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Serving Southwest Florida

Helping clients plan for their family's future, by creating an efficient, thoughtful and comprehensive estate plan that preserves their legacy and gives them peace of mind.

What Happens to Debt when You Die?

When a person dies, it’s not unusual for them to leave behind some unpaid debt. What happens to that debt depends upon how their estate was organized, says the article “This is how your unpaid debts are handled if you pass away” from CNBC.com. The estate consists of whatever is owned, whether the person was wealthy or not. It includes financial accounts, real estate and personal possessions.

For surviving spouses, this can be worrisome. In most instances, they are not responsible for their spouse’s debt, but there are some exceptions. Here’s how it works.

Paying off all debts and then distributing the remaining assets is part of the probate process. Every state has its own laws regarding how long creditors have to make a claim against the estate. In some states, it’s a few months, in others it can last a few years. An estate planning attorney in your state will know how long the estate is vulnerable to creditors.

In most states, funeral expenses take priority, then the cost of administering the estate, followed by taxes and hospital and medical bills. However, not all assets are necessarily part of the estate, and this is where estate planning is important.

Life insurance policies, qualified retirement accounts and other assets with named beneficiaries go directly to the beneficiaries and do not pass through probate. The same goes for assets placed in trusts, as does jointly owned property, as long as it has been properly titled.

With the right planning, it is possible that an entire estate, including one that is insolvent, could be passed on to heirs outside of probate, leaving creditors high and dry. However, there are a handful of states that have “community property laws” that make debt more complicated.

The law in these states views both assets and certain debt accumulated during the marriage as being owned by both spouses, even if it is only in the decedent’s name. That includes debt like medical expenses or a mortgage. However, that’s not the final word. A well-structured letter with a copy of the death certificate can sometimes lead to the debt being discharged. During the probate process, the company holding the debt should be advised that the estate has little or no assets to cover the debt and ask that it be forgiven.

This does not apply to co-signing on a loan. Although the request can be made, it is not likely to be honored. Federal student loans are forgiven if the student dies, which seems a matter of kindness. Parent PLUS loans, which are loans taken out by parents to help pay for education, are usually discharged, if the student or parent dies.

Your estate planning attorney can help structure your estate to protect your surviving spouse and family members from creditors.

Reference: CNBC.com (July 31, 2020) “This is how your unpaid debts are handled if you pass away”

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What Happens If I Don’t Fund My Trust?

The revocable Trust is a powerful and efficient estate planning tool to avoid probate and reduce estate taxes. However, it is important to understand that the Trust is only effective for those assets that have been transferred to the Trust. You can pay a fortune for a terrific Trust agreement, but if your assets are not titled in the name of the Trust, they will still have to pass through probate to get to your heirs.

However, if it’s done properly, funding will avoid probate, provide for you in the event of your incapacity and save on estate taxes.

Forbes’s recent article entitled “Don’t Overlook Your Trust Funding” looks at some of the benefits of trusts.

Avoiding probate and problems with your estate. If you’ve created a revocable trust, you have control over the trust and can modify it during your lifetime. You are also able to fund it (transfer assets to the trust), while you are alive. You can fund the trust now or on your death. If you don’t transfer assets to the trust during your lifetime, then your Pour-Over Will must be probated, and an executor of your estate should be appointed. The executor will then have the authority to transfer the assets to your trust. This may take time and will involve court. In many cases, it defeats the purpose of your estate plan.  You can avoid this by transferring assets to your trust now, saving your family time and aggravation after your death.

Protecting you and your family in the event that you become incapacitated. Funding the trust now will let the successor trustee manage the assets for you and your family, if your become incapacitated. If a successor trustee doesn’t have access to the assets to manage on your behalf, a conservator may need to be appointed by the court to oversee your assets, which can be expensive and time consuming.

Taking advantage of estate tax savings. If you’re married, you may have created a trust that contains terms for estate tax savings. This will often delay estate taxes until the death of the second spouse, by providing income to the surviving spouse and access to principal during his or her lifetime while the ultimate beneficiaries are your children. Depending where you live, the trust can also reduce state estate taxes. You must fund your trust to make certain that these estate tax provisions work properly.

