King & Wood, P.A.

Can a Trust Company Help Me with Estate Planning?

“Of course, you might think that only the very wealthy need a trust company. However, that’s not really the case–people of many income levels have long used these companies.”

When it’s time to do your estate planning, you should get assistance from professionals. When you draft your estate plan, you’ll need to work with an estate planning attorney. You also may want to speak with a trust company, which can help facilitate your estate plans and coordinate the activities of your legal and financial professionals, says The Pasadena Journal’s recent article, “Who Can You Trust to Reduce Stress of Estate Planning?”

If you have a reasonable amount of financial assets, you may benefit from the various services provided by a trust organization. Those services can range from administration of a variety of trusts (such as living trusts and charitable trusts) to asset-management services (bill-paying), and safekeeping services (like providing secure vaults for jewelry and collectibles).

Employing a trust company can make things much easier, when it’s time to plan and execute your estate. A trust company can help you in these ways:

• Lessening family fighting. Dividing estate assets can result in ill will and stress in a family. However, a trust company can act as a neutral third party to reduce feelings of unfairness.
• Providing greater control. With a living trust that’s administered by the trust company, you can allow yourself great control over how you want your assets distributed.
• Saving time and energy. With a trust company, you can let them do all the “legwork” of coordinating your plans with your financial professional, tax advisor and attorney. These professionals are also used to dealing with trust companies.
• Adding protection. Trust companies assume fiduciary responsibility for your financial well-being. This means that your best interests are always considered in each service and transaction they perform.

You can select from among many different trust companies, but before choosing one, examine the services and fees of a few different firms.

As you journey toward that time of your life, when estate planning becomes more essential, discuss your plans with an estate planning attorney, a tax advisor and a financial professional about whether using the services of a trust company might be right for you.

Reference: The Pasadena Journal (February 20, 2019) “Who Can You Trust to Reduce Stress of Estate Planning?”

What are the “Must Have” Estate Planning Documents?

“Having these three legal documents in place can make a huge difference for your heirs.”

What do Aretha Franklin, Kurt Cobain, and Prince have in common? Aside from being famous and talented, each of these stars passed away without a will. All three had the money and attorneys to draft a proper estate plan, but for whatever reason, they didn't draft one. It’s a good lesson to not neglect your estate plan.

Motley Fool reports in the article, “3 Must-Have Estate Planning Documents To Get Done This Year,” that dying without a will creates numerous problems for your family. If there are no legal instructions in place, probate law dictates the distribution of your assets and selection of guardians for your minor children, which can cause problems. Regardless of your personal situation, you should think about creating these three important estate planning documents.

1. Will. A will is used to distribute your estate, according to your instructions. A will can say how much and what type of asset each heir will receive, to minimize family fighting after your death. If you have young children, you can designate guardians in your will to be in charge of their care. If you die without a will, the probate judge will order who becomes their guardian.

You also need a will to make charitable bequests, to expedite the probate court process and to reduce or eliminate estate taxes. When you draft your will, you'll appoint trusted people to serve as the executor and the trustee.

2. Living will. A living will can take effect while you are still alive. This is a legal document that sets out your instructions for medical treatment, if you become unable to communicate, such as whether or not you want to be placed on life support. A living will can relieve the emotional burden from your family of having to make difficult decisions.
3. Power of attorney. This legal document helps in the event you’re incapacitated or in the hospital in an unresponsive state. A power of attorney gives the individual you designate the authority to transact financial and legal matters on your behalf. Set up a power of attorney, before you need it. If you don’t and you're unable to make decisions, your family may have to petition the court to get those powers, which costs time and money.

Estate planning is a huge favor that you’re doing for your family. Get these three legal documents in place.

Reference: Motley Fool (February 18, 2019) “3 Must-Have Estate Planning Documents To Get Done This Year”

 

How Do I Incorporate Charitable Giving into My Estate Plan?

“Charitable giving comes in many forms. Some people donate annually to their favorite charities, while others may volunteer their time or professional services.”

One approach frequently employed to give to charity, is to donate at the time of your death. Including charitable giving into an estate plan, is great way to support a favorite charity.

