King & Wood, P.A.

Planning for Long-Term Care with Irrevocable Trusts

“With the possibility of needing long-term care in the future, many people are interested in proactive planning.”

One of the best strategies to plan for long-term care involves using an irrevocable trust. However, the word “irrevocable” makes people a little wary. It shouldn’t. The use of the Intentionally Defective Grantor Trust, a type of irrevocable trust, provides both protection and flexibility, explains the article “Despite the name, irrevocable trusts provide flexibility” from The News-Enterprise.

Trusts are created by an estate planning attorney for each individual and their circumstances. Therefore, the provisions in one kind of trust may not be appropriate for another person, even when the situation appears to be the same on the surface. The flexibility provisions explored here are commonly used in Intentionally Defective Grantor Trusts, referred to as IDGTs.

Can the grantor change beneficiaries in an IDGT? The grantor, the person setting up the trust, can reserve a testamentary power of appointment, a special right allowing grantors to change after-death beneficiaries.

This power can also hold the trust assets in the grantors’ taxable estate, allowing for the stepped-up tax basis on appreciated property.

Depending on how the trust is created, the grantor may only have the right to change beneficiaries for a portion or all of the property. If the grantor wants to change beneficiaries, they must make that change in their will.

Can money or property from the trust be removed if needed later? IDGT trusts should always include both lifetime beneficiaries and after-death beneficiaries. After death, beneficiaries receive a share of assets upon the grantor’s death when the estate is distributed. Lifetime beneficiaries have the right to receive property during the grantor’s lifetime.

While grantors may retain the right to receive income from the trust, lifetime beneficiaries can receive the principal. This is particularly important if the trust includes a liquid account that needs to be gifted to the beneficiary to assist a parent.

The most important aspect? The lifetime beneficiary may receive the property and not the grantor. The beneficiary can then use the gifted property to help a parent.

An often-asked question of estate planning attorneys concerns what would happen if tax laws changed in the future. It’s a reasonable question.

If an irrevocable trust needs a technical change, the trust must go before a court to determine if the change can be made. However, most estate planning attorneys include a trust protector clause within the trust to maintain privacy and expediency.

A trust protector is a third party who is neither related nor subordinate to the grantor, serves as a fiduciary, and can sign off on necessary changes. Trust protectors serve as “fixers” and are used to ensure that the trust can operate as the grantors intended. They are not frequently used, but they offer flexibility for legislative changes.

Irrevocable trusts are an excellent way to protect assets when drafted with both protection and flexibility in mind.

Reference: The News-Enterprise (March 18, 2023) “Despite the name, irrevocable trusts provide flexibility”

Reviewing Estate Plans Matters

“Many of our parents completed their estate plans decades ago. The documents may still be valid. However, if they are stale or outdated, you may spend significant money trying to use them down the road.”

If your estate plan or your parent’s estate plan hasn’t been reviewed in the last four years—or the last forty years—it’s time for an estate plan check-up—sooner, not later. Besides the potential for costing a lot to correct, says a recent article in Forbes entitled “5 Reasons To Have Your Parents’ Estate Plan Reviewed,” the documents may no longer work to achieve your parent’s wishes.

Rather than fix a messy situation after death, have an experienced estate planning attorney review the documents now. Here’s why.

Stale documents are anathema to financial institutions. If a power of attorney is more than twenty years old, don’t expect it to be received well by a bank or brokerage house. The financial institution will probably want to get an affidavit from the attorney who originally created the document to attest to its validity. Start with a hunt to find said attorney, and then hope that nothing occurs between the time that you request the affidavit and the time it arrives. For one client, the unexpected death of a parent during this process created all kinds of headaches. A regular review and refresh of estate documents would have prevented this issue.

State laws change. Changes to state laws change how estates are handled. They may be positive changes that could benefit your parents and your family. Let’s say your mother’s will leaves all of the contents of her home to numerous people. Locating all of these people becomes costly, especially if the will needs to be probated. Many states now allow for a separate document that lets personal items be disposed of, without being part of the probated estate. However, if the will has not been reviewed in ten or twenty years, you won’t know about this option.

Languages in estate planning documents change. In addition to changes in the law, there are changes to language that may have a big impact on the estate. Many attorneys have changed the language they use for trusts based on the SECURE Act. If your parent has a retirement account payable to a trust, it is critical that this language be modified, so that it complies with the new law. Lacking these updates, your parent’s estate may be subject to an increase in taxes, fees, or penalties.

