Estate Planning

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 is Tenancy by the Entirety?

Choosing an ownership structure for real estate is is an important decision. As a result, it is crucial to understand the options.  Among them, tenancy by the entirety is an ownership form unique to married couples.  Motley Fool’s recent article entitled “What is Tenancy by the Entirety?” explains that the only owners of the property must be both spouses of a legally married couple. To create a tenancy by the entirety, property would have to be acquired by both husband and wife at the same time.  It is important that they are married at the time of the acquisition.  If, for example, the two persons took title to property jointly and then were married a week later, the property would not be entireties property.

With a tenancy by the entirety, both spouses have an equal, undivided ownership interest in the entire property.  It doesn’t matter what portion of the purchase price came from each spouse. Both spouses also have equal rights, when it comes to actions involving the property, like whether to sell the property. If one of the spouses or owners dies while the property is owned under a tenancy by the entirety, the surviving spouse automatically becomes the sole owner of the home, even if the will of the decedent spouse distributes the property to somebody else.

If there’s a divorce, a tenancy by the entirety can be cancelled. If the divorced spouses continue to own the property, the arrangement will revert to tenants in common. This lets each owner sell or transfer their interest in the property to whomever they want. The property’s ownership structure could also be changed from tenancy by the entirety to another type, if both spouses agree to it.

Tenancy by the entirety has two main advantages for married couples: asset protection and survivorship. Tenancy by the entirety helps protect the property from the debts of one spouse. Creditors can’t attach a lien on a house owned as tenancy by the entirety, unless the debt is in the names of both spouses. Tenancy by the entirety makes the owner of the house a separate legal entity from either spouse. It also avoids a costly and lengthy probate process because title to the home transfers automatically to the surviving spouse upon one spouse’s death.

While tenancy by the entirety is available in Florida, it isn’t available in all states. Some owners also don’t like the fact that each spouse owns a 50% share, even if one spouse paid the entire cost of acquiring the home.

There are a few other ways to own property. Here are some of the most commonly used methods for properties purchased for more than one adult tenant to live in:

Tenants in Common.   This is a type of ownership in which two or more persons or entities owned an undivided interest in property. Unlike tenancy by the entirety, tenants in common do not have to own equal shares of the property, and upon one owner’s death, his or her ownership interest will be distributed pursuant to his will or intestate probate proceedings.

Joint Tenants with Rights of Survivorship (JTWROS).  This is similar to tenancy by the entirety. Like tenancy by the entirety, JTWROS-held properties also pass to the survivor in the event of one spouse’s death. However, JTWROS isn’t limited to married couples, and there can be two or more owners. Each one has an equal interest in the property, but unlike tenancy by the entirety property, each owner has the right to sell or transfer their ownership interest to another. Another difference is that JTWROS owners aren’t considered to be a separate and single legal entity—each owner’s creditors can go after the property, even for debts that are owned by a single debtor spouse.

Sole Ownership. With sole ownership, just one person holds title to a property. It is often used when a single individual purchases a home. However, it can also be used if a married couple buys a home, but only one spouse will legally own it. A big advantage of sole ownership is its simplicity—the owner is able to make any decisions about the property on their own. However, transfer of ownership when a sole owner dies can be more complicated than any of the other ownership structures above.

Tenancy by the entirety has several key benefits for married couples, in states where it’s permitted. Review these with an experienced estate planning attorney before deciding.

Reference: Motley Fool (Aug. 23, 2020) “What is Tenancy by the Entirety?”

 

Keeping the Elderly Safe in the Pandemic

When it comes to keeping the elderly safe in the pandemic, a survey of our oldest generations showed they were found to be more distrustful of senior living and care operators than younger generations.

Nearly half (49.5%) of baby boomers said they don’t trust senior living and care providers to keep residents safe, while 43.9% of the Silent Generation reported the same distrust.

Younger people are more trusting: 42.3% of Generation X reported distrust, 31.8% of millennials and 38.2% of Generation Z.

McKnight Senior Living’s recent article entitled “41% don’t trust assisted living, nursing homes to keep residents safe during pandemic: survey” notes that 43.1% of baby boomers responded that they trust facilities “somewhat,” as did 51.4% of the Silent Generation respondents.

