Bielski Law Office, Ltd.

Estate Planning After your First Child Arrives

When young couples expect their first child, the to-do list never seems to end. From lining up in-home help to managing hectic daily schedules, the process can prove daunting. Then there's financial planning. Financial advisors often urge parents-to-be to prepare by budgeting for the future. They might need well over $250,000 to fund a child's upbringing until age 17. The best financial advisors also raise clients' awareness about the ultimate grim question: What would happen to your child if you die?

Young couples are advised to see an estate planning attorney in “When Couples Have Their First Baby, Advisors Deliver,”from Investor's Business Daily. The estate-planning attorney will help them address guardianship issues, draft a living will, and other related matters. Some people are reluctant to meet with an attorney. But ask yourself, "Do you want your in-laws to raise your child?" That question should make you want to designate a preferred guardian.

Life insurance and long-term disability coverage become very important. Some folks believe they are covered because they have disability insurance at work. This may not be enough.

Don't let financial stress add to the stress of raising a child. Sit down with a qualified estate planning attorney and go over some of the important issues that now must be addressed as you start your family.

Reference: Investor's Business Daily (September 12, 2015) “When Couples Have Their First Baby, Advisors Deliver”

Which Type of Trust is Right for Me?

Trusts can be a great way to update an estate plan, whether within a will or as a separate estate-planning tool. Trusts have a reputation for being something that most people don't have to worry about, with most seeing a trust as a vehicle for the ultra-rich to protect their assets from taxes and other financial threats. In reality, though, trusts are tools that just about anyone can use to achieve worthwhile financial goals. Still, the legal complexity of the estate planning world has left many people uncertain about what a trust is, let alone how to use it. Let's take a closer look at trusts to try to answer the question of what they are and how they can help you and your family.

In “What Is a Trust, and Why Should I Have One?” Fox Business explains that in legal terms, a trust lets an individual separate the legal ownership of property from the beneficial enjoyment of that property. A trust places the responsibility for managing and preserving trust property on an individual or entity (“the trustee”). The beneficiaries receive the trust assets based on the terms of the trust. There are many trusts available to serve many different goals. The article discusses some of these trusts and how people use them.

Revocable trusts are also known as living trusts. The creators of this trust can ensure the proper management of their assets during their lifetime and after they pass. A revocable trust can be changed at any time by the creator. However, instructions in the trust document tell the trustees how to act after the creator’s death. Revocable trusts are used in estate planning to pass assets to heirs in private and to avoid probate, which can reduce costs and stress.

Testamentary trusts. These are created in a person's will and they don't keep the assets out of probate. A court proceeding is required to fund the testamentary trust. Testamentary trusts provide flexibility.

Irrevocable trusts can be used to make gifts that allow subsequent protection from creditors and estate taxation. These trusts are typically created to hold high-value life insurance policies and keep the insurance proceeds out of the taxable estate of the insured person. The trust language can state that any trust money used for the beneficiary won't run into issues with Medicaid and Supplemental Security Income.

Charitable trusts, as the name implies,allows an individual to make a gift to charity but retain an interest in the donated property. Charitable remainder trusts will let you keep an income stream that continues for a specific time or for the rest of your life—the charity will receive any remaining funds at your death. These trusts provide income tax benefits from the value of the donation, even though you still receive income from the trust assets.

Other trusts are used for estate planning purposes, such as credit shelter trusts. These are used to preserve the estate tax exemption of a deceased spouse for future use. A Qualified Terminable Interest Property trust, or QTIP, gives a spouse access to funds while preserving their eventual distribution to children or other heirs. Finally, a Qualified Personal Residence Trust, or QPRT, lets you transfer an interest in your home to family members while you are still alive in a way that reduces gift and estate taxes.

All of these trusts have the same benefit: guaranteeing that your assets will be used to meet your wishes and provide income for you and your loved ones. Talk with an experienced estate planning attorney and see if you can benefit from establishing a trust for yourself or your family.

Reference: Fox Business (September 7, 2015) “What Is a Trust, and Why Should I Have One?”

