Houston Estate Planning and Probate Blog

Wednesday, October 20, 2010

Plan Ahead to Avoid Financial Pitfalls in 2011

A recent article in U.S. News and World Report points out that although “the Great Recession may technically be over... Consumers [still] don't want to spend and are still slowly digging their way out of the mountain of mortgage and personal debt that helped fuel the downturn.” Among those groups who are still struggling the most are seniors and retirees, many of whom took a devastating hit to their retirement investments and savings, and are still struggling to recover.

Unfortunately, according to the article, 2011 may bring with it some new financial concerns for seniors.  Some of the “major money issues” seniors will have to think about in the coming year include a zero cost of living adjustment from the Social Security Administration, changes to certain Medicare policies, a rise in income and capital gains tax rates, and the return of the estate tax, among others.

Although the article itself offers no particular solutions to these financial concerns—it merely gives a warning of what’s to come—there are steps you can take to avoid some of the worst financial pitfalls.  Because each individual situation will be different there is a danger to blindly following (or offering) standard advice across the board.  However, with consultation and careful planning there are a number of strategies estate planners can recommend that may help your family protect your assets now, and when the estate tax returns. Forewarned is forearmed, and taking the time to consult with your estate or financial advisor and plan ahead may be the best action you can take.  

Monday, October 18, 2010

Can You Foolproof Your Power of Attorney?

“The best laid plans of mice and men often go awry.”  Although we hate to admit it, this statement will also sometimes apply to estate planning; and more often than we would like, it happens with powers of attorney.

A power of attorney is the document in which you nominate an agent (or attorney-in-fact) to make financial decisions and take legal action for you when you are incapacitated or otherwise unable. (This does not include healthcare decisions, covered in another document called a health care directive.) Unfortunately, as this recent article on the Elder Law Answers website points out, “many people experience difficulty in getting banks or other financial institutions to recognize the authority of an agent under a power of attorney.”

This difficulty usually has nothing to do with the validity of the document; rather, it is the bank’s attempt to protect itself.  But while a little bit of caution is understandable, it can have frustrating—or even tragic—results if not addressed.  Luckily, there are steps you can take to improve your chances of having your power of attorney honored. The article mentioned above includes a number of good suggestions:

·         Talk to your bank about your plans ahead of time.

·         Ask your financial institutions if they have any requirement for powers of attorney, or even their own standard form.

·         Update your power of attorney forms or documents frequently (every 2-5 years.)

Talking to a representative from your bank every 2-5 years may seem like an inconvenience now, but imagine the inconvenience if you are incapacitated and your agent is unable to access the funds he or she needs to pay your bills, make your mortgage payment, or provide for the needs of your family. A little bit of time spent now can save a mountain of stress later on.

Friday, October 15, 2010

What Is Probate?

With all the recent news about what will happen with estate taxes, the process of probate has come up quite a bit.  Sometimes probate is mentioned in a low-key, matter-of-fact kind of way; at other times it is presented as something scary, and to be avoided at all costs. We know our readers have seen the term often enough here in our blog, but under the circumstances we thought it a good idea to go back to basics, and have a discussion of exactly what is probate, and what’s all the fuss?  

Probate is the process by which the court determines the legal property of a person who has died, and facilitates the distribution of those assets.It sounds like it should be simple, but even in the best of circumstances there are procedures that must be followed to the letter, and the actual process (depending on the size of the estate and the laws of the state in which the property is being probated) can take anywhere from 6 months to a few years.

You may wonder why probate can take so long, especially if the deceased person has left a will making their wishes clear.  A good will can certainly make the process easier, but even with a will, there are certain steps that must be followed to complete the probate process, some of which can be very time consuming.  Some of these steps include:

·         The appointment of an executor or personal representative

·         Verification of the will

·         Taking an inventory of assets belonging to the deceased

·         Giving notice to creditors

·         Paying valid claims against the estate

·         Preparing and paying taxes

·         Notifying beneficiaries

·         Distributing the assets to the beneficiaries or heirs

If you think that just reading the above paragraph takes your breath away, imagine the confusion of having to actually go through all of those steps—and possibly more!

Whether or not your estate will eventually be subject to a lengthy or expensive probate often depends on a number of factors: the size of your estate, how your assets are held, and how cooperative your next of kin may be. But one way to increase your chances of avoiding probate is to have clear (and clearly valid) estate planning documents, including a will, power of attorney, and possibly a revocable living trust. 

If you are concerned about probate, or would like to know more about how you can protect your assets and help your loved ones avoid a lengthy probate, contact our office—or a qualified estate planning attorney in your home state—to discuss your options.