Some of this mistrust may come from the extensive media coverage of coronavirus deaths in nursing homes because senior residents are especially vulnerable to the illness.

Some say that it goes further than that: the quarantine and social distancing has added to families’ stress and anxiety over the safety and mental well-being of the seniors who live in these facilities because they aren’t able to visit as often as they want.

An online survey from ValuePenguin.com and LendingTree of more than 1,100 Americans recently found that COVID-19 has generated a rush of loneliness and worry among older adults.

According to the results, 36% of older adults feel lonelier than ever. In addition, more than 70% of seniors said that they have worries about the virus’ effects on their younger relatives. Those concerns were equally expressed by younger generations for their older relatives. Almost 50% of both age groups are worried that their relatives will catch the virus.

However, the pandemic looks to have a silver lining for family communications. An overriding sense of concern for the mental and physical health of elderly loved ones has led to more contact since the pandemic began.  Family members have become more involved with keeping the elderly safe.

Nearly 44% of the younger survey-takers stated they’ve spoken to their older relatives more frequently during the pandemic, about 25% of young people reported visiting their older relatives in person more frequently.

The top request from respondents aged 75 and older to their loved ones, is to call more frequently.

This increased communication can also lead to involving younger generations in the estate planning of their parents.

Reference: McKnight Senior Living (Sep. 11, 2020) “41% don’t trust assisted living, nursing homes to keep residents safe during pandemic: survey”

Suggested Key Terms: Elder Law Attorney, Long-Term Care Planning, Assisted Living, Nursing Home Care, Elder Care, Caregiving

Secrets to Selecting a Trustee

The trustee is tasked with caring for and distributing the assets in the trust for one or more beneficiaries.  This article will reveal some secrets to selecting a trustee.

It is the trustee who handles all the necessary paperwork and sees that tax returns are filed.

FedWeek’s recent article entitled “Your Options for Selecting a Trustee” explains that probate and trust law creates a fiduciary responsibility, so the trustee is accountable to the trust beneficiaries and must serve the beneficiaries’ best interests. Here are the types of trustee one can select:

Individual trustee: this can be a friend or relative who’s probably familiar with everyone involved and may well make the decisions desired by you, the trust creator. If you decide to go with an individual, make sure you choose someone who is trustworthy. It’s the most important qualification in selecting a trustee. Ask yourself if this a is person who I can trust unconditionally to carry out my wishes when I’m gone. You also need to be certain that your trustee is financially responsible. The reason is that a trustee’s duties will include handling your financial accounts and being responsible for your investments. Therefore, finding a person who’s proven themselves to be financially responsible is critical. A trustee needs to deal with financial accounts, as well as the responsibility of accounting to the trust beneficiaries regarding all assets, income and expenses of a trust. Therefore, basic record keeping skills are required. Finally, you need someone who’s available. Select a trustee who’s likely to be available when the need for his or her services arises. Age, health, job demands and location are all things to take into account, when selecting a trustee.

Institutional trustee: a local bank or trust company might have the resources to manage your assets. They also will have the staying power to handle long-term trusts.

You can also set up a combination of the two. You could designate an institution and an individual as co-trustees. by selecting a trustee that way, you may get financial expertise and personal attention. If discretionary decisions are permitted, you can leave instructions that both co-trustees must agree.

You can also add “trustee removal” powers into the terms of the trust to reduce the risk that a trustee will prove to be unsatisfactory. A majority vote of adult income beneficiaries may be enough to get a new trustee. That person must be an unrelated person or institution.

When you name an individual as trustee or co-trustee, again make certain that he or she is qualified to do the job, then get his or her consent.

You should also designate a successor trustee, just in case your first choice is unable or unwilling to serve.

For more information about selecting a trustee, schedule a call with our office at (941) 473-2828

Reference: FedWeek (Aug. 13, 2020) “Your Options for Selecting a Trustee”

Suggested Key Terms: Estate Planning Lawyer, Inheritance, Asset Protection, Trusts, Trustee

Sharing Your Inheritance

Sharing your inheritance doesn’t sound like a bad idea, right?

However, Morningstar’s recent article entitled “3 Strategies to Consider When Sole Beneficiaries Want to Share the Wealth” says that there are a few hurdles to clear, such as the IRA administrator’s policies, income tax consequences, transfer tax consequences and the terms of the decedent’s will.