Estate Planning for the Farm

Estate planning doesn’t concern itself only with financial savings or your home. It can also include your property and land. And in no other industry is land more valuable than farming. By building and implementing an airtight estate plan, farmers and ranchers can ensure a smooth transition of land ownership and management when the time comes. An estate plan can provide for the needs of all family members, even those who aren’t actively engaged in its daily functions. It also can help mitigate the risk of high inheritance taxes on land that is made more valuable by inflation. And because land is not a liquid asset, an estate plan is important in stemming and addressing any potential settlement problems.

In “Planning for Farmland,” the Black Hills Pioneer reports that a quarter of the nation’s agricultural land is likely to change hands in the next decade, according to the USDA Natural Resources Conservation Service. That land needs to remain productive and valuable. This important objective can be achieved with an effective estate plan. The NRCS says that a sound estate plan can help accomplish at least four goals:

• Transfer ownership and management of the agricultural operation, land, and other assets to a new operator;
• Avoid unnecessary transfer taxes, such as income, gift, and estate taxes;
• Provide for financial security and peace of mind for all generations;
• Foster the next generation’s management capacity.

The American Farmland Trust (AFT), an organization operating under the NRCS, serves agricultural landowners, concerned citizens, planners, local officials, state agency staff, land trusts and policymakers. The AFT answers complex questions on all types of issues.

Talk with a qualified estate planning attorney and make sure your hard-earned investment and family legacy is properly protected.

Reference: Black Hills Pioneer (September 4, 2015) “Planning for Farmland”

Talk About End-of-Life Planning Now!

When you dare to think ahead to the last days of your life (if you dare to think about that), what do you imagine? If you are like 70 percent of Americans, you dream of spending your final days at home, in peace and comfort, surrounded by loved ones who care for you compassionately until your last breath. But in reality, the CDC reports that 70 percent of Americans actually die in a hospital, nursing home or long-term care facility. Why are so few people able to realize their end of life dream?

The two biggest reasons that many people do not have the death they wish: many do not plan ahead, nor do they make their wishes known, according to The Huffington Post’s “5 Reasons to Plan Ahead for the End-of-Life.” No one likes to talk about death, so we put off conversations that would let others know of our desires. And most of us don't take the time to work on required documents to establish a legal basis for our wishes.

There are some very compelling reasons to overcome your fears and get going on this. And it's never too early to start planning: remember there are no guarantees for the future.

Five reasons to start planning for the end-of-life now:

1. Preserve Your Financial Legacy. According to a recent survey, roughly 41% of Baby Boomers don't have a will—and 50% of all Americans die without a legal will in place. If you fall into either of these groups, it means that the probate court will decide how and to whom your assets may be distributed among your heirs, according to the state law. If you have no estate plan and don’t discuss a strategy with an experienced estate planning attorney, you may give a significant portion of your estate to taxes. Protect your assets and distribute them to your heirs by creating an estate plan.

2. Provide for Your Minor Children. That same survey found that 55% of Americans with children don't have a will and have failed to designate a legal guardian for their children under 18. Here again, the court may decide who will receive custody of the children if both parents die—a traumatic event for everyone. Take the necessary steps now to name a guardian and protect the welfare of your children.

3. Get the Care You Want at End-Of-Life. Another survey continues the bad news: less than a third of Americans have completed advance Directives—instructions to health care professionals on the type and extent of care to be delivered in a life-threatening situation. Without this, you stand to receive aggressive, full treatment in a crisis, which may not be what you really want. Complete a Health Care directive with instructions for your health care at the end-of-life. This will save energy, resources, and create less stress for your loved ones. Make sure the documents are in your home and easily accessible, should an emergency arise.

4. Be Remembered as You’d Like. If you would like to be memorialized in a certain way, you need to make your wishes known to your family in order to have them executed. Yes, you should stage-manage your own funeral! Write down the arrangements in advance for your own funeral and leave detailed instructions.

5. Alleviate stress for your family. There’s plenty of grief with the loss of a loved one without adding conflicts about handling financial, health care, or after-death arrangements. Communicate your wishes clearly now with detailed instructions and draft the required legal documents to ensure your desires are met.