Estate laws change over time. Recent years have seen major changes to estate law, from the aforementioned SECURE Act to changes in federal exclusions and gift taxes. Is your parent’s estate plan (or yours) in compliance with the new laws? If assets have changed since the last estate plan was done, there may be tax law changes to be incorporated. Are there enough assets available to pay the taxes from the estate or the trusts? If many accounts pass by beneficiary designation, getting beneficiaries to come up with the cash to pay the tax bill may be problematic.

The decedent’s wishes may not be followed, if documents are not updated. Here’s an example. A man came to an estate planning attorney’s office with his father’s will, which had not been updated. His father died, having been predeceased by the father’s sister. The man was the only living child. He and his father had a mutual understanding that the son would inherit the entire estate on the death of his father. However, his father’s sister had also died, and the will stated that her children would receive the sister’s share. The man had to share his inheritance with estranged nieces and nephews. Had the will been reviewed with an attorney, this mishap could have been prevented very easily.

Reference: Forbes (May 25, 2021) “5 Reasons To Have Your Parents’ Estate Plan Reviewed”

Can a Person with Alzheimer’s Sign Legal Documents?

“Due to the debilitating nature of Alzheimer’s and related forms of dementia on your loved one’s ability to make sound financial decisions, the sooner you can get financial matters in order the better.”

If a loved one has been diagnosed with Alzheimer’s disease or any other form of dementia, it is necessary to address legal and financial issues as soon as possible. The person’s ability to sign documents and take other actions to protect themselves and their assets will be limited as the disease progresses, so there’s no time to wait. This recent article “Financial steps to take when dealing with Alzheimer’s” from Statesville Record & Landmark explains the steps to take.

Watch for Unusual Financial Activity

Someone who has been sensible about money for most of his life may start to behave differently with his finances. This is often an early sign of cognitive decline. If bills are piling up, or unusual purchases are being made, you may need to prepare to take over his finances. It should be noted that unusual financial activity can also be a sign of elder financial abuse.

Designate a Power of Attorney

The best time to designate a person to take care of finances is before she shows signs of dementia. It’s not an easy conversation, but it is very important. Someone needs to be identified who can be trusted to manage day-to-day money matters, who can sign checks, pay bills and supervise finances. If possible, it may be easier if the POA gradually eases into the role, only taking full control when the person with dementia can no longer manage on her own.

An individual needs to be legally competent to complete or update legal documents including wills, trusts, an advanced health care directive and other estate planning documents. Once such individual is not legally competent, the court must be petitioned to name a family member as a guardian, or a guardian will be appointed by the court. It is far easier for the family and the individual to have this handled by an estate planning attorney in advance of incompetency.

An often-overlooked detail in cases of Alzheimer’s is the beneficiary designations on retirement, financial and life insurance policies. Check with an estate planning attorney for help, if there is any question that changes may be challenged by the financial institution or by heirs.

Cost of Care and How It Will Be Paid

At a certain point, people with dementia cannot live on their own. Even those who love them cannot care for them safely. Determining how care will be provided, which nursing facility has the correct resources for a person with cognitive illness and how to pay for this care, must be addressed. An elder law estate planning attorney can help the family navigate through the process, including helping to protect family assets through the use of trusts and other planning strategies.

If the family has a strong history of Alzheimer’s disease or other cognitive diseases, it makes sense to do this sort of preparation far in advance. The sooner it can be addressed, even long before dementia symptoms appear, the better the outcome will be.

Reference: Statesville Record & Landmark (April 11, 2021) “Financial steps to take when dealing with Alzheimer’s”

Have Estate Planning Conversations with Aging Parents

“Nearly half of working-age Americans assume that they will receive an inheritance that will support them later in life, according to a survey by the financial services company HSBC.”

Let’s start with this idea: maybe your parents are going to leave you a generous bequest as part of their estate plan. Do you know this for a fact, or is it wishful thinking? The only way to know, advises a recent article from Yahoo! Finance titled “How To Talk to Your Parents About Their Estate (Without Making It Awkward),” is to have a conversation, or a series of conversations. It’s not the first awkward conversation you’ll have with your parents, but it may be a bit stickier than you expect.

No matter how you approach it, this is a sensitive issue. How do you avoid appearing greedy or selfish? There is actually a lot more to know beyond the inheritance issue. You need to know how to ensure that your parents’ wishes are carried out, while they are living as well as after their deaths.

It will be helpful to be aware that the prospective inheritance amount may change over the course of your parents’ remaining lives. You also don’t want your parents thinking that you consider yourself entitled in any way to the assets they have built over the course of their lives.

Instead, start the conversation by talking about their estate plan. Explain that you want to be able to follow their instructions. You might reference an article or blog post that you have read about the importance of estate planning. You can also talk about your own estate plan, explaining that you have created an estate plan to protect your children and family members and to be sure that your instructions are followed.