Here’s a scenario: Uncle Buck dies and leaves his IRA to his niece, Hope. Buck’s will leaves all his other assets equally to all three of his nieces: sisters Hope, Faith and Charity. However, the three agree that Buck’s IRA should be shared equally, like the rest of the estate. What do they do?

The Easy Way. Hope keeps the IRA, withdraws from it when she wants (and as required by the minimum distribution rules), pays the income tax on her withdrawals and makes cash gifts to Faith and Charity (either now or as she withdraws from the IRA) in an agreed upon the amount. It would mean giving her two sisters ⅓ of the after-tax value of the IRA. There is no court proceeding or issue with the IRA provider. There are no income tax consequences because Hope will pay the other girls only the after-tax value of the IRA distributions she receives. However, there’s a transfer tax consequence: Hope’s transfers would be considered as gifts for gift tax purposes because she has no legal obligation to share the IRA with the other nieces. Any gift over the annual exclusion amount in any year ($15,000 as of 2020) will be using up some of Hope’s lifetime gift and estate tax exemption. This easy method sharing your inheritance may work well for a not-too-large inherited IRA.

The Expensive Method: Reformation. If there is evidence that Buck made a mistake in filling out the beneficiary form, a court-ordered reformation of the document may be appropriate. Therefore, if Hope, Faith, and Charity have witnesses who would testify that the decedent told them shortly before he died, “I’m leaving all my assets equally to my three nieces,” it could be evidence that he made a mistake in completing the beneficiary designation form for the IRA. The court could order the IRA provider to pay the IRA to all three girls, and the IRS would probably accept the result. By accepting the result, the IRS would agree that the nieces should be equally responsible for their respective shares of income tax on the IRA and for taking the required distributions, and that no taxable gift occurred. However, as you might expect, the IRS isn’t legally bound by a lower state court’s order. If the reformation is based on evidence, the parties may want the tax results confirmed by an IRS private letter ruling, which is an expensive and time-consuming task.

The In-Between. The final possible solution for sharing your inheritance is a qualified disclaimer. Hope would “disclaim” two thirds of the IRA (and keep a third). A qualified disclaimer (made within nine months after Buck’s death) would be effective to move two thirds of the IRA (and the income taxes) from Hope without gift taxes. A qualified disclaimer involves a legal fee but no court or IRS involvement. As a result, it can be fairly simple and cost-effective. However, there may be an issue: when Hope disclaims two thirds of the IRA, that doesn’t mean the disclaimed share of the IRA automatically goes to the other nieces. Instead, the disclaimed portion of the IRA will pass to the contingent beneficiary of the IRA. Hope needs to see where it goes next, prior to signing the disclaimer. If there’s no contingent beneficiary named by Buck, the disclaimed portion will pass to the default beneficiary named in the IRA provider’s plan documents. That’s typically the decedent’s probate estate. If the disclaimed portion of the IRA passes to the uncle’s estate, and Hope is a one-third beneficiary of the estate, she will also need to disclaim her estate-derived share of the IRA. A “simple disclaimer” can be complicated, so ask an experienced estate planning attorney to help.

Even if Hope disclaims two thirds of the IRA, so that it passes to Faith and Charity through the estate, the other girls won’t receive as favorable income tax treatment as Hope. Hope inherits her share as designated beneficiary, while an estate (the assumed default beneficiary), which isn’t a designated beneficiary, can’t qualify for that.

Reference: Morningstar (Aug. 13, 2020) “3 Strategies to Consider When Sole Beneficiaries Want to Share the Wealth”

Suggested Key Terms: Estate Planning Lawyer, Wills, Probate Court, Inheritance, Asset Protection, Probate Attorney, Estate Tax, Gift Tax, Unified Federal Estate & Gift Tax Exemption, Beneficiary Designations, Required Minimum Distribution (RMD), Tax Planning, Financial Planning, IRA

The Truth About the Disinherited Child

Disinheriting a child as an heir happens for a variety of reasons. There may have been a long-running dispute, estrangement over a lifestyle choice, or not wanting to give assets to a child who squanders money. What happens when a will or trust has left a child without an inheritance is examined in an article from Lake County News, “Estate Planning: Disinherited and omitted children.”