Remember that any asset transfer will need to be consistent with your estate plan. Your beneficiary designations on life insurance policies should be examined to determine if the beneficiary can be updated to the trust.

You may also want to move tangible items to the trust, as well as any closely held business interests, such as stock in a family business or an interest in a limited liability company (LLC). Ask an experienced estate planning attorney about the assets to transfer to your trust.

Fund your trust now to maximize your updated estate planning documents.

Reference: Forbes (July 13, 2020) “Don’t Overlook Your Trust Funding”

Suggested Key Terms: Estate Planning Lawyer, Wills, Probate Court, Inheritance, Asset Protection, Conservatorship, Trustee, Revocable Living Trust, Estate Tax, Beneficiary Designations

How Can I Use Estate Planning for My Small Business?

All business owners would like to live long enough to see their business become successful, but there are no guarantees.

Legal Scoops’ recent article entitled “3 Ways Estate Planning is Used in Small Business” says that estate planning can work to keep your dream alive and help keep your business thriving after your death. Let’s look at some ways that estate planning helps small business owners.

  1. Protection from Unfamiliar Owners with Buy-Sell Agreements. Small businesses are frequently partnerships between family members or friends. However, one of the owners will die before the other, and if this occurs, the business may be in jeopardy if a buy-sell agreement isn’t in place. Buy-sell agreements can make certain that family members of the deceased don’t gain control of the business. It also automatically allows other owners to buy the owner’s share in the company.
  2. Implementation of a Succession Plan. A succession plan can identify and develop new leaders and key people to fill business objectives. Succession plans are implemented long before an owner’s death, so their wishes can be upheld. A succession plan can also decrease the chance of family arguments that come after a person’s death.
  3. Elimination of Unnecessary Taxes. A business that’s operational and successful will have assets and significant tax burdens for heirs. If a majority of your wealth is tied into a business, you must take action to help remove these unnecessary tax burdens from your business. Business owners can do one of the following:
  • Gift family members shares in the business, while they’re still alive
  • Redeem stocks at a lower tax rate than cash; or
  • Estate taxes can pay estate taxes in installments.

When a business is illiquid, heirs may not be able to pay the 35% – 50% estate tax on the business.

To help you with your business succession planning, contact an experienced estate planning attorney to make certain that your family is financially sound after your death and that your legacy continues on with your family business.

Reference: Legal Scoops (July 14, 2020) “3 Ways Estate Planning is Used in Small Business”

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What Do I Need besides a Designation of Health Care Surrogate for Healthcare?

In Florida, a Designation of Health Care Surrogate (DHCS) is a durable power of attorney for healthcare. This document lets a trusted friend or family member serve as your agent to make important and necessary healthcare decisions, if you become incapacitated or unable to communicate or participate in care.

Forbes’s recent article entitled “For Medicare, Having A Power Of Attorney Is Not Enough” explains that with COVID-19, this is very important. The risk for severe illness from this disease increases with age, and hospitals aren’t permitting visitors. This lack of access can create some major challenges in managing a family, dealing with critical business issues and paying bills.

Here’s one more: powers of attorney don’t stand alone, when it comes to dealing with Medicare issues. Medicare requires a beneficiary’s written permission to use or provide personal medical information for any purpose not defined in the privacy notice contained in the Medicare & You handbook. A competent person can complete the form, call the “1-800-MEDICARE Authorization to Disclose Personal Health Information.” When needed, the representative is then authorized to talk with Medicare, research and choose Medicare coverage, handle claims and file an appeal.

Make sure that you’ve authorized Medicare to release information to family or an agent. You should also see if the authorization applies for a specified period of time or indefinitely. You must mail the completed form to Medicare. You can revoke this authorization at any time. For those who are no longer able to give consent, their personal representative can complete the form and attach a duly executed power of attorney.

There’s another authorization to address. It concerns individual Medicare plans – Medicare Advantage, Part D prescription drug, or Medicare supplement. Every plan has an authorization form that gives the authority to speak to plan representatives about claims or coverage, update contact information and more, depending on the individual plan.