Baltimore Voice’s recent article, “Estate planning and charitable giving,” notes that there are several ways to incorporate charitable giving into an estate plan.

Dictate giving in your will. When looking into charitable giving and estate planning, many people may start to feel intimidated by estate taxes, thinking that their family members won’t get as much of their money as they hoped. However, including a charitable contribution in your estate plan will decrease estate tax liabilities, which will help to maximize the final value of the estate for your family. Talk to an experienced estate attorney to be certain that your donations are set out correctly in your will.

Donate your retirement account. Another way to leverage your estate plan, is to designate the charity of your choice as the beneficiary of your retirement account. Note that charities are exempt from both income and estate taxes. In choosing this option, you guarantee that your favorite charity will receive 100% of the account’s value, when it’s liquidated.

A charitable trust. Charitable trusts are another way to give back through estate planning. There is what is known as a split-interest trust that lets you donate assets to a charity but retain some of the benefits of holding the assets. A split-interest trust funds a trust in the charity’s name. The person who opens one, receives a tax deduction when money is transferred into the trust. However, the donors still control the assets in the trust, and it’s passed onto the charity at the time of their death. There are several options for charitable trusts, so speak to a qualified estate planning attorney to help you choose the best one for you.

Charitable giving is a component of many estate plans. Talk to your attorney about your options and select the one that’s most beneficial to you, your family and the charities you want to support.

Reference: Baltimore Voice (January 27, 2019) “Estate planning and charitable giving”

Have You Accomplished This Critical Task?

“There's one critical move that a large number of older Americans have yet to make: creating a will.”

Motley Fool’s article, “Nearly Half of Americans 55 and Over Are Making This Huge Financial Planning Mistake,” notes that almost 50% of Americans 55 and older don't have a will. If you're missing a will, it's critical to make the time to get this important document written, before something tragic happens and heirs are left in the lurch.

While creating a will might be uncomfortable, delaying won't keep you from having to contemplate your own mortality. Not creating a will places your family in a tough spot, if something happens and there’s no will.

Another reason that people put off writing their wills, is that they don't want to make their children uncomfortable by getting them involved in the process. Adult children are also frequently hesitant to start a dialog about parents’ estate planning. Nonetheless, those discussions are important to have.

Wills, trusts and estate plans are not just for wealthy people. If you own anything, including a home, a car and any bank accounts, you need an estate plan and that includes a will.

If you don't have a will, you won't have the opportunity to direct the way in which your property is distributed. Instead, the laws of probate will instruct how your investments and belongings are disbursed after your death.

Once you have that will created, keep it in a safe place—no, not in a shoebox under your bed. Instead, buy a fireproof safe and store it there. In addition, give your children or loved ones access, so they're able to locate your will in the event that it’s required.

It’s common to get advice that you should store your will in a safe deposit box at your bank. That works if your children or other trusted people in your life are permitted access to it. However, if you're the only account holder on that safe deposit box, your family may need to go through some legal machinations to get into it. When you enlist the help of an estate planning attorney to create your estate planning documents, she should also retain a copy of it on record. That's another great benefit to having an attorney create your will, rather than going it alone.

Creating a will can be unpleasant business, but it’s not something you should put off. Having that document in place will give you peace of mind—you’ll know that your wishes will be executed as you desire. That's reason enough to stop delaying and get going.

Reference: Motley Fool (February 16, 2019) “Nearly Half of Americans 55 and Over Are Making This Huge Financial Planning Mistake”

How Do I Leave My Home to My Family?

“For many people, their home is the most valuable asset they own. Leaving real estate to your heirs can also be a complicated process, so you'll want to make sure you plan accordingly.”

Figuring out what will happen to your assets after you pass away, is an unpleasant but necessary task. This ensures that your assets are distributed to the people you want. The publication, the day, recently published a story, “Planning to leave your home to your heirs,” that reminds us that it's best to begin your estate planning, as soon as possible.

Death can unexpectedly impact young or middle-aged families, and your family may not be sufficiently prepared, if you don’t have a will. Estate planning can make certain that your wishes are clearly stated and executed.