Circumstances matter. Was the disinherited child born or adopted after the decedent’s estate planning documents were already created and executed? In certain states, including Florida, a child who was born or adopted after documents were executed (legally referred to as a “pretermitted child,” is by law entitled to a share in the estate. There are exceptions. Was disinheriting the child the decedent’s intent, and is there language in the will making that clear? Did the decedent give most or all of the estate to the other parent? Did the decedent otherwise provide for the disinherited child and was there language to that effect in the will? For example, if a child was the named beneficiary of a $1 million life insurance policy, it is likely this was the desired outcome.

Another question is whether the decedent knew of the existence of the child, or if they thought the child was deceased. In certain states, the law is more likely to grant the child a share of the estate.

Actor Hugh O’Brien did not provide for his children, who were living when his trust was executed. His children argued that he did not know of their existence, and had he known, he would have provided for them. His will included a general disinheritance provision that read “I am intentionally not providing for … any other person who claims to be a descendant or heir of mine under any circumstances and without regard to the nature of any evidence which may indicate status as a descendant or heir.”

The Appellate Court ruled against the children’s appeal for two reasons. One, the decedent must have been unaware of the child’s birth or mistaken about the child’s death, and two, must have failed to have provided for the unknown child solely because of a lack of awareness. The court found that his reason to omit them from his will was not “solely” because he did not know of their existence, but because he had no intention of giving them a share of his estate.

In this case, the general disinheritance provision defeated the claim by the disinherited children, since their claim did not meet the two standards that would have supported their claim.

This is another example of how an experienced estate planning attorney creates documents to withstand challenges from unintended outcomes. A last will and testament or revocable trust is created to defend the estate and the decedent’s wishes.

Reference: Lake County News (Aug. 22, 2020) “Estate Planning: Disinherited and omitted children”

 

What Do I Do After My Spouse’s Death?

Investment News’ recent article entitled “When a spouse passes away” provides some thoughts on how to prioritize the essential responsibilities after a spouse’s death, so grieving spouses aren’t overwhelmed with the number of tasks involved. This can include contacting insurance companies, Social Security, Medicare and banks, along with the funeral planning and dealing with family needs.

  1. Don’t go it alone. Get some help from your siblings, children, or friends. It is a stressful time, so don’t be afraid to recognize when you need help and assign some of the jobs. In most cases, family members will want the opportunity to help. This lets them participate in honoring the person you’ve lost and ensure that all responsibilities are fulfilled. It can include contacting family and friends and helping prepare for the funeral.
  2. Don’t rush. There are just a few things you need to accomplish within the first week, like planning for funeral services, looking into veteran benefits, if applicable, notifying friends and family and requesting 10 to 15 death certificates from the funeral home. That is because each financial institution or insurer will want an original death certificate. You should also be contacting your estate planning attorney for guidance, if there are any special things that need to be done according to your spouse’s will.

Within the first few weeks after the passing of your spouse, contact their health insurance provider and Medicare to tell them of your spouse’s death, so you can stop paying premiums. Call your spouse’s employer (if applicable, to ask if there were death benefits or other benefits or eligible pensions). Contact your financial adviser to review your financial accounts and confirm any automatic distributions that might be set up. Call life insurance companies, if your spouse had life insurance policies, as well as other insurance companies with which you have policies for property and casualty (home and auto), long-term care and disability coverage. Review bank accounts, bills and credit cards to confirm all expenses are either set up to be paid automatically or will be paid on time. You also need to have access to your spouse’s phone and email accounts to confirm that you are seeing and reviewing all financial notifications.

  1. Work with an experienced estate planning attorney. Your lawyer can help guide you through the most difficult time of your life. He or she will be able to advise on the issues you need to prioritize, especially to ensure that your finances are still in line, not only for you but for future generations. Make certain to include a family member or friend on your phone calls or meetings to help take notes and guide the conversation. That way, you don’t have to remember everything. Ask that these meetings are memorialized in a follow up email.
  2. Things will be different. After the services and the initial mourning period are over, you may be alone for some time. That’s a big change for many people who lose a spouse. Keep regular communication with friends and family. Consider grief counseling and make regular plans to get yourself out of the house.
  3. There can be a ton of paperwork. There will be busy work, like changing the name on car titles, utility bills, insurance policies, investment accounts, bank accounts and phone bills, as well as administering your family trusts and making updates to your own estate planning documents.