To begin this process, check the plan’s member information or talk to a customer service representative.

You never know what’s in the future, so take the time now to prepare. You should take these three important steps.

  1. Establish or update your financial power of attorney and designation of health care surrogate.
  2. Identify and name an authorized Medicare representative; and
  3. Contact your Medicare plan(s) and fill out the authorization forms.

Reference: Forbes (August 4, 2020) “For Medicare, Having A Power Of Attorney Is Not Enough”

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Avoid These Mistakes with Your Estate Plan

Estate planning means putting together a plan on paper, following the letter of the law, when it comes to what should happen to assets when you die. It also includes your decision regarding who will care for your children, who will make decisions on your behalf if you are unable and what kind of care you do or don’t want, when you are seriously ill or injured. It doesn’t have to be difficult, but according to the article “10 Mistakes Often Made When Estate Planning” from SavingAdvice.com, there are ten classic mistakes to avoid.

1—Thinking you don’t have an estate and not having an estate plan. Your estate is whatever you own: a house, regardless of its size, a car, personal items, financial accounts, pets and any items that have monetary or sentimental value. You might think your family will just figure things out when you die. In most cases, they won’t, or not easily. That creates a burden for them.

2—Thinking only about after death. Most of what is done in estate planning does concern what happens after you die, but it also includes protection for you and loved ones while you are living. Certain documents are created to protect you, if you become incapacitated. It also includes life insurance, disability insurance and long-term care insurance.

3—Not making sure all of your estate planning documents work together. Let’s say you have a life insurance policy and the beneficiary is your first husband. If you remarry, you need to update that form. What if you named someone to be your beneficiary on retirement accounts, but you have learned since you named them that the person won’t be able to manage the money? An estate planning attorney can help you put all of the pieces together to work correctly.

4—Not planning for minor children. If you have children who are under age 18, your estate plan is the document that tells the court two very important things: who you want to raise them (to be their guardian) and who you want to be in charge of the money left for their care.

5—Not taking advantage of trusts. A revocable trust gives you control over assets while you are alive, but passes control to a beneficiary when you die. It, therefore, avoids probate for the assets in the trust. However, if you don’t do this correctly, you’ll create more problems than you solve.

6—Forgetting about taxes. An estate plan helps minimize taxes for your estate and for your heirs. Otherwise, your heirs could receive far less, and Uncle Sam will receive far more than you wanted.

7—Failing to set aside adequate liquid assets. When you die, your loved ones will need to pay for a funeral, which are very expensive. Or you may own a business that you left to heirs—they may need a certain amount of cash to continue operating, while things are being settled. Make arrangements, so you don’t leave loved ones or business partners high and dry.

8—Avoiding the tough conversations while you’re alive. Maybe you want to leave your children the family home, but they don’t want it. You may also want to be sure they take your ancient Pekinese dog, who they never warmed up to. Talk with your heirs about your wishes and understand if your wishes are not the same as theirs. Adjust your estate plan accordingly.

9—Overlook the concept of secondary beneficiaries and executors. If you have three children and name only one as a beneficiary, what happens if that one dies? The same goes for naming an executor. You’ll want to name a primary and a secondary executor, and multiple beneficiaries.

10—Thinking estate planning is done once and finished forever. Estate planning is never really done, until you die. Life changes, your relationships change and assets change. Just as you do your taxes once a year, you should review your estate plan every time there is a big change in your life or every three or four years.

Reference: SavingAdvice.com (July 24, 2020) “10 Mistakes Often Made When Estate Planning”

Suggested Key Terms: Estate Plan, Minor Children, Guardianship, Beneficiaries, Executor, Estate Planning Attorney, Trusts, Taxes, Life Insurance

How Can I Avoid Family Fighting in My Estate Planning?

It’s not uncommon for parents to modify their first estate plans, when their children become adults. At that point, many parents’ estate plans are designed to help efficiently transfer assets to the surviving spouse and ultimately to the adult children. However, this process can encounter a number of hiccups and headaches.

