attorney about your situation, and they will be able to create a plan that addresses distribution of your assets, as well as protect you from incapacity.

The Petrosewicz Law Firm can assist you with your estate planning needs.  Contact us today at (281) 344-9455 or [email protected].  

Reference: The News-Enterprise (September 30, 2019) “Estate planning involves more than a will”