The Petrosewicz Law Firm Estate Planning Blog

How Blended Families Can Address Finances and Inheritance Issues

The holiday season is a popular time for people to get engaged, including people who have been married before. If that’s you, understand that blending families means you’ll need to deal with inheritance and finance issues, says U.S. News & World Report’s article “6 Financial Considerations for Remarriage.” The best time to have these conversations is before you walk down the aisle, not afterwards.

Look at your budget and talk about how things will work. That includes day-to-day expenses, monthly expenses and large purchases, like houses, vacations and cars. Talk about a game plan for going forward. Will you merge your credit card accounts or bank accounts? What about investment accounts?

Financial obligations outside of the marriage. Two things to check before you wed: your divorce papers and the state’s laws. Does anything change regarding your spousal support (alimony) or child support, if you remarry? It’s unlikely that you would lose child support, but the court may determine it can be reduced. The person who is paying child support or alimony also needs to be transparent about their financial obligations.

Review insurance and beneficiaries. One of the biggest mistakes people make, is failing to update beneficiaries on numerous accounts. If your divorce papers do not require life insurance to be left for your spouse on behalf of your children (and some do), then you probably want to make your new spouse the beneficiary of life insurance policies. Investment accounts, bank account, and any other assets where a beneficiary can be named should be reviewed and updated. It’s a simple task, but overlooking it creates all kinds of havoc and frustration for survivors.

What will remarriage do to college financing options? A second marriage may increase a parent’s income for college purposes and make children ineligible for college loans or needs-based scholarships. Even if the newly married couple has not blended their finances, FAFSA looks at total household income. Talk about how each member of the couple plans on managing college expenses.

A new estate plan should be addressed, even before the wedding takes place. Remember, an estate plan is for more than distributing assets. It includes planning for incapacity, including Do Not Resuscitate Orders (DNR), powers of attorney for finances and for health care, designations of guardianship or consent to adoption, various trusts and if needed, and special needs planning.

Create a plan for inheritance. If either spouse has children from a prior marriage, an estate plan is critical to protect the children’s inheritance. If one spouse dies and the surviving spouse inherits everything, there is no legal requirement for the surviving spouse to pass any of the deceased’s assets to their children. Even if you are in mid-life and death seems far away, you need to take care of this.

Speak with an estate planning attorney who can help you create the necessary documents. You should also talk with your children, at the age appropriate level, about your plans, so they understand that they are being planned for and will be taken care of in the new family.

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

Reference: U.S. News & World Report (Nov. 18, 2019) “6 Financial Considerations for Remarriage”

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”

When are You Done with Estate Planning?

A family has set up their estate plan. Two sons are already in the farming business and are thriving. Their daughter will receive the proceeds from a second-to-die life insurance policy and their considerable savings. The amounts are not equal in amount, but they are an equitable inheritance, and it seems like the couple has done its homework.

However, asks an article in The Courier, “The will is done, you’re sitting pretty—but are you?”

Estate planning is a lot like putting together a jigsaw puzzle. Like farming, it gets put together over time, piece by piece. Each piece represents something that needs to be done. For instance, a key part of the puzzle is having a last will and testament. That functions like building the outside frame of the puzzle, for those who start their puzzles by building the perimeter first. It frames the rest of your estate plan.

Other pieces are included within the will, like naming a personal representative, or executor. This is the person who is in charge of distributing your assets and making sure that the directions in your will are followed, when you pass away.

Do you have a plan for what happens when you die? For instance, if a husband dies, is there a plan for the wife to maintain the farm, or will she sell machinery and other transitory assets?

For the couple mentioned above who has the will, a transition spelled out in the will and a second-to-die policy in place to supplement the daughter’s inheritance, congratulations: they have many pieces of the puzzle in place. However, that’s not everything.

The other parts of the puzzle have to do with issues while the couple is still living. What happens if one or both are injured, or become ill? Who should take over the farming in the short or long term? Who will care for the spouse or spouses? Will they depend on each other for caretaking, or their daughter?

The number one worry for seniors is whether they have enough money to last until they die. However, by taking a portion of their savings and investing in a long-term care insurance policy, they can rest assured that they or their spouse will get the care they need—in a nursing home or at home—without burning through the family’s savings.