Talk with a qualified estate planning attorney and make those plans now.

Reference: Huffington Post (September 4, 2015) “5 Reasons to Plan Ahead for the End-of-Life”

Say “I Do” to Estate Planning Before the Wedding Ceremony

As the fall wedding season begins, advisers should make sure they have a comprehensive plan to help clients who are getting married. Advisers need to look at the big picture, like if the couple's retirement goals align, and the nitty gritty, such as insurance policies and estate plans that need updating. The process should start when the couple gets engaged. Just as an architect wouldn't go into an initial client meeting with blueprints, an adviser should get to know a client's spouse-to-be first before creating a plan.

A cleverly titled article in Reuters, “When financial planning meets wedding planning,” notes that a financial adviser or estate planning attorney should analyze each person's financial holdings, insurance coverage, risk-tolerance levels, retirement goals, and any current estate plans before the wedding takes place. Questions to get some clarification about the relationship include:

• Who is going to pay the bills?
• How will you plan for big purchases?
• When are you planning to retire and where?
• If there are children from a previous marriage, how will inheritances be handled?

If the couple has two advisers or attorneys, things can get overly complicated, so it is best if the couple can agree to work with one advisor or attorney.

Then there is the sensitive issue of a pre-nuptial agreement, which is typically easier to do with those on their second marriage. If you are younger, childless, and in love, you may believe that it’s not necessary. Talk to your estate planning attorney about the benefits of having this, and then think about it.

Whatever the decision is on the pre-nup, make sure you talk to the estate planning attorney about updating or creating your estate plans. Couples should go to that meeting with printouts of all of their financial statements and insurance coverage.

Finally, after the wedding, update beneficiary information. This will include insurance and retirement plans. If a spouse has changed his or her name, your attorney can help you update your social security card, credit cards, and passport.

An estate planning attorney can help with these questions and issues, and working in tandem with your financial advisor, create a sound plan for your future together.

Reference: Reuters (September 4, 2015) “When financial planning meets wedding planning”

Planning for Giving Your Assets to Your Children

Call it the triple-whammy: An elderly parent, a new significant other and an aging bull market. A reader recently shared his frustrations over watching his elderly father gift a large portion of his assets to a new girlfriend. He is his father's designated power of attorney, but there's not a lot he can do about the situation because the father hasn't been declared (often by a physician) to be incapacitated. The months or years leading up to a determination that would trigger a power of attorney designation are complex and often emotionally painful. Families are concerned about a combination of big withdrawals and low returns at the end of life that will ultimately decimate the elders' savings and leave adult children on the hook to make up the difference. Many of the worst financial abusers are the very children or other relatives who are supposed to be looking out for these seniors, experts say. Is the new girlfriend unduly influencing the senior or taking incredible care of him? Or are the children just trying to preserve their inheritance?

When it comes to elderly parents and their finances, no one is every really a completely neutral party, according to “Strategies for managing your elderly parent's finances,” in The Chicago Tribune.

One should document examples of financial mismanagement; however, this can cause a fight in court to take control of parents' assets. And if the children lose, the parents may be angry enough to completely cut off the children.

There can also be trouble when parents decide to leave assets to children according to their perceived needs instead of an equal split. The children’s situations can change and giving different amounts may result in permanent damage to sibling relationships long after the parents have passed away. However, an equal split of the estate places the onus on the children to be good stewards of the money. In other words, simpler is sometimes better.

Communicate your intentions so that your children are prepared for the day when the assets are disbursed. They’ll have some idea about what is coming to them.

It’s always a good idea to speak with an experienced estate planning attorney. He or she can give you ideas and strategies to make your money go farther when your children inherit and find solutions for children who might not spend the money wisely.

Reference: Chicago Tribune (September 4, 2015) “Strategies for managing your elderly parent's finances”

Answers about the Qualified Terminable Interest Property (QTIP) Trust

The facts of life include remarriage. Almost 42 million adults in the U.S. have been married more than once, up from 22 million in 1980, according to the Pew Research Center. For older Americans, remarriage can pose estate planning problems. Even for couples who share children, potential remarriage might be a concern. And even if remarriage isn't a concern, your surviving spouse may need help protecting assets from scam artists. So how can you provide for a surviving spouse yet still leave your wealth to children from a prior marriage?