Don’t be afraid to acknowledge how difficult this conversation is for you. Reassure them that you are not looking forward to their demise, but you have concerns about how things will work out when the time does come.

Depending upon your family dynamics, holidays may be a good time to address estate planning. This provides an opportunity for all family members to be included and for concerns and plans to be shared among involved siblings.

This does not mean discussing inheritances at the dinner table. Focus on what your parents’ wishes are and include a conversation about what values they would like to pass on to the next generation. If there are family histories or stories to share, this is also part of your inheritance.

Regardless of when or how you approach the topic, you do want to be sure your parents have a plan in place, so there is a path for whoever will be taking care of them and their assets. Ask if they have these key legal documents:

• A Last Will, also known as a Last Will and Testament
• A Power of Attorney to designate someone to make financial and legal decisions, if they are not able to do so for themselves.
• A Living Will or health care directive that will designate someone who can make healthcare decisions and address end of life care for them.

Ask where your parents keep these documents, and how you can find them when the time comes. Are they in your father’s night table, or in a lockbox in the attic? If they have a financial advisor or estate planning attorney, who is that person? You’ll need to be able to access the documents and speak with their estate planning attorney.

A few awkward moments now will help all of you as your parents, and you, move through the coming stages of life.

Reference: Yahoo! Finance (March 25, 2021) “How To Talk to Your Parents About Their Estate (Without Making It Awkward)”

Britney Spears’ Conservatorship Battle Continues

“The legal controversy surrounding Britney Spears is no secret. Her father has controlled her career and finances since 2008, a position she's been fighting against for years.”

The release of a documentary following the star’s rise to fame, public breakdown, and recent comeback has put the spotlight back on Spears and her father, Jamie Spears, as reported in the article “Britney Spears’ conservatorship, explained” from CBS News. Jamie was named her conservator, a court-appointed role that gave him control over her estate many years ago, and she has been fighting back ever since. A financial company acting as co-conservator is also in the mix.

What is a “conservatorship?” The legal definition of a conservatorship is a court decision where an individual or organization is appointed by a judge to manage the finances and other aspects for a person who has been deemed to be unable to care for themselves, manage their finances or make good decisions. The laws about conservatorship, like most estate planning laws, vary from state to state.

Conservatorship is generally granted as a first resort when someone is unable to take good care of themselves and there is no Power of Attorney or estate plan in place. An estate plan typically includes protections for a person when they become disabled. People who fail to have an estate plan with this type of protection end up in conservatorships and guardianships, sometimes with court-appointed strangers.

James Spears was appointed his daughter’s conservator in 2008, when Britney reportedly struggled with mental health issues and was hospitalized. A Los Angeles court made the conservatorship permanent, giving her father and the other co-conservator total control over both her finances and medical decisions. His argument is simple: under his direction, Britney’s estate has gone from being in debt to being valued at more than $60 million.

However, Britney does not want her father involved in her finances. In 2020, her court-appointed attorney requested that a qualified corporate fiduciary be named in his place. In 2021, a judge granted her wish to appoint Bessemer Trust as a co-conservator and she is still asking that Bessemer Trust become the sole conservator. Her attorney called her a “high-functioning” conservatee, who deserves to know what actions her father is taking, that she is afraid of him, and has not spoken to him in many years.

Clearly this is a high-stakes battle, but the issues are similar to many conservatorship and guardian cases that take place every day for non-celebrity families.

Conservatorships limit a person’s ability to advocate for themselves, to grow, develop and even learn from mistakes. Being locked into the permanent care of another person is not always in the best interest of the person who may need help for a period of tim, but may not need to have their personal autonomy forfeited permanently.

An estate plan addresses these issues in advance and can prevent stressful and costly court proceedings for the individual and for the family.

Reference: CBS News (Feb. 13, 2021) “Britney Spears’ conservatorship, explained”

How Do I Talk to the Children about My Estate Planning?

“Many baby boomers may hesitate to discuss money with their children, but the reality is that a massive amount of wealth will be transferred in the next couple of decades.”

Some $68 trillion will move between generations in the next two decades, reports U.S. News & World Report in the article “Discuss Your Estate Plan With Your Children.” Having this conversation with your adult children, especially if they are members of Generation X, could have a profound impact on the quality of your relationship and your legacy.

Staying on top of your estate plan and having candid discussions with your children will also have an impact on how much of your estate is consumed by estate taxes. The historically high federal exemptions are not going to last forever—even without any federal legislation, they sunset in 2025, which isn’t far away.