Wednesday, October 13, 2010

Prepare Now for an Uncertain Future

There’s a useful saying that goes something like this: “Expect the best, but prepare for the worst.”  Never has that saying been as useful as it is right now in regards to asset protection and estate planning.  As Laura Lallos mentions in her article in the Morningstar Advisor, “Estate attorneys are trained to prepare for every contingency. But how do you plan for the unimaginable? Who would have predicted a U.S. tax system with no estate tax at all--and no certainty about what the estate tax will look like in 2011?”

Planning for the future when the future is so foggy is a challenge at best, but this unique year for taxes offers some once-in-a-lifetime opportunities for giving and saving as well.  This seems to be a time of contradictions. As the article points out, “The best strategy that financial advisors and attorneys can pursue now is to prepare their clients for the worst. On the bright side, some clients can also seize opportunities created by the gaping holes in the tax law for 2010.”

The article suggests a number of strategies that you can implement now to prepare for an uncertain future.  Some of these include:

Give monetary gifts now, when the gift tax rate is a low 35%, in order to lessen your taxable estate.

Take advantage of the one-year-only lapse in the Generation Skipping Transfer Tax.

Create a Grantor Retained Annuity Trustbefore the end of October to take advantage of the currently very low Section 7520 rate.

See your estate planner and make sure your estate and asset protection plans truly are “prepared for the worst.”  We may not yet know what next year will bring, but that doesn’t mean we can‘t take steps to ensure our clients are prepared for whatever the future may hold.

Monday, October 11, 2010

What to Do With Your Estate Plan After a Divorce

When it comes to estate planning, the steps you take after a divorce are not so different from the steps you’ll take after a death—many of the phone calls will be the same, many of the changes you make and details you change will be similar.  This all makes sense, because a divorce is basically the death of your marriage, and in the financial and legal world your marriage was like an entity all its own.

One question many people ask is “Who gets the estate plan?” The answer is that both of you and neither of you get the estate plan. Ideally, you both put a lot of thought into your estate plan and it reflects both of your wishes.  All of this work was not for nothing.  The details of your plan will have to change, this is true, but the basic ideals can most likely stay the same.

Your first order of business should be to consult with an estate planning attorney. Many changes you will want to make should be coordinated and discussed with an attorney who can help you look at the plan as a whole. One thing to consider quickly is to change your beneficiary designations.  Most married couples name their spouses as the primary beneficiary on insurance policies, retirement accounts, wills and trusts, with their children or immediate family members named as secondary beneficiaries.  Unless you think your ex-spouse deserves to benefit from all your hard work, you’ll want to remove him or her as a beneficiary immediately. (Documents to change: will, trust, ALL life insurance policies, IRA or 401(k) accounts, JTWROS  bank accounts, investment accounts that are POD or TOD accounts, credit card insurance policies.)

Your second order of business will be to amend your agent/executor/trustee designations.  It is likely that while you were married you named your spouse as the primary person in all of these roles; you’ll now want to move your secondary nominee to the primary position, or find someone new. (Documents to change: will, trust, All powers of attorney, health care directives, declaration of guardian forms for yourself, emergency contact forms.)

Not necessarily your third order of business, but somewhere in there you may want to change your declaration of guardian for minor children.  You and your ex-spouse probably chose people you both knew and trusted to be guardians of your minor children if anything happened to both of you.  Divorce can bring up many powerful emotions and hard feelings, so although these people are probably still good and trustworthy people, you may want to nominate someone else.  Depending on your custody arrangement, your ex-spouse will still be your children’s primary guardian if anything happens to you.  This doesn’t mean you shouldn’t execute a new designation of guardians, but keep in mind that your nomination of guardians will only come into play if your spouse dies first. (Documents to change: declaration of guardians for minor children, emergency contact forms, authorization for consent to medical treatment of minors.)

The most important thing to remember is that the more you put it off, the more likely it is that your wishes will go unacknowledged. As a rule, it’s a good idea to visit your estate planning attorney after any life change, especially one as significant as divorce.

Friday, October 8, 2010

10 Phone Calls to Make After the Death of a Loved One

Coping with the death of a loved one can be a crushing task.  There are so many things to do and details to remember; all of this at a time when each small task can serve as a reminder of your loss. At such a time it can be helpful to know that you’re not going through this alone; there are a number of people who can help when you begin to feel overwhelmed.   To relieve some of the stress, and help ensure that no important task is forgotten, we offer a list of people to call after the death of a loved one:

Funeral home - This will likely be your first call.  The funeral home you or your loved one has selected will be able to help you with a lot of the immediate details and tasks.  The funeral director will also be able to help you obtain copies of the death certificate - something you will need later. Many people order at least 10 or more copies for future needs.

Family and Friends - This probably goes without saying.  Not only will you want to notify family and friends, but they can also help with a lot of the endless tasks and overwhelming details.  Don’t be afraid to ask for help and delegate.