Real estate is frequently given to an adult child, grandchild, or is divided among several heirs. Once you know who will receive the property, discuss your plans with these people to keep them apprised of your plans and avoid any unpleasant surprises.

If you include your home in the will, you can stipulate precisely who should benefit from it. You can also say if you want the home to stay in the family or be sold.

Dividing the interest in a property evenly among beneficiaries might seem fair, but it can also create some unexpected complications. If one beneficiary wants to move into the
home and another wants to sell it and split the proceeds, things could get dicey. Discuss this issue with your beneficiaries to resolve this potential conflict in advance. One beneficiary could buy out the other beneficiaries' shares in the property to take sole possession of it. However, you may need a life insurance policy to be sure that the cash is there for a buyout.

A will is also used to delegate responsibilities to certain heirs. You select an executor to oversee the disposition of your estate after your death.

An outstanding mortgage balance can cause some trouble, when passing on a property. Any debts you have at the time of your death, need to be paid before your estate can be settled. If you were still making mortgage payments, be sure your beneficiaries have a plan to avoid a default. Beneficiaries, a surviving spouse, the executor of estate, or any other party can continue to make payments to your bank to avoid a foreclosure process. There are several ways that your beneficiaries can resolve a mortgage, after they take possession of the home. In addition to just selling the property, they can refinance the loan or pay off the mortgage with any assets they have or receive from your estate. That way, they would own the home free and clear.

Review your will regularly to keep it up to date. Make a change if a beneficiary dies, if your own circumstances change, or if your relationship with an heir goes bad.

You can also transfer your home to a living trust. This lets you use and benefit from the asset while living and then transfer it to beneficiaries upon death. This will avoid the probate process and save heirs time and money. The trust document identifies beneficiaries and determines how the estate will be distributed after death. It can also name a trustee to oversee this process and avoid conflict among beneficiaries.

One downside of a living trust is that any outstanding debts must be taken care of before the home and any other assets in the trust can be transferred to beneficiaries.

If a beneficiary is comfortable with assuming some responsibility for owning your home, you can also update the deed to include them. This can be especially helpful, if your spouse isn’t currently on the deed. This will make transfer of the home easier. If the deed says: "transfer on death," you own the home outright until your death, then it passes to any beneficiaries you name in the deed. When the deed includes the words "joint tenant with right of survivorship," ownership of the home automatically transfers to any other co-owners on the deed, when you pass away.

Reference: the day (February 15, 2019) “Planning to leave your home to your heirs”

What Do I Do First After the Death of My Spouse?

“Take care to avoid these mistakes after the death of a spouse…”

There is no doubt that the stress can be all-consuming, when a spouse passes away. It's not a good time to make financial decisions. You should also avoid making any major changes for at least a year, if you’re able. Allow your emotions to settle, prior to doing anything that could drastically impact your taxes and finances.

U.S. News & World Report recently published an article, “Don't Make These Mistakes When Your Spouse Passes Away,” that warns us to take care to avoid these mistakes after the death of a spouse:

Taxes. Your tax-filing status will change after a spouse passes away. That could move you into a higher tax bracket or cause you to lose tax breaks. You can’t file married filing jointly and no longer have two exemptions.

Social Security and Annuity Income. You may also lose your deceased partner's Social Security income. Widows and widowers can claim a Social Security survivor's payment that’s equal to the amount the higher earning spouse received. However, there will now be just one Social Security check coming in, not two. In some instances, pension or annuity payments might also cease. You may see significant changes to income.

Unplanned Withdrawals from Tax-Deferred Accounts. Many people seek to make up lost income, by taking retirement account withdrawals. However, a mistake can trigger both taxes and penalties. Income tax is due on each traditional 401(k) or IRA withdrawal, because when you withdraw tax-deferred money, there are tax consequences. When you make a withdrawal from a spouse's IRA, taxes are due. If you’re not 59½ or older, you could also pay a 10% early withdrawal penalty. Surviving spouses should try to minimize taxes on retirement account withdrawals to help the money last as long as possible.

