Probate Attorney

Serving Southwest Florida

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Estate Planning for Snowbirds

This post explains the need for new estate planning for snowbirds.

The U.S. Constitution requires states to give “full faith and credit” to the laws of other states. As a result, your will, trust, power of attorney, and health care proxy executed in one state should be honored in every other state.

Although that’s the way it should work, the practical realities are different and depend on the document, says Wealth Advisor’s recent article entitled “Moving to a New State? Be Sure to Update Your Estate Plan.”

Your last will should still be legally valid in the new state. However, the new state may have different probate laws that make certain provisions of the will invalid.  In Florida, a personal representative must be a Florida resident or related to the person making the will.  This epitomizes the role of estate planning for snowbirds.

Powers of attorney and health care directives are authorized by each state in its statutes. As a result these estate planning documents may not be honored from state to state, and sometimes banks, medical professionals, and financial and health care institutions will refuse to accept the documents and forms. They may have their own, as is the case frequently with banks.

You should also know that the execution requirements of your estate planning documents may be different, depending on the state.  Florida requires that the maker of a will sign the document in the presence of two witnesses who also sign in the presence of each other and the maker.

Also, there are some states, such as Florida, that require witnesses on durable powers of attorney, and others that do not. A state that requires witnesses may not allow a power of attorney without witnesses to be used to convey real estate, even though the document is perfectly valid in the state where it was drafted and signed.  Again, this is another reason to engage in estate planning for snowbirds.

With health care proxies, other states may use different terms for the document, such as “durable power of attorney for health care” or “advance directive.”

When you move to a different state, it’s also a smart move to consult with an experienced estate planning attorney to make certain that your estate plan in general is up to date. There are also other changes in circumstances—like a change in income or marital status—that can also have an impact on your estate plan. Moreover, there may be practical changes you may want to make. For example, you may want to change your trustee or agent under a power of attorney based on which family members will be closer in proximity.

For all these reasons, when you move out of state it’s wise to have an experienced estate planning attorney in your new home state review your estate planning documents and help with estate planning for snowbirds.

Reference: Wealth Advisor (Jan. 26, 2021) “Moving to a New State? Be Sure to Update Your Estate Plan”

Trust as Beneficiary of an IRA

Is naming a trust as beneficiary of an IRA a good plan? The IRA usually loses the benefit of tax deferral, due to the fact that it has to be distributed faster than in other scenarios. There are only a few cases when a trust as beneficiary can avoid this problem.

Wealth Advisor’s recent article entitled “Should A Living Trust Be Beneficiary Of Your IRA?” explains that the general rule is when an IRA beneficiary isn’t an individual, the IRA must be distributed fully within five years. When a trust, an estate, or a business entity is named as beneficiary, the IRA must be distributed quickly, and it’s then taxed. However, there’s an exception when you name a trust that qualifies as a “look-through” or “see-through” trust under IRS rules. To draft this type of trust, work with an experienced estate planning attorney to be certain that it avoids the five-year rule. Even so, the IRA must be distributed to the trust within 10 years, in most instances.

Another exception says there may not be a penalty when you name your spouse’s revocable living trust as the beneficiary of an IRA. Consider a recent IRS ruling that involved a married couple. The husband owned an IRA and had started to take required minimum distributions (RMDs). He died and had named a trust as sole beneficiary of his IRA. The wife had previously established the trust and was the sole beneficiary and sole trustee of the trust. She could amend or revoke the trust and could distribute all income and principal of the trust for her own benefit. In effect, it was a standard revocable living trust that is primarily used to avoid probate. The widow wanted to exercise the spousal option for an inherited IRA to roll the IRA over to an IRA in her name. The move would give her a new start, letting her manage the IRA, without reference to her late husband’s IRA. She could begin her RMDs based on her own required beginning date and life expectancy. She also could designate her own beneficiaries of the IRA.

The widow asked the IRS to rule that the IRA could be rolled over tax free into an IRA in her name. She wanted to have the IRA balance distributed directly to her to roll it over to an IRA in her own name within 60 days. The IRS said that was okay, noting that she was the trustee and sole beneficiary of the trust. She was entitled to all income and principal of the trust. Moreover, she was the surviving spouse of the deceased IRA owner.

In this situation, the widow was the sole person for whose benefit the IRA is maintained. As such, she can take a distribution from the inherited IRA and roll it over to an IRA in her own name without having to include any of the distribution in gross income, provided the rollover was accomplished within 60 days of the distribution.

Although this was a good answer for the widow, you may not want to name a living trust or your estate as the beneficiary of your IRA, even under similar circumstances. She had to apply to the IRS for a private ruling to be sure of the tax results, which is an expensive and time-consuming process.

This can be very complicated, so talk to an experienced estate planning attorney about your specific situation.

Reference: Wealth Advisor (Dec. 29, 2020) “Should A Living Trust Be Beneficiary Of Your IRA?”

Living Trusts

Nj.com’s recent article entitled “Will a living trust save time and money when settling an estate?” explains that, although probate avoidance is often thought of as a reason to have a living trust, generally speaking, many people who have living trusts also have what are known as “pour-over wills.”