Forbes’ recent article entitled “Three Steps To Estate Planning Without The Family Friction” explains that there are a number of reasons for sibling animosity in the inheritance process. The article says that frequently there are issues that stem from a lack of communication between siblings, which causes doubts as to how things are being done. In addition, siblings may not agree if and how property should be sold and maintained. To help avoid these problems, use this three-step process for estate planning.

Work with an experienced estate planning attorney. Hire an estate attorney who has many years of working in this practice area. This will mean that they’ve seen—and more importantly—resolved every type of family conflict and problem that can arise in the estate planning process. That’s the know-how that you’re really paying for, in addition to his or her legal expertise in wills and trusts.

Create a financial overview. This will help your beneficiaries see what you own. A financial overview can simplify the inheritance process for your executor, and it can help to serve as the foundation for you and your executor to frankly communicate with future beneficiaries to reduce any lingering doubts or questions that they may have, when they’re not in the loop. Your inventory should at least include the following items:

  • A list of all assets, liabilities and insurance policies you have and their beneficiaries
  • Contact information for all financial, insurance and legal professionals with whom you partner;
  • Access information for any websites your beneficiaries may need for your online accounts; and
  • A legacy letter that discusses non-financial items for your children.

Hold a family meeting. Next, conduct a family meeting that includes the parents and the children who will be inheriting assets. Some topics for this meeting include:

  • The basics of your estate intentions
  • Verify that a trusted person knows the location of your important estate documents
  • State who your executor and other involved people will be and your rationale
  • Make certain that all parties value communication and transparency during this process; and
  • Discuss non-financial legacy items that are important for you to give to your children.

This three-step process can help keep your children’s relationships intact after you are gone. Hiring an experienced estate planning attorney, creating a clear financial overview and communicating what’s important to you are critical steps in helping to keep your family together.

Reference: Forbes (July 2, 2020) “Three Steps To Estate Planning Without The Family Friction”

Suggested Key Terms: Estate Planning Lawyer, Inheritance, Asset Protection, Executor, Legacy Letter, Letter of Last Instruction

A Non-Medical Check Up – For Your Estate Plan

An estate plan isn’t just for you—it’s for those you love. It should include a will and possibly, trusts, a power of attorney for financial affairs and a health care directive. As many as 60% of all Americans don’t have a will. However, the COVID-19 crisis has highlighted for everyone the need to have those documents. For those who have an estate plan, the need for a tune-up has become very clear, says the article “Time for a non-medical checkup? Review your will” from the Pittsburgh Post-Gazette.

With any significant change in your life, a review of your estate plan is in order. Keep in mind that none of your estate planning documents are written in stone. They should be changed when your life does. COVID-19 has also changed many of our lives. Let’s take a look at how.

Has anyone you named as a beneficiary died, or become estranged from you? Will everyone who is a beneficiary in your current estate plan still receive what you had wanted them to receive? Are there new people in your life, family members or otherwise, with whom you want to share your legacy?

The same applies to the person you selected as your executor. As you have aged over the years, so have they. Are they still alive? Are they still geographically available to serve as an executor? Do they still want to take on the responsibilities that come with this role? Family members or trusted friends move, marry, or make other changes in their lives that could cause you to change your mind about their role.

Over time, you may want to change your wishes for your children, or other beneficiaries. Maybe ten years ago you wanted to give everyone an equal share of an inheritance, but perhaps circumstances have changed. Maybe one child has had career success and is a high-income earner, while another child is working for a non-profit and barely getting by. Do you want to give them the same share?

Here’s another thought—if your children have become young adults (in the wink of an eye!), do you want them to receive a large inheritance when they are young adults, or would you want to have some control over when they inherit? Some people stagger inheritances through the use of trusts, and let their children receive significant funds, when they reach certain ages, accomplishments or milestones.

Have you or your children been divorced, since your estate plan was last reviewed? In that case, you really need to get that appointment with an estate planning attorney! Do you want your prior spouse to have the same inheritance you did when you were happily married? If your children are married to people you aren’t sure about, or if they are divorced, do you want to use estate planning to protect their inheritance? That is another function of estate planning.