Paying Taxes on Retirement Account Withdrawals Too Early. A surviving spouse can transfer tax-deferred retirement account assets into his or her name. That frequently lets a person further delay taxation. If you are under 70½, you can defer taxes into the future.

Paying a 10% Early Withdrawal Penalty. If the surviving spouse isn’t yet 59½ and needs some of the money in a retirement account, you can transfer the money into an inherited spousal IRA. If you need money, the IRS will let you take distributions. You’ll have to pay taxes, but you avoid the 10% penalty.

Required Minimum Distributions (RMDs). Distributions from retirement accounts are required after age 70½—even in the year when the spouse passes away. If the decedent was in payout mode and past 70½, make certain that between the decedent and beneficiary, you still take the required minimum distribution. If you forget, there’s a possible penalty of up to 50% of what you should have taken.

Advice. It’s not easy or practical to delve into your finances, right after losing a loved one. Don’t make any big money moves without advice. Remember to also incorporate tax planning with your estate planning, and work with an experienced estate planning attorney.

Reference: U.S. News & World Report (February 15, 2019) “Don't Make These Mistakes When Your Spouse Passes Away”

How Do I Prepare my Parents for Alzheimer’s?

“Imagine that your mom has Alzheimer’s. She calls you one day, out of the blue, saying that she wants to sell the family home. When you ask her where she would live if the family home is gone, she doesn’t seem to have a clear plan. Ten minutes into the call, Mom gets upset with your questions. She declares that she can sell the house without your help and hangs up the phone.”

Can your mom just sell her house, despite her diagnosis of Alzheimer’s?

The (Bryan TX) Eagle reports in the recent article “MENTAL CLARITY: Shining a light on the capacity to sign Texas documents” that the concept of “mental capacity” is complicated. There’s considerable confusion about incapacity. The article explains that different legal documents have a different degree of required capacity. The bar for signing a Power of Attorney, a Warranty Deed, a Contract, a Divorce Decree, or a Settlement Agreement is a little lower than for signing a Will. The individual signing legal documents must be capable of understanding and appreciating what he or she is signing, as well as the effect of the document.

The answer the question of whether the mom can sign the deed to her house over to the buyer.  is likely “yes.” She must understand that she’s selling her house, and that, once the document is signed, the house will belong to someone else. A terminal diagnosis or a neurodegenerative disease doesn’t automatically mean that an individual can’t sign legal documents. A case-by-case assessment is required to see if the document will be valid.

The fact that a person is unable to write his or her name doesn’t mean they lack capacity. If a senior can’t sign her name (possibly due to tremors or neurodegeneration), she can sign with an “X”. She could place her hand on top of someone else’s and allow the other person to sign her name. If this is completed before witnesses and the notary, that would be legal.

A hard part of Alzheimer’s is that a person’s mental clarity can come and go. Capacity can be fluid in the progress of a neurodegenerative or other terminal disease. Because of this, the best time to sign critical documents is sooner rather than later. No one can say the “window of capacity” will remain open for a certain amount of time.

Some signs should prompt you to move more quickly. These include things like the following:

• Short-term memory loss;
• Personality changes (e.g., unusual anger);
• Confusing up or forgetting common-usage words and names; and
• Disorientation and changes in depth perception.

Any of the signs above could be caused by dementia or many other problems. Talk to your parent’s physician and an elder law attorney. He or she can discuss the options, document your parent’s legal capacity, and get the right documents drafted quickly.

Reference: The (Bryan TX) Eagle (February 7, 2019) “MENTAL CLARITY: Shining a light on the capacity to sign Texas documents”

What Can You Do If Your Dad Leaves Your Out of His Will?

“There are limited actions you can take, if you're disinherited.”

If your father divorces your mother to marry a younger woman, it’s not unlikely that your step-mother will make your dad change his will. The step-mother may then stand to inherit everything. Is there anything the disinherited child can do?

Unless there were some specific circumstances concerning the dad, there's probably nothing the child can do, says nj.com in the recent article “My step-mother changed my dad's will. I got nothing. What can I do?”