The reason? Individuals frequently have assets that they have not placed into a living trust, such as tangible personal property. Those are things like furniture and household furnishings, a car, or a small bank account. It may also be necessary to open an estate because of unclaimed funds held by the state, a tax refund or return of insurance premiums.

Pour-over wills typically are written so the estate assets will pour over or pour into the living trust at the death of the person who created the trust.

Living trusts have the benefit of privacy and the elimination of challenges to the estate. A trust can also be used to separate assets acquired before a marriage; or as a vehicle to manage the assets of a person with diminished or lack of capacity, such as a person suffering from dementia.

It’s important to note that financial institutions can freeze up to 50% of the assets in an estate, until a tax waiver is obtained. However, tax waivers aren’t required to transfer legal ownership of trust assets after the death of the person who created the living trust. Therefore, financial institutions can’t similarly freeze up to half of the assets in a trust for that reason.

However, there can also be a few disadvantages to creating a trust. The cost of creating a revocable trust and a pour-over will is more than the cost of preparing just a will.

There may also be expenses involved with transferring assets, such as real property, into a living trust.

The legal fees incurred in administering a probate estate are almost always more than legal fees incurred in administering a trust after the death of the trust maker.

Moreover, the time it takes to settle an estate may be longer than what it takes to distribute trust assets. That is because it may take months to probate a will and obtain a tax waiver.

However, if the individual has relatively few assets that would be subject to probate, the cost of establishing a living trust may be more costly than administering an estate.

Speak with an experienced estate planning attorney about whether a revocable living trust makes sense for your unique circumstances.

Reference: nj.com (Feb. 8, 2021) “Will a living trust save time and money when settling an estate?” 

Charitable Remainder Trusts and IRAs

A Charitable Remainder Trust can solve estate planning issues with Individual Retirement Accounts.  Since the mid-1970s, saving in a tax-deferred employer-sponsored retirement plan has been a great way to save for retirement, while also deferring current income tax. Many workers put some of their paychecks into 401(k)s, which can later be transferred to a traditional Individual Retirement Account (IRA). Others save directly in IRAs.

Kiplinger’s recent article entitled “Worried about Passing Down a Big IRA? Consider a CRT” says that taking lifetime IRA distributions can give a retiree a comfortable standard of living long after he or she gets their last paycheck. Another benefit of saving in an IRA is that the investor’s children can continue to take distributions taxed as ordinary income after his or her death, until the IRA is depleted.

Saving in a tax-deferred plan and letting a non-spouse beneficiary take an extended stretch payout using a beneficiary IRA has been a significant component of leaving a legacy for families. However, the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act), which went into effect on Jan. 1, 2020, eliminated this.

Under the new law (with a few exceptions for minors, disabled beneficiaries, or the chronically ill), a beneficiary who isn’t the IRA owner’s spouse is required to withdraw all funds from a beneficiary IRA within 10 years. Therefore, the “stretch IRA” has been eliminated.

However, there is an option for extending IRA distributions to a child beyond the 10-year limit imposed by the SECURE Act: it’s a Charitable Remainder Trust (CRT). This trust provides for distributions of a fixed percentage or fixed amount to one or more beneficiaries for life or a term of less than 20 years. The remainder of the assets will then be paid to one or more charities at the end of the trust term.

Charitable Remainder Trusts can provide that a fixed percentage of the trust assets at the time of creation will be given to the current individual beneficiaries, with the remainder being given to charity, in the case of a Charitable Remainder Annuity Trust (CRAT). There is also a Charitable Remainder Unitrust (CRUT), where the amount distributed to the individual beneficiaries will vary from year to year, based on the changing value of the trust. With both trusts, the amount of the charity’s remainder interest must be at least 10% of the value of the trust at its inception.

Implementing a Charitable Remainder Trust to extend distributions from a traditional IRA can have tax advantages and can complement the rest of a comprehensive estate plan. It can be very effective when your current beneficiary has taxable income from other sources and resources, in addition to the beneficiary IRA.  It can also be effective in protecting the IRA assets from a beneficiary’s creditors or for planning with potential marital property, while providing the beneficiary a lengthy predictable income stream.

Ask an experienced estate planning attorney, if one of these trusts might fit into your comprehensive estate plan.

Reference: Kiplinger (Feb. 8, 2021) “Worried about Passing Down a Big IRA? Consider a CRT”

Avoiding Probate With Ownership

When your goal is avoiding probate, there are three categories of property, and only one requires probate, so it can be accessed when the owner passes away, says njmoneyhelp.com’s recent article entitled “How can we avoid probate for this account?”

First, it’s important to understand that property that passes by operation of law is any asset that’s owned jointly with right of survivorship. These accounts are sometimes labeled as “JTWROS.”

When one co-owner dies, the property passes by law to the surviving co-owner. This is a way of avoiding probate.

Married couples in Florida have a similar ownership known as tenancy by the entireties.  It also has a right of survivorship.