Taking out your estate plan and reviewing it is always a good idea. There may be no need for any changes—or you may need to do a major overhaul. Either way, it is better to know what needs to be done and take care of it, especially during a times like the one we are experiencing right now.

Reference: Pittsburgh Post-Gazette (July 27, 2020) “Time for a non-medical checkup? Review your will”

Suggested Key Terms: Will, Trusts, Power of Attorney, Health Care Directive, Estate Planning Lawyer, Divorce, Inheritance, Executor

What Basic Estate Planning Documents Do I Need?

AARP’s recent article entitled “Sign These Papers” suggests that the following documents will give you and your family financial protection, as well as peace of mind.

Advance Directive. This document gives your family, loved ones and medical professionals your instructions for your health care. A living will, which is a kind of advance directive, details the treatment you’d like to have in the event you’re unable to speak. It covers things like when you would want doctors to stop treatment, pain relief and life support. Providing these instructions helps your family deal with these issues later.

Durable Power of Attorney for Health Care. This document, regularly included in an advance directive, lets you name a trusted person (plus a backup or two) to make medical decisions on your behalf, when you’re unable to do so.

Revocable Living Trust. Drawn up correctly by an experienced estate planning attorney, this makes it easy to keep track of your finances now, allow a trusted person step in, if necessary, and make certain that there are fewer problems for your heirs when you pass away. A revocable living trust is a powerful document that allows you to stay in control of all your finances as long as you want. You can also make changes to your trust as often as you like.

When you pass away, your family will have a much easiest task of distributing the assets in the trust to your beneficiaries. Without this, they’ll have to go through the probate process.  It can be a long and possibly costly process, if you die with only a will or intestate (i.e., without a will).

Will. Drafting a will with the guidance of an experienced estate planning attorney lets you avoid potential family fighting over what you’ve left behind. Your will can describe in succinct language whom you want to inherit items that might not be in your trust — your home or car, or specific keepsakes, such as your baseball card collection and your Hummel Figurines.

Durable Financial Power of Attorney. If you’re alive but incapacitated, the only way a trusted person, acting on your behalf, can access an IRA, pension or other financial account in your name is with a durable financial power of attorney. Many brokerages and other financial institutions have their own power of attorney forms, so make sure you ask about this.

These five documents (sometimes four, if your advance directive and health care power of attorney are combined) help you enjoy a happier, less stressful life.

In drafting these documents, you know that you’ve taken the steps to make navigating the future as smooth as possible. By making your intentions clear and easing the inheritance process as much as you possibly can, you’re taking care of your family. They will be grateful that you did.

Reference: AARP (August/September 2018) “Sign These Papers”

Suggested Key Terms: Estate Planning Lawyer, Wills, Intestacy, Probate Court, Inheritance, Asset Protection, Capacity, Revocable Living Trust, Power of Attorney, Healthcare Directive, Living Will, Probate Attorney

Which Stars Made the Biggest Estate Planning Blunders?

Mistakes in the estate planning of high-profile celebrities are one very good way to learn the lessons of what not to do.

Forbes’ recent article entitled “Eight Lessons From Celebrity Estates” discussed some late celebrities who made some serious experienced estate planning blunders. Hopefully, we can learn from their errors.

James Gandolfini. The “Sopranos” actor left just 20% of his estate to his wife. If he’d left more of his estate to her, the estate tax on that gift would have been avoided in his estate. But the result of not maximizing the tax savings in his estate was that 55% of his total estate went to pay estate taxes.

James Brown. One of the hardest working men in show business left the copyrights to his music to an educational foundation, his tangible assets to his children and $2 million to educate his grandchildren. Because of ambiguous language in his estate planning documents, his girlfriend and her children sued and, years later and after the payment of millions in estate taxes, his estate was finally settled.

Michael Jackson.  Jackson created a trust but never funded the trust during his lifetime. This has led to a long and costly battle in the California Probate Court over control of his estate.

Howard Hughes. Although he wanted to give his $2.5 billion fortune to medical research, there was no valid written will found at his death. His fortune was instead divided among 22 cousins. The Hughes Aircraft Co. was bequeathed to the Hughes Medical Institute before his death and wasn’t included in his estate.