One of the purposes of your estate plan is to transfer money as you wish. What most people do is talk with an estate planning attorney to create an estate plan. They create trusts, naming their child as the trustee, or simple wills naming their child as the executor. Then, the parents drop the ball.

Talk with your children about the role of trustee and/or executor. Help them understand the responsibilities that these roles require and ask if they will be comfortable handling the decision making, as well as the money. Include the Power of Attorney role in your discussion.

What most parents refuse to discuss with their children is money, plain and simple. Children will be better equipped, if they know what financial institutions hold your accounts and are introduced to your estate planning attorney, CPA and financial advisor.

You might at some point forget about some investments, or the location of some accounts as you age. If your children have a working understanding of your finances, estate plan and your wishes, they will be able to get going and you will have spared them an estate scavenger hunt.

If possible, hold a family meeting with your advisors, so everyone is comfortable and up to speed.

Most adult children do not have the same experience with taxes as parents who have acquired wealth over their lifetimes. They may not understand the concepts of qualified and non-qualified accounts, step-up in cost basis, life insurance proceeds, or a probate asset versus a non-probate asset. It is critical that they understand how taxes impact estates and investments. By explaining things like tax-free distributions from a Roth IRA, for instance, you will increase the likelihood that your life savings aren’t battered by taxes.

Even if your adult children work in finance, do not assume they understand your investments, your tax-planning, or your estate. Even the smartest people make expensive mistakes, when handling family estates.

Having these discussions is another way to show your children that you care enough to set your own ego aside and are thinking about their future. It’s a way to connect not just about your money or your taxes, but about their futures. Knowing that you purchased a life insurance policy specifically to provide them with money for a home purchase, or to fund a grandchild’s college education, sends a clear message. Don’t miss the opportunity to share that with them, while you are living.

Reference: U.S. News & World Report (Feb. 17, 2021) “Discuss Your Estate Plan With Your Children”

Make Sure Your Estate Plan Protects Digital Assets

 

 

 

 

“Do you have accounts, records or information that are accessed using your mobile phone, through an internet connection, or by using a keyboard or through a touch-screen or tablet?”

 

Today’s estate plan needs to expressly declare an “agent” or a “fiduciary” to gain access and control of “digital assets” in case of incapacity or death. If your estate plan has not been updated in the last four or five years, it’s likely that your digital assets are unprotected, advises the article “Properly addressing digital assets on your estate plan” from Southern Nevada Business Weekly.
Digital assets have value not only to owners, but to family members, beneficiaries and heirs. Some assets have sentimental value, like videos and photos, while others, like business records, URLs and gaming accounts, have financial value. Failing to address these issues in an estate plan could result in your executor and heirs being denied access and control of digital assets during incapacity or death.
Here are some examples of digital assets:
· Email accounts–contain communications and history, including information about other digital assets.
· Social media accounts/apps: Facebook, Twitter, Pinterest, YouTube, TikTok, etc.
· Photo Sharing Accounts: Instagram, Shutterfly, Snapfish, Flickr, etc.
· Gaming and Gambling Accounts/Apps: DraftKings, Esports Entertainment
· E-Commerce Accounts/Apps: Amazon, PayPal, Etsy, PayPal, Venmo, etc.
· Financial Accounts/Apps: Banks, Scottrade, E*Trade
· Retail Accounts: Any store, online shopping that has a username and a password
· Security Information: Two factor authentication, mobile phone PIN/PW, facial recognition, etc.
Here’s a little-known fact: without the proper legal authority to access these assets, the “agent” or “fiduciary” could be committing a crime. The Consumer Fraud and Abuse Act provides that it is a federal crime to access a computer and obtain information without authorization or when exceeding authorized access.
Most states have adopted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA 2017). The Act contains specific language to be used in wills, trusts or power of attorney to name a “designated recipient” or “fiduciary” to access, control, transfer, or close digital assets upon incapacity or after death. RUFADDA also provides specific procedures for companies to disclose digital assets to a designated recipient or fiduciary.
If your estate planning assets do not address the issue of digital assets or do not use the specific language of RUFADDA, or generally if your estate planning documents were created before 2017, it’s time for a review that includes digital assets.
Even if all you have is a personal email account, you have digital assets to protect. It’s not a big problem to address them in your estate plan but can become a bigger program if they are neglected.
Reference: Southern Nevada Business Weekly (Sep. 17, 2020)“Properly addressing digital assets on your estate plan”

How Does the SECURE Act Change Your Estate Plan?

“These changes are so significant that every such plan holders should review their wishes and how their estate plans may be affected.”

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.

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