A second category is contract property, which includes life insurance, retirement accounts and any non-retirement accounts that have beneficiaries designated upon death.

These designations supersede or “override” a will and are also a means of avoiding probate, directly passing to the named beneficiary.

These are frequently designated as “POD” (payable on death) or “TOD” (transfer on death).

The third category is everything else. This includes accounts that are owned solely by the person who died with no POD or TOD designation and is usually subject to probate.

A certificate of deposit is a time deposit. It’s a financial product commonly available from banks, thrift institutions and credit unions. Certificates of deposit are different from savings accounts because a CD has a specific, fixed term and usually, a fixed interest rate.

To avoid probate to access a CD or any other account owned by a spouse’s name, you can either make the account jointly owned by husband and wife with right of survivorship. or designate your spouse as a beneficiary upon death.

Either option will succeed in avoiding probate to access that particular account, like a certificate of deposit.

Contact an experienced estate planning attorney with questions about CDs and probate.

Reference: njmoneyhelp.com (June 6, 2019) “How can we avoid probate for this account?”

Letter of Last Instruction

It is important to know that a Letter of Last Instruction does not pass through a legal process. It’s an informal but organized method of providing your family with instructions on the decisions related to financial and personal matters that should be made when you die. This can also be an alternative way of ensuring that your family are cared for after your death and to prevent issues that could arise from not probating the will.

Qrius’ recent article entitled “How to Prepare a Letter of Last Instruction” explains that preparing it can relieve your relatives of added headaches and stress after your death because it can provide crucial information on personal, financial and funeral matters. Here are some ideas as to what to include in your Letter of Last Instruction:

Personal info. This is a basic information like your full name, date of birth, father’s name and mother’s maiden name, address, Social Security number and place of birth. Add information about significant people in your life, like family, friends, business partners, clergy and others you’d like to be notified about your death.

Business and Financial Contacts. List the contact info of your business and financial partners, as well as your accountant and investment adviser. Include information on your insurance policies, as well as your bank account details.

Legal Document Location. Make sure your executor can find important legal documents, such as your will, tax returns, marriage license, Social Security card, birth certificates, trust documents, deeds, veteran benefits info and contracts. State the location of those documents in your Letter of Last Instruction.

Loan and Debt Info. Make a list of creditors containing collateral and payment terms, along with any credit card account numbers and loan account numbers. Likewise, list the people who owe you money, including their contact info and collateral and payment terms.

Usernames and Passwords. Include a section with your usernames and passwords for your online banking accounts, social media email, computer, smartphone and other electronics, so your executor or someone responsible for overseeing your estate can be certain your accounts and financial information are not compromised after your death.

Beneficiaries. Make a list of the names and contact details of all your beneficiaries with additional information on specific instructions you may want to give to clarify your intentions on the distribution of the assets.

Funeral Arrangements. Include your desires as to your funeral arrangements, such as the type of flowers, pictures and service music. You can also state the clothes in which you wish to be buried, the type of service and location and other items that will help your family with this task.

Once you have the letter, be sure your executor or at least a close family member knows where it can be located after your death.

Ask an experienced estate planning attorney for pointers on writing your Letter of Last Instruction and keep updating it regularly.  We can help.

Reference: Qrius (Dec. 8, 2020) “How to Prepare a Letter of Last Instruction”

Estate Planning Documents For Retirees

Research of estate planning documents for retirees shows that most (53%) have a last will and testament. However, they don’t have six other crucial legal documents.

Money Talks News’ recent article entitled “6 Legal Documents Retirees Need — but Don’t Have” says in fact, in this pandemic, 30% of retirees have none of these crucial documents — not even a will — according to the 20th annual Transamerica Retirement Survey of Retirees.

In addition, the Transamerica survey found the following about estate planning documents for retirees:

  • 32% have a power of attorney or medical proxy, which allows a designated agent to make medical decisions on their behalf
  • 30% have an advance directive or living will, which states their end-of-life medical preferences to health care providers
  • 28% have designated a power of attorney to make financial decisions in their stead
  • 19% have written funeral and burial arrangements
  • 18% have filled out a Health Insurance Portability and Accountability Act (HIPAA) waiver, which allows designated people to talk to their health care and insurance providers on their behalf; and
  • 11% have created a trust.

The study shows there is a big gap that retirees need to fill, if they want to be properly prepared for the end of their lives.

The coronavirus pandemic has created an even more challenging situation. Retirees can and should be taking more actions to protect their health and financial well-being. However, they may find it hard while sheltering in place.

Now more than ever, seniors may need extra motivation and support from their families and friends.

The Transamerica results shouldn’t shock anyone. That is because we have a long history of disregarding death, and very important estate planning questions. No one really wants to ponder their ultimate demise, when they can be out enjoying themselves.

However, creating estate planning documents for retirees now will give you peace of mind. More importantly, this planning can save your heirs and loved ones a lot of headaches and stress, when you pass away.

Talk to an experienced estate planning attorney today to get your plan going.

Reference: Money Talks News (Dec. 16, 2020) “6 Legal Documents Retirees Need — but Don’t Have”