In the U.S., for the most part, a person has the right to leave his or her property and assets to whomever he or she chooses. It’s called "freedom of disposition." However, even in the United States, some classes of beneficiaries have the right to take 'against' the will." For instance, a surviving spouse can claim an elective share of an estate if he or she is disinherited. The rules for granting an elective share are complicated. However, the thought behind the law is that a spouse has the obligation to provide for the support of his or her spouse and by disinheriting the spouse, they’re violating this duty.

In the U.S., adult children typically don’t have any right to inherit from a parent.

To overcome this, a child would need to prove that his father didn’t act of his own free will. The child would need to show that his stepmother “unduly influenced” his father to change his prior will and leave everything to her. If successful, the father’s property would be distributed according to his last valid will, or if there is no will, according to the intestacy statute.

Proving undue influence can be quite difficult to do. The child would have to show that the step-mother was in what is known as a "confidential" relationship with the father and that there are suspicious circumstances. If so proved, the burden of proof shifts to the step-mother to show that she didn’t unduly influence the father.

This process can become very technical, and each case is very fact specific. If the father was working at his job at the time of his death, it will be extremely difficult to prove he lacked free will. However, if he’d stopped working and had diminished capacity, it would be easier to show undue influence.

Talk to an experienced estate planning attorney about pursuing this type of action.

Reference: nj.com (February 8, 2019) “My step-mother changed my dad's will. I got nothing. What can I do?”

What Will The Taxes Be on My IRA Withdrawal?

“How much you will pay in taxes on an individual retirement account (IRA) withdrawal depends on the type of IRA, your age and the purpose of the withdrawal.”

Sometimes, the amount of taxes will be zero. However, in other cases, you will owe income tax on the money you withdraw and sometimes an additional penalty, if you withdraw funds before age 59½. After a certain age, you may be required to withdraw money and pay taxes on it.

Investopedia’s recent article, “How Much are Taxes on an IRA Withdrawal?” says there are a number of IRA options, but the Roth IRA and the traditional IRA are the most frequently used types. The withdrawal rules for other types of IRAs are similar to the traditional IRA, but with some minor unique differences. The other types of IRAs—the SEP-IRA, Simple IRA, and SARSEP IRA—have different rules about who can start one.

Your investment in a Roth IRA is with money after it’s already been taxed. When you withdraw the money in retirement, you don’t pay tax on the money you withdraw or on any gains you made on your investments. That’s a big benefit. To use this tax-free withdrawal, the money must have been deposited in the IRA and held for at least five years, and you have to be at least 59½ years old.

If you need the money before that, you can take out your contributions without a tax penalty, provided you don't use any of the investment gains. You should keep track of the money withdrawn prior to age 59½, and tell the trustee to use only contributions, if you’re withdrawing funds early. If you don’t do this, you could be charged the same early withdrawal penalties charged for taking money out of a traditional IRA. For a retired investor who has a 401(k), a little-known technique can allow for a no-strings-attached withdrawal of a Roth IRA at age 55 without the 10% penalty: the Roth IRA is “reverse rolled” into the 401(k) and then withdrawn under the age 55 exception.

Money deposited in a traditional IRA is treated differently, because you deposit pre-tax income. Every dollar you deposit decreases your taxable income by that amount. When you withdraw the money, both the initial investment and the gains it earned are taxed. But if you withdraw money before you reach age 59½, you’ll be assessed a 10% penalty in addition to regular income tax based on your tax bracket. There are some exceptions to this penalty. If you accidentally withdraw investment earnings rather than only contributions from a Roth IRA before you are 59½, you can also owe a 10% penalty. You can, therefore, see how important it is to maintain careful records.

There are some hardship exceptions to penalty charges for withdrawing money from a traditional IRA or the investment portion of a Roth IRA before you hit age 59½. Some of the common exceptions include:

• A required distribution in a divorce;
• Qualified education expenses;
• A qualified first-time home purchase;
• The total and permanent disability or the death of the IRA owner;
• Unreimbursed medical expenses; and
• The call to duty of a military reservist.