You need to give yourself plenty of time and space to grieve, rest and remember your loved one.

Reference: Investment News (Aug. 11, 2020) “When a spouse passes away”

 

What Is Estate Planning and Is It for Everyone?

A key objective of estate planning is to make certain that your assets go to those you want, rather than distant family. It also can minimize taxes, so your beneficiaries can keep more of your wealth. Finally, sound estate planning can decrease family fighting and provide clear end-of-life directives, if you become incapacitated before you die.

Bankrate’s recent article entitled “What is estate planning?” gives us a look at estate planning and why you absolutely need it, regardless of how much wealth you have. Here are a few of the most common elements of an estate plan and what you should consider.

Beneficiary designations. When you open a financial account, checking, savings, brokerage, or insurance account, you’ll be asked to name a beneficiary for the account. This person will get any funds from the account at your death. You can have multiple beneficiaries and should also name contingent beneficiaries in case the primary beneficiaries are not living when you pass away. Naming a beneficiary supersedes any other declaration in your estate.

Will. This is another key document in the estate plan. When you die, it instructs where your assets will go. Property that’s owned jointly, such as with a spouse, passes directly to the surviving owner(s). A Personal Representative will be appointed to carry out the will and manage the distribution of assets.

Trusts. This is a legal vehicle that allows a third party (the trustee) to hold assets for a beneficiary. They give you several estate planning options, including avoiding probate and privacy. Trusts also let you direct how your assets are distributed after your death. You can also name the trustee(s) to manage and direct the trust on your passing. Ask your experienced estate planning attorney to help you with your trust questions and to create one, if it is a good idea.

Living wills. In the event you become incapacitated, you should have a clear statement of your wishes. A living will states how you want to be treated during your end-of-life care, such as specific treatments to take or refrain from taking. A living will is often combined with a designation of health care surrogate, which can allow a surrogate to make decisions on behalf of the incapacitated individual.

Estate planning can help avoid many issues from arising, even if you don’t have a lot of money. By determining how you want to handle your estate before you die, you’ll save your loved ones a lot of effort, expense and stress concerning how your estate is distributed.

Reference: Bankrate (Aug. 3, 2020) “What is estate planning?”

 

Estate Planning for Asset Distribution

Without proper planning, your will determines who inherits your property—everything from your home, car, bank accounts and personal possessions. Your spouse may not necessarily be your heir—and that’s just one of many reasons to have an estate plan.

An estate plan avoids a “default” distribution of your possessions, says the recent article “Asset distribution when we die” from LimaOhio.com.

Let’s say someone names a nephew as the beneficiary of his life insurance policy. The life insurance company has a contractual legal responsibility to pay the nephew, when the policy owner dies. In turn, the nephew will be required to provide a death certificate and prove that he is indeed the nephew. This is an example of an asset governed by a contract, also described as a named beneficiary.

Assets that are not governed by a contract are distributed to whoever a person directs to get the asset in their will, aka their last will and testament. If there is no will, the state law will determine who should get the assets in a process known as “intestate probate.”

In this process, when there is a last will, the personal representative (or executor) is in charge of the assets. The personal representative is overseen by the probate court judge, who reviews the will and must give approval before assets can be distributed. However, the probate court’s involvement comes with a price, and it is not always a fast process. It is always faster and less costly to have an asset be distributed through a contract, like a trust or by having a beneficiary named to the asset.

If a will only provides limited instructions, the state’s law will fill in the gaps. Therefore, any assets that pass-through contracts will be distributed directly, assets noted in the will go through probate and anything else will go usually to the next of kin.

A better course of action is to have an estate attorney review all of your assets, determine who you want to receive your property and make up a plan to make this happen in a smooth, tax-efficient manner.

Reference: LimaOhio.com (Aug. 22, 2020) “Asset distribution when we die”

 

Estate Planning Needs for Every Stage

Many people decide they need an estate plan when they reach a certain age, but when an estate plan is needed is less about age than it is about stages in life, explains a recent article “Life stages dictate estate planning needs” from The News-Enterprise. Life’s stages can be broken into four groups, young with limited assets, young parents, getting close to retirement and post-retirement life.