Michael Crichton. The author was survived by his pregnant second wife, so his son was born after his death. However, because his will and trust didn’t address a child being born after his death, his daughter from a previous marriage tried to cut out the baby boy from his estate.

Doris Duke. The heir to a tobacco fortune left her $1.2 billion fortune to her foundation at her death. Her butler was designated as the one in charge of the foundation. This led to a number of lawsuits claiming mismanagement over the next four years, and millions in legal fees.

Casey Kasem. The famous DJ’s wife and the children of his prior marriage fought over his end-of-life care and even the disposition of his body. It was an embarrassing scene that included the kidnapping and theft of his corpse.

Prince and Aretha Franklin. Both music legends died without a will or intestate. This has led to a very public, and in the case of Prince, a very contentious and protracted settlement of their estates.

So, what did we learn? Even the most famous (and the richest) people fail to carefully plan and draft a complete estate plan. They make mistakes with tax savings (Gandolfini), charities (Brown and Hughes), providing for family (Crichton), whom to name as the manager of the estate (Duke) and failing to prevent family disputes, especially in mixed marriages (Kasem).

If you have an estate plan, be sure to review your existing documents to make certain that they still accomplish your wishes. Get the help of an experienced estate planning attorney.

Reference: Forbes (July 16, 2020) “Eight Lessons From Celebrity Estates”

Suggested Key Terms: Estate Planning Lawyer, Wills, Intestacy, Probate Court, Inheritance, Asset Protection, Will Changes, Executor, Trusts, Trustee, Estate Tax, Charitable Donation, Tax Planning

How Do I Survive My 50s?

More than 50% of the workers who entered their 50s with stable, full-time jobs were laid off or forced out at least once by age 65, according to an analysis of employment data from 1990 to 2016 by the nonprofit newsroom ProPublica and the Urban Institute. Only one in 10 of those who lost a job ever found another that paid as much, and most never recovered financially.

Considerable’s recent article entitled “5 strategies for navigating your most dangerous decade” says that these realities make it critical that you have a plan for surviving what could be your most dangerous decade.

Stay current in your field. You may want to just ease into retirement and switch to auto pilot in your last few years of your career. However, older workers who aren’t proactively updating and increasing their skill sets are more likely to be laid off. They may be the first to go. Seek out training opportunities at work and volunteer for new assignments. You can also ask to be both “a mentor and mentee,” where a younger co-worker helps you stay up-to-date with the latest technologies used by your office, and you can share you knowledge of the company and industry with them.

Save early, save often. “Catch up” provisions were added to help workers supercharge their savings in the years right before retirement. As a result, in 2020, workers who are age 50 and older can contribute up to $26,000 to workplace retirement plans, like a 401(k)s, compared with the limit of $19,500 for younger workers. This may motivate you to start saving as soon as possible and to increase your savings rate, whenever you can. It’s also a good idea to bolster your emergency fund. The average length of unemployment for people 45 to 54 is about five months. In this pandemic and down economy, the time may be even longer.

No more borrowing. Many people see their ability to save blocked, because of debt. Limiting how much you owe as you get older, can provide you with more financial flexibility. If you’re refinancing a mortgage, get a loan term that lets you be debt free by retirement or earlier. Use care in borrowing money for education, either for yourself or a child, because those obligations typically can’t be discharged in bankruptcy and could be hard to pay back, if you lose your job.

Cut the cord. More than a few parents provide their adult children with some financial support—typically for household expenses not an emergency. These continuous gifts may wreak havoc with your financial health, as well as theirs. Create some clear financial boundaries you help you wean them off the distribution of the “Bank of Mom and Dad” welfare checks.

Move quickly. You may find another job soon, if you lose your current one. If so, move ahead like you won’t by cutting non-essential spending, asking lenders about possible forbearance or hardship programs and staying in touch with your network.

Reference: Considerable (August 1, 2020) “5 strategies for navigating your most dangerous decade”

Suggested Key Terms: Financial Planning, Retirement Planning