This piece of the estate planning puzzle—preparing for illness or disability—is often missing, and it can turn the rest of the estate plan into a pile of unattached pieces.

Speak with an estate planning attorney today to make sure your estate plan does not have any missing pieces. If you have not recently reviewed your estate plan in the last three or four years, schedule a review. Changes in the law and changes in your own life may make your old estate plan out of date and may no longer achieve the goals you had in mind.

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

Reference: The Courier (Sep. 4, 2019) “The will is done, you’re sitting pretty—but are you?”

Don’t Make These Early Retirement Mistakes

Starting retirement with a bang can make a big dent in your nest egg, no matter how big it is. However, there are ways to protect yourself, says CNBC in the article “Here’s what could take a big bite out of your retirement nest egg—and how you can control it.” A study from J.P. Morgan Asset Management looked at five million Chase accounts and found that people tend to spend more in the beginning years of retirement.

The transition into retirement is much bigger than even the experts expected. The surge in spending was greater than they had thought it would be. It’s big enough that the traditional measure of how much is needed during retirement may need some adjusting.

The early years of retirement are when big changes begin. People are adjusting to a new lifestyle that is very different. That’s likely to be the time when they go on “bucket list” trips, renovate their homes, or relocate. However, this is not the time to let spending go unchecked.

Once you move from an income-based budget to a fixed-income budget, inflation becomes more of a financial factor. If you neglect to factor it into your retirement spending, those middle to late years of retirement may become shaky.

A better solution is to consider changing needs over time and inflation on a category-by-category basis, like food, housing, transportation and travel.

Be mindful of how much equity risk you have in your portfolio when you reach retirement and as you move through your retirement years. You should also be aware of the tax consequences of the withdrawals that you do make.

Spending will fluctuate throughout your lifetime. However, remember that medical costs could increase dramatically at any time, without warning. If you are still living in a single-family home, over time houses need expensive fixes, if they are to retain their market value.

One expense not to skimp on: having an estate plan in place. The cost of not having a will, power of attorney or health care power of attorney could take a big bite out of your retirement savings or take an even bigger bite out of your children’s inheritance. A health care power of attorney for you and your spouse will avoid your having to go to court for guardianship proceedings, if one or both of you become incapacitated.

A last will and testament must be properly created with the help of an estate planning attorney, so that your assets are distributed as you want when you pass. Estate planning also helps with preparing to minimize taxes and may include Medicaid planning, if one or both spouses may need long term care.

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

Reference: CNBC (Sep. 4, 2019) “Here’s what could take a big bite out of your retirement nest egg—and how you can control it”

Who Will Inherit the Family Home?

Here’s a scenario that happens often. A man receives an inheritance, and he decides to use it to purchase the family home outright. His wife has signed a quitclaim deed to put the property into her husband’s trust. The understanding was that if the husband died before the wife, she would be permitted to stay in the home until her own death. The problem, says The Washington Post in this recent article “Make sure you and your spouse are on same page on who will inherit your home,” is that the husband never signed the living trust.

Making matters more complicated: this is a second marriage for both husband and wife, and they both have adult children from their prior marriages.

A few questions must be raised. First, is he the sole owner on the deed, or is the living trust the owner on the deed? If the wife quitclaimed their home to her husband personally, then the husband owns her share of the home, subject to any marital interests she may have in the home.

However, if she quitclaimed the home to his living trust and the trust was never created—which happens far more often than it should—then the deed might be an invalid deed. The wife may still own her interest in the home.

Failing to finalize documents can undo the best estate plans.

There is more. It’s possible that the wife and husband owned the home as joint tenants with right of survivorship. If the wife died, the husband would own the entire property, and the same would happen if he died—she would own the entire property.

The first thing that needs to happen is to find out if the deed was ever filed or recorded. If the deed was never recorded or filed, the quitclaim can be destroyed, and the status of the title remains as it was. However, if the deed was recorded and ownership was transferred to the husband, he is the sole owner of the home, subject to the wife’s marital rights.

If the trust was not signed, it does not exist, and a quitclaim deed transfer to a legal entity that does not exist, creates a situation where the wife could claim that she still owns her interest in the house.

It could become even more complex. If the husband now owns the home and the wife has marital rights, upon his death, she may be entitled to a share of the home under her husband’s will, if he has one, or by the laws of their state. However, his children would also own a share of the home, so she would end up owning a home with his children. Depending upon the relationship with the step-children, that could work out, or it could be a disaster.