Veteran’s office (if deceased was a Vet.) - If the deceased was a Veteran you may have to stop benefit payments; you may also be able to get assistance with the funeral or memorial service.

The deceased’s employer - You will need to do this not only to inform the employer of the death, but also to terminate health insurance and to obtain information about any employee benefits that might be due and payable.  

Attorney and Tax Professional - You will need to know what to do about probating the deceased’s estate, filing tax returns, dealing with bank accounts, etc.  An attorney and a tax professional can help. It is especially important to find out if your loved one had any existing estate documents such as a will, or living trust or irrevocable trust.

Office of Social Security - If your loved one was receiving benefits you’ll need to stop payments. You will also want to find out if survivors are entitled to any benefits.

Insurance company of the deceased - If your loved one had life insurance, you will probably need to file a claim.  This is something your attorney can help you with.

Local Newspaper - You may want to publish an obituary or notice of death, as well as information about the funeral or memorial service.

Credit card companies and utilities - Before you pay any debts or claims, discuss the claims procedure with your attorney.

Bank - Before you make any changes to bank accounts, discuss the procedure with your attorney. Do not close any accounts right away!

Although this list is a good starting point; a complete list of people to call and things to do will depend on where the deceased lived and the details of his or her estate. Contact your loved one’s estate planning attorney (or your own) to ensure that nothing is left to chance.

Wednesday, October 6, 2010

Power of Attorney from the Agent’s Perspective

In our last post we discussed the importance of choosing the right person as your agent or executor and some of the things to consider as you make your choice.  In today’s post we’ll look at the agent/executor situation from a different perspective—that of the person serving in the role.

What happens if you’re named as agent or executor and don’t have what you need to do the job well? In this recent post on the New Old Age Blog, a reader asks the question of what to do if you are named co-agent of a power of attorney and the other agent isn’t doing his share.  This is just one example of some of the difficulties that can crop up when you’re serving in a fiduciary capacity.

The first thing to remember is that just because you’re nominated doesn’t mean you have to take the job. Serving as power of attorney can be a weighty job, and if you don’t have the time or energy to put into the role it might be better all around for it to pass to an alternate nominee.

Another thing to keep in mind is that you don’t have to do it alone.  This is not to say that you should have a co-agent (although as evidenced by the article above some people do choose to name co-agents rather than just one person), but it does mean that you can ask for help.  If you aren’t sure what to do don’t be afraid to ask your attorney (or the testator’s attorney) for help.

Finally, if you know ahead of time that a friend or relative is naming you for a fiduciary role, take the time to talk to that person about their values and wishes.  Ask the questions you anticipate might crop up later.  Having the conversation when you still can will help immensely when the time comes to make decisions on that person’s behalf.

Monday, October 4, 2010

Executors and Agents: Choosing Your Own Replacement

When people think about estate planning they generally think about inheritance, or taxes, or even guardianship—but rarely are the words “executor” or “agent” the first ones that come to mind.  And yet, choosing your executor or your agent is one of the most important decisions you’ll ever make.

Your executor is the person who carries out the instructions in your will.  You may spend hours (sometimes months or even years) agonizing over inheritance plans and making decisions; but in the end, when the time comes for all of those decisions to be implemented, you’re not going to be around.  If there are any questions to be answered or clarifications to be made they’re going to fall to your executor.

Your agent is the person who—depending on whether the document is a health care directive or a financial power of attorney—will make your important financial or health care decisions when you are unable. This person is your proxy during your life, signing checks on your behalf or talking to doctors about your treatment.

Considering all of this, it is understandable why so many people have trouble naming an agent or executor.  It’s not easy to choose your own replacement, so to speak.  But the most difficult decisions are often the most important. If you are a parent of more than one child then you know about the sibling fights that can erupt seemingly out of nowhere, even in loving and agreeable families. This is especially true when there is any uncertainty about what mom or dad’s true wishes were.  The right agent or executor can relieve much of that uncertainty.

So how do you choose the right agent or executor?

First of all, think it through carefully.  Choose someone reliable, whose decisions you trust. You’ll want someone who’s careful; and you’ll want to choose someone who isn’t already overloaded, because they’ll need to have time to do a thorough job. Choose someone who knows you and who knows your family; a familiar face will be comforting in hard times.  On the other hand, nominating a financial institution rather than a personal friend can work out well under the right circumstances, but research your choices carefully.

If there isn’t one clear choice you may decide to nominate two people to make decisions together.  This can be a good alternative, but it can also be a recipe for disaster, so be sure to build in some protections: name an uneven number of agents or executors to prevent tie-decisions, or nominate a mediator or tie-breaker who can step in to prevent serious disagreements from having to be decided in court.