Let’s say that Betty and Bob have kids and grandkids. Bob is worried that he'll die first and pass on his wealth to Betty, who might remarry and his kids would get nothing. Investor’s Business Daily explores this issue in “Cut Taxes, Send Assets To Loved Ones After Your Death.” One solution is to create a Qualified Terminable Interest Property, or QTIP trust, so that when the first spouse passes away, the assets pass to the trust.

A QTIP typically doesn’t have estate taxes. The surviving spouse must be a U.S. citizen and must be entitled to all of the trust income, which has to be paid out at least once a year during the survivor's lifetime. No one else can receive trust distributions during that time. At the same time, the trust creator can give the trustee some flexibility: the distributions of principal to the survivor might be allowed to pay living expenses and essential medical bills. However, the surviving spouse need not control the QTIP assets.

Here’s another example: What if Carl marries Ella and each has children from a prior marriage. Carl passes and leaves most of his wealth to a QTIP trust for Ella, so that she will have cash flow for life. She’s not allowed to name new beneficiaries who'll get the QTIP assets after she dies. The QTIP assets will pass to the beneficiaries that Carl named, and those assets will be taxed in Ella's estate. Both spouses can create QTIP trusts.

The trust creator has to authorize his or her executor to finalize your QTIP election after your death, and federal and state elections may have to be made to get full estate tax deferral. An estate planning attorney knows all about this. It’s important that your family understands the QTIP’s goals to alleviate conflict after your death. The QTIP allows your spouse to have lifetime distributions to maintain his or her lifestyle, and your children will inherit your wealth without having to worry that a stepparent will spend it all after your death.

But a QTIP trust may be a source of conflict, as the surviving spouse may want the trust fund to be invested for income, and the survivor can actually demand that the trustee sell assets that don't produce revenue. The children will likely want the QTIP assets invested for growth. You need to select a trustee who can negotiate peace among beneficiaries. Tax deferral may also mean inheritance deferral, because if your spouse lives a long time after your death, your children will have to wait for a QTIP payout. Consider making some assets available for immediate bequests to descendants, or to provide for them with life insurance that will pay at your death.

Reference: Investor’s Business Daily (September 4, 2015) “Cut Taxes, Send Assets To Loved Ones After Your Death”

What’s that Document Called Again?

"

"Mistitling of assets is one of the prominent causes of failed estate plans," asserts Avani Ramnani, CFP®, director of financial planning and wealth management at Francis Financial, a wealth management firm in New York. What might go wrong? As an example, Daniel Timins, CFP®, an estate planning attorney in New York, says that one critical aspect of titling that has led to a "shocking number of legal disputes" is whether an account is titled joint tenants with right of survivorship (JTWROS) or a mere "convenience account."

The website financialplanning.com recently posted “Titling Mistakes Can Disrupt Estate Plans,” which discusses the situation where an elderly parent may title a bank account as JTWROS with an adult child who can help with paying bills if the parent is unable to handle his or her own affairs. When the parent passes away, the balance in that account will go to that child. If the parent was thinking of giving the surplus to all other children, this will not take place with a JTWROS account.

A convenience account is strictly for situations where one owner wants another person to have access to funds to pay bills, such as with an elderly parent. Many states allow these convenience accounts that let someone use the funds for the original owner's benefit, but the convenience signer doesn't own the account.

Convenience accounts do not pass to the other owner at death. The account can lead either to a future probate of the account or the convenience owner walking off with the funds because he thinks he deserves them.

Creating a JTWROS account to help an elderly person may lead to family issues. It isn’t uncommon to see an adult child assisting his or her parents with their finances as they get older, but families need to exercise caution when they consider retitling accounts.

As an example, one daughter wanted to be put on all of her mother's accounts. This would’ve created a potential issue at the time of passing. Even worse, it could precipitate theft or misappropriation of the funds. The family should use a power of attorney instead. A power of attorney ceases at death, so the family