Instead, the couple needs to sit down with an estate planning attorney to clarify how the home is presently owned, what they want to have happen and how to document it, so upon either of their deaths, their wishes are fulfilled.

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

Reference: The Washington Post (August 19, 2019) “Make sure you and your spouse are on same page on who will inherit your home”

Are the Wealthy Really Different than the Rest of Us?

Contrary to popular belief, much of the way wealth is transferred to the next generation is less about inheriting vast amounts of money, than it is supporting children’s education (and grandchildren’s too), helping with the purchase of a home, or to get married. These three life events, says Fast Company in a recent article “5 lies you’ve been told about generational wealth” are at the real root of the ability to accumulate wealth.

Here are a few commonly held misconceptions about the beneficiaries of generational wealth:

Wealth lasts many generations. Yes, wealth can and does trickle down and set up future generations for success, but it’s harder to maintain across the generations than you’d think. About 70% of wealthy families lose their wealth by the second generation, and 90% of them do so by the third generation.

One reason could be that the generation that inherits the money may not be well-equipped to manage the money they inherit. However, it’s also that family wealth is diluted, as it is divided up among children, especially if each sibling has a different idea of what to do with their inheritance.

Some financial experts recommend that families create a mission statement, like any organization, to establish what their values and goals are.

Their parents talk to them about money. You might think that wealthy parents talk with their kids about money, how to manage it, how to invest it, etc. However, that’s not always the case. For some parents, the less said about the family wealth the better. They don’t want the children to know how much they might inherit, and don’t always offer guidance about how they should spend or invest their money.

Many reach their thirties, forties, or even fifties, with no clue as to how to handle money. Even people who work with the wealthy, are often surprised at their client’s lack of knowledge about finances or legal issues. Someone who saved a million dollars, may know more than someone who inherited tens of millions of dollars.

They know what to do with their money. Here’s a surprise: even people who work at hedge funds or in private equity don’t always know what to do with their money. They know about their area of expertise, but when it comes to paying for college or how to pass wealth down through the generations, they are just as likely to be in the dark as anyone else.

A big inheritance can also come with a lot of stress. Do you think that’s a problem you’d like to have? It may be. However, depending upon how their inheritance is structured, it may not be so easy. An inherited IRA requires annual distributions, which can wreak havoc on tax planning, if they don’t have good advisors. Trusts may come with restrictions on what can and cannot be done with the assets. If the money is lost through their actions, that’s a family affair.

They’re lazy and irresponsible about money. There’s a big difference between what we see in the headlines and what’s really happening in families with inherited wealth. While some rich children do flaunt and fritter away their wealth, many don’t. Children from wealthy families often receive excellent educations and want to make sure the family wealth does not end with them.

They spend their money differently than parents or grandparents. Most of us learn how to manage money and spending from our parents. It’s no different for wealthy people. However, those who built their own wealth tend to be more frugal—they feel lucky to have the assets they never expected to have. A wealthy kid might use family money to put a down payment on a home, but they are thoughtful about spending. For some people, receiving an inheritance may come with a sense of guilt to have so much more than others, or a responsibility to make sure they are good stewards of the family wealth.

Regardless of the size of the estate you are managing or hoping to pass down to your children, don’t neglect having an estate plan. That means sitting down with an estate planning attorney who can help you create a plan that will protect your family and your assets.

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

Reference: Fast Company (July 18, 2019) “5 lies you’ve been told about generational wealth”

When Is the Best Time to Disinherit a Child?

This may sound like something out of a Dickens novel, but sadly, it is someone’s real life. A woman is mourning the loss of her mother. She is the trustee and only beneficiary of her mother’s trust, as explained in the article “It’s never too early to disinherit children” appearing in the Santa Cruz Sentinel. After disappearing for decades, her sister visited with the mother a few times a year toward the end of the mother’s life. Now the sister has retained an attorney to challenge the trust, accusing the woman of elder abuse and stating that the mother was insane.

What can this sister expect?

The goal of the formerly absent sister is to get the trust thrown out, so that the estate will pass equally between the two sisters. She can accomplish this, if she is able to invalidate the trust and invalidate any prior wills the mother may have signed disinheriting one sister and leaving everything to the other sister.