Wednesday, September 29, 2010

What “The Cost of Aging” Means Today

“The cost of aging” used to mean failing eyesight, bodily aches and pains, and maybe the loss of your teeth; but nowadays “the cost of aging” can mean the loss of your happy marriage!

With growing numbers of senior citizens being diagnosed with debilitating elderly illnesses, and with the cost of nursing care on the rise, more and more couples are finding that they simply can’t afford to pay for the numerous visits to the doctor, endless medical treatments, and rising cost of prescription medicines. Many seniors hope that Medicaid will help, but before you can get assistance from Medicaid you will have to spend down your own assets to almost nothing—this includes spending down any savings or retirement assets you may have.  

If you are the spouse of someone diagnosed with an illness such as Alzheimer’s or dementia you can really get the short end of the stick. As this editorial in the New York Times points out, you can put all of your financial resources toward your spouse’s care, only to find that at the end of it all you “face a bleak retirement with neither [your spouse] nor your savings.” Some seniors are discovering a dismaying truth: that if they want to keep some kind of nest-egg for themselves, one of their only options is divorce and the separation of finances that comes with it.

This isn’t the first time the subject of divorce for financial reasons has come up.  MSNBC dealt with the issue earlier this year with this segment on “Today”.  But there is some good news amongst all this gloom and doom—poverty or divorce don’t have to be your only choices.  If you start planning early, you can be prepared should something like this happen to you and your spouse.  Long-term care insurance is one good preventative measure, or ask your estate planning attorney about other asset protection strategies you can employ.

Aging is hard enough without having to end a happy marriage (and feel like you’re abandoning a beloved spouse) to ensure your own financial future.  Please call our office to find out what your options are.

Monday, September 27, 2010

How to Keep Your Children from Squandering Their Inheritance

Many parents come into our office with one concern on their minds: protecting and providing for their children. We help these parents select loving guardians and set up solid trust or inheritance plans to ensure that their children will have everything they need.  But parents often have another concern as well—how to keep their children from squandering an inheritance received too early. 

These parents want to protect their children from "predators" and "creditors"  including the potential disaster of being given too much financial responsibility before they are mature enough to handle it; they either want to keep their inheritance in trust for the children or gradually relinquish control or assets as each child reaches the milestones which prove they are fiscally prepared. We are happy to help parents design a plan that helps them achieve this goal. 

One strategy to help a child reach financial maturity is to specify an age at which a child may be co-trustee of his or her own trust. The child can then partner with a co-trustee of the parents’ choosing; this could be a close friend of the family, a trusted financial advisor, or even a corporate trustee such as a bank. This gives the child the opportunity to get a taste of responsibility and begin making decisions, but with a safety net beneath them. When the child reaches a certain age (or alternatively, after attaining a goal such as graduation from college or graduate school, or gainful employment for a specified amount of time) he or she may then become sole trustee of his or her own trust.

If parents don't want to keep the inheritance in continuing trusts for their children, another strategy is to give the child access to the trust principal itself in gradual increments. For example, the child may receive 1/3 upon graduation from college, another 1/3 ten years later, and the remaining 1/3 ten years after that. Of course the ages and amounts are completely up to each client, but the slow distribution of assets allows the child to have a learning curve, something which makes the parents (and the child) much more comfortable.

At our office we understand that there is no substitute for parental involvement, but we can give our clients options that can lay a strong foundation for fiscal responsibility. If you are a parent with similar concerns, contact our office for more information.

Friday, September 24, 2010

Lapse in Generation-Skipping Transfer Tax Makes Giving to Grandkids Easier Than Ever

Wealthy grandparents have a unique opportunity this year to give their grandchildren gifts of substantial value without incurring a hefty tax. This is a huge savings opportunity!—so why aren’t more people taking advantage of it? 

Part of the reason may be lack of awareness. Everyone knows about the Bush administration’s year-long repeal of the estate tax, but very few people seem to be aware that the Bush tax cuts included a year-long lapse of the generation-skipping transfer (GST) tax as well, as discussed in this article in Reuters

But before you call the grandkids with the good news, consider whether or not you feel comfortable giving them a large sum outright.  If your grandkids are still young (and not yet responsible about money and finances) you may not want them having such a large sum to play with; and unfortunately, giving the gift in trust is not an option in this case.  “To take full advantage of the GST tax break, assets should be transferred directly to beneficiaries and not to a trust. Money placed into a trust may lead to taxes when distributions are made later on.”

If your grandchildren are responsible adults, and if you’ve been considering giving them a monetary gift anyway, this lapse in the generation-skipping transfer tax could be just the push you need.  Talk to your attorney or financial advisor about your gift-giving options.

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