Another way to avoid the tax penalty, is if you make an IRA deposit and change your mind by the extended due date of that year's tax return, you can withdraw it without owing the penalty (but that cash will be included in the year's taxable income). The other time you risk a tax penalty for early withdrawal, is when you’re rolling over the money from one IRA into another qualified IRA. Work with your IRA trustee to coordinate a trustee-to-trustee rollover. If  you make a mistake, you may end up owing taxes.

With IRA rollovers, you can only do one per year where you physically remove money from an IRA, receive the proceeds and within 60 days subsequently deposit the funds in another IRA. If you do a second, it’s 100% taxable.

You shouldn’t mix Roth IRA funds with the other types of IRAs, because the Roth IRA funds will be taxable.

When you hit 59½, you can withdraw money without a 10% penalty from any type of IRA. If it’s a Roth IRA, you won't owe any income tax. If it's not, there will be a tax. If the money is deposited in a traditional IRA, SEP IRA, Simple IRA, or SARSEP IRA, you’ll owe taxes at your current tax rate on the amount you withdraw.

Once you reach age 70½, you will need to take a Required Minimum Distribution (RMD) from a traditional IRA. The IRS has specific rules as to the amount of money you must withdraw each year. If you don’t withdraw the required amount, you could be charged a 50% tax on the amount not distributed as required. You can avoid the RMD completely, if you have a Roth IRA because there aren’t any RMD requirements. However, if money remains after your death, your beneficiaries may have to pay taxes.

The money you deposit in an IRA should be money you plan to use for retirement. However, sometimes there are unexpected circumstances. If you’re considering withdrawing money before retirement, know the rules for IRA penalties, and try to avoid that extra 10% payment to the IRS.

If you think you may need emergency funds before retirement, use a Roth IRA for those funds, and not a traditional IRA.

Reference: Investopedia (February 9, 2019) “How Much are Taxes on an IRA Withdrawal?”

What Does a New Study Say About Dying?

“Americans aren't worried so much about passing away at a young age, as they are about dying in pain or with dementia, according to a new study.”

A survey of 3,000 U.S. residents, with most age 55 and older, found that people's biggest fear was dying with dementia (34%), followed by dying in pain (32%), according to a report released by Merrill Lynch. In addition, dying young was the chief fear of just 14% of respondents. Dying alone was next at 13%, then dying broke and in debt, 7%.

Financial Advisor’s article, “Dementia, Pain Biggest Client Fears About Dying, Survey Says,” explains that the data was part of a report that looked people's feelings about their heirs, their estate planning and their feelings about death.

Some of the results may not be surprising, since the subject of death and the preparations needed to get ready for it can be a sensitive topic. For example, the study predictably found that nearly 50% of U.S. residents age 55 and over don’t have a will. Only 18% in that age group have a will, a health-care directive and a durable power of attorney. The study also explored feelings that are sometimes hard to uncover, like their fears and hopes about their final days and the legacy they leave their heirs.

Based on the survey results, one possible takeaway is that folks aren't as hesitant to discuss their own deaths, as is typically believed. About 90% of respondents said they’re open to discussing their end-of-life preferences with family and friends, the report said. Of those 55 and older, 87% said it’s a parent's responsibility to initiate a conversation with their children about their legacy.

When asked about what they most want to be remembered, leaving wealth to heirs was last on the list. The top response, cited by more than two-thirds of respondents, was "the memories I've shared with my loved ones," followed by the quality of their marriage or partnership; their passions, interests and hobbies; a successful career; and, lastly, the amount of wealth they leave to heirs.

When asked how they would define a "a life well lived," the most common response was "having a family and friends that love me" (94%), making a positive impact on society (75%), being successful in my career (27%), accumulating a lot of wealth (10%) and being well-known or famous (3%).

"The accomplishments we want mentioned in our eulogies aren't those featured on our resumes," said Ken Dychtwald, CEO of research firm Age Wave, which teamed with Merrill Lynch in producing the report. "It's who we are as people, who we loved and who loved us and how we made an impact on the lives of others."

Reference: Financial Advisor (February 7, 2019) “Dementia, Pain Biggest Client Fears About Dying, Survey Says”