She may not have a case with a lot of merit, but it is going to cost a lot to defend the estate plan. She may be hoping for a quick payoff.

Whether the case is successful may depend upon the circumstances surrounding the creation of the trust. In the best case, the mother would have gone to see the attorney by herself and created the trust with zero involvement of the sister who is the trustee. Even better would be if the trustee sister didn’t know a thing about the trust or the estate plan, until after it was completed.

Here’s the concern: if the mother created the trust only after she became dependent on the more involved sister, and if that sister selected the attorney, made the appointment and had a conversation with the attorney about how awful the other sister was, then it will be hard to prove that the trust was set up purely on the mother’s wishes.

It’s an odd lesson, but in truth, it’s never too early to take steps to disinherit children. If someone knows that they are going to create an estate plan that is going to make one or more people very unhappy, the sooner they document these wishes, the better. It should be done while the person is still living independently and does not require a lot of help from any family member.

Keeping the people who will benefit from the disinheritance out of the creation of the estate plan is best, since it further removes them from involvement and is better when they are accused of being manipulative.

The best tactic is to create an estate plan with the help of an experienced estate planning attorney who can serve as a neutral and unbiased witness and can testify to the fact that the person knew what they were doing when the estate plan was created.

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

Reference: Santa Cruz Sentinel (June 2, 2019) “It’s never too early to disinherit children”

You’ve Received an Inheritance. Now What?

Inheriting money puts a whole new spin on your outlook on money, says The Kansas City Star in its article “Coming into some money? Be wise with it.”

Should you pay off your debts first, if you have any? Make a list of your debt balances and their interest rates. If the interest rate is high, pay it off. If it’s low, you may be better off investing the funds.

Next, check on your emergency fund. If you don’t have three to six months’ worth of living expenses on hand, use your inheritance to ramp up that fund. Yes, you can use credit cards sometimes. However, having at least two months’ worth of living expenses in cash is worthwhile.

The third step is to contribute the most you can to a health savings account (HSA), if your employer does not contribute to it and if you have a qualifying health plan. That’s $3,500 if you are single, $7,000 for families and add $1,000, if you are over 55. This gets you a nice tax deduction and withdrawals are tax-free, as long as they are used for qualified medical expenses.

If you’re still working, and depending upon the size of the inheritance, it might be time to “tax-shift” your portfolio.

Let’s say you regularly contribute $3,000 to a 401(k). If you can, increase that amount by $22,000, to the maximum, if you’re 50 and older. Since your paycheck decreases, so does your tax. If your tax rate is currently 22%, you’ll only need to add $17,160 from your inherited account to reach the same spendable dollars. The tax-deferred account in your portfolio will grow faster, while the taxable account shrinks.

Think about whether to commingle funds with your significant other or not. Let’s say you and your spouse have a retirement portfolio. You both can spend it now, maybe on your house. The inheritance may also help you to retire earlier. If you save the inheritance, keeping it in a separate account with only your name on it, it remains your asset, in case of a divorce. Most states will consider this money a non-marital asset, and not subject to division between divorcing parties.

Consider using the inheritance as a way to avoiding tapping into retirement accounts. Withdrawals from IRAs are taxable. If you’re not worried about commingling funds or investment gains, then use the inherited account to minimize the tax losses from retirement accounts.

Most people don’t have enough saved to keep spending during retirement as they did while working. Skip the spending spree that often follows an inheritance and enjoy the money over an extended period of time.

Receiving an inheritance is one of the times when a review of your estate plan becomes a wise move. A new financial position may require more tax planning and more legacy planning.

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

Reference: The Kansas City Star (June 27, 2019) “Coming into some money? Be wise with it”

Leaving a Legacy Is Not Just about Money

A legacy is not necessarily about money, says a survey that was conducted by Bank of America/Merrill Lynch Age Wave. More than 3,000 adults (2,600 of them were 50 and older) were surveyed and focus groups were asked about end-of-life planning and leaving a legacy. The article, “How to leave a legacy no matter how much money you have” from The Voice, shared a number of the participant’s responses.

A total of 94% of those surveyed said that a life well-lived is about “having friends and family that love me.” 75% said that a life well-lived is about having a positive impact on society. A mere 10% said that a life well-lived is about accumulating a lot of wealth.