Every adult should have an estate plan. Without one, we can’t determine who will take care of our financial and legal matters, if we are incapacitated or die unexpectedly. We also don’t have a voice in how any property we own will be distributed after death.

The first stage—a young individual with limited assets—includes college students, people in the early years of their careers and young couples, married or not. They may not own real estate or substantial assets, but they need a fiduciary and beneficiary. Distribution of assets is less of a priority than provisions for life emergencies.

Once a person becomes a parent, he or she needs to protect minor children or special needs dependents. Lifetime planning is still a concern, but protecting dependents is the priority. Estate planning is used in this stage to name guardians, set up trusts for children and name a trustee to oversee the child’s inheritance, regardless of size.

Many people use revocable living trusts as a means of protecting assets for minor dependents. The revocable trust directs property to pass to the minor beneficiary in whatever way the parents deem appropriate. This is typically done so the child can receive ongoing care, until the age when parents decide the child should receive his or her inheritance. The revocable trust also maintains privacy for the family, since the trust and its contents are not part of the probated estate.

The third stage of life includes people whose children are adults, who have no children or who are near retirement age and addresses different concerns, such as passing along assets to beneficiaries as smoothly as possible while minimizing taxes. The best planning strategy for this stage is often dictated by the primary type of asset.

For people with special situations, such as a beneficiary with substance abuse problems, or a person who owns multiple properties in multiple states or someone who is concerned about the public nature of probate, trusts are a critical part of protecting assets and privacy.

For people who own a primary residence and retirement assets, an estate plan that includes a will, a power of attorney and medical power of attorney may suffice. An estate planning attorney guides each family to make recommendations that will best suit their needs.

Reference: The News-Enterprise (Aug. 25, 2020) “Life stages dictate estate planning needs”

 

How Can I Help with My Grandchild’s College Tuition?

To assist with college tuition for younger children or grandchildren, you may want to defer the receipt of funds, until the child or grandchild needs to pay for tuition down the road. You can make a gift into a custody account or into a trust that qualifies as a current gift under the Uniform Gifts to Minor’s Act, or you can fund a Qualified Tuition Plan under IRC Section 529.

Forbes’ recent article entitled “Estate Planning Primer: Qualified Tuition Plans” explains that there are two kinds of 529 programs: prepaid plans and savings plans. The advantage of a 529 plan over a Unified Gift to Minors Act plan is that the earnings on the assets in the 529 plan aren’t taxed, until the funds are distributed. The distributions are also tax-free up to the amount of the student’s “qualified higher education expenses.”

Prepaid Programs: Some colleges let you buy tuition credits or certificates at the current tuition rates, even though your grandchild won’t be starting college for several years. This allows you to lock in today’s rates for her enrollment some years later. This move can resultant in substantial savings, since tuition continues to rise at most institutions.

Savings Programs: Similar to a Traditional IRA or a Roth IRA, tuition amounts covered by a savings plan are dependent on the investment performance of the money you have in the plan. If it grows, more cost can be covered. But if it declines, less will be covered. Therefore, it is good to be conservative, if the need for distributions is nearing soon.

Qualified Higher Education Expenses: Tuition (including up to $10,000 in tuition for an elementary or secondary public, private, or religious school), fees, books, supplies, and required equipment, as well as reasonable room and board are qualified expenses, if the student is enrolled at least half-time. Distributions in excess of qualified expenses are taxed to the student, if they represent earnings on the account. A 10% penalty tax is also imposed.

Beneficiary: The beneficiary of the program is specified when you start the funding. However, you are able to change the beneficiary or roll over the funds in the program to another plan for the same or a different beneficiary without income tax liability.

Eligible Schools: Any college, university, vocational school, or other post-secondary school eligible to participate in a student aid program of the Department of Education will be eligible schools for these programs.

The contributions made to the qualified tuition program are treated as gifts to the student. They qualify for the annual gift tax exclusion ($15,000 per person per year for 2020) adjusted annually for inflation. If your contributions in a year exceed the exclusion amount, you can elect to take the contributions into account over a five-year period starting with the year of the contributions.

Note that you may not be able to make the distributions from the program when a very young (or unborn) beneficiary goes to college, so name an alternative custodian, perhaps a parent of a grandchild, to make distributions for you.

Reference: Forbes (Aug. 5, 2020) “Estate Planning Primer: Qualified Tuition Plans”