People want to be remembered for how they lived, not what they did at work or how much money they saved. Nearly 70% said they most wanted to be remembered for the memories they shared with loved ones. Only nine percent said career success was something they wanted to be remembered for.

While everyone needs to have their affairs in order, especially people over age 55, only 55% of those surveyed reported having a will. Only 18% have what are considered the three key essentials for legacy planning: a will, a health care directive and a durable power of attorney.

The will addresses how property is to be distributed, names an executor of the estate and, if there are minor children, names who should be their guardian. The health care directive gives specific directions as to end-of-life preferences and designates someone to make health care decisions for you, if you can’t. A power of attorney designates someone to make financial decisions on your behalf when you can’t do so, because of illness or incapacity.

An estate plan is often only considered when a triggering event occurs, like a loved one dying without an estate plan. That is a wake-up call for the family, once they see how difficult it is when there is no estate plan.

Parents age 55 and older had interesting views on leaving inheritances and who should receive their estate. Only about a third of boomers surveyed and 44% of Gen Xers said that it’s a parent’s duty to leave some kind of inheritance to their children. A higher percentage of millennials surveyed—55%—said that this was a duty of parents to their children.

The biggest surprise of the survey: 65% of people 55 and older reported that they would prefer to give away some of their money, while they are still alive. A mere 8% wanted to give away all their assets, before they died. Only 27% wanted to give away all their money after they died.

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

Reference: The Voice (June 16, 2019) “How to leave a legacy no matter how much money you have”

Will a Spendthrift Trust Keep Your Kids Out of Trouble?

It sounds like a spendthrift trust would be all about keeping your children from buying expensive sportscars or jewelry with their inheritance, but that’s not the only reason for this trust, says Kiplinger in “How to Keep Your Heirs from Blowing Their Inheritance.” They’re also useful if there’s a divorce, substance abuse or when the kids just don’t know how to handle money.

We all want the best for our kids, and if we’ve been fortunate, we are happy to leave them with a nice inheritance that makes for a better life. However, regardless of how old they are, we know our children best and what they are capable of. Some adults are simply not prepared to handle a significant inheritance. They may have never learned how to manage money or may be involved with a significant other who you fear may not have their best interests in mind. If there’s a problem with drug or alcohol use, or if they are not ready for the responsibility that comes with a big inheritance, there are steps you can take to help them.

Don’t feel bad if your children aren’t ready for an inheritance. How many stories do we read about lottery winners who go through all their winnings and end up filing for bankruptcy?

An inheritance of any size needs to be managed with care.

A spendthrift trust protects heirs, by providing a trustee with the authority to control how the beneficiary can use the funds. A trust becomes a spendthrift trust, when the estate planning attorney who creates it uses specific language indicating that the trust qualifies as such, and by including limitations to the beneficiary’s control of the funds.

A spendthrift trust also protects assets from creditors, because the heir does not own the assets. The trust owns the assets. This also protects the assets from divorces, lawsuits and bankruptcies. It’s a good way to keep the money out of the hands of manipulative partners, family members and friends.

Once the money is paid from the trust, the protections are gone. However, while the money is in the trust, it enjoys protection.

The trustee in a spendthrift trust has a level of control that is granted by you, the grantor of the trust. You can stipulate that the trustee is to make a set payment to the beneficiary every month, or that the trustee decides how much money the beneficiary receives, including everything from the amount, the date and what circumstances are required for the money to be distributed.

For instance, if the money is to be used to pay college tuition, the trustee can write a check for tuition payments every semester, or they can put conditions on the heir’s academic performance and only pay the tuition, if those conditions are met. If there’s a drug issue, the payments can be made contingent on clean drug tests.

For a spendthrift trust, carefully consider who might be able to take on this task. Be realistic about the family dynamics. A professional firm, bank, or investment company may be a better, less emotionally involved trustee than an aunt or uncle.

Speak with an estate planning attorney to determine whether a spendthrift trust is appropriate for your situation. Expect to need to share some personal details to ensure that your attorney fully understands exactly why this kind of trust is needed, and to name an effective trustee. Remember that you are not punishing your heirs, you’re protecting them.

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: Kiplinger (June 5, 2019) “How to Keep Your Heirs from Blowing Their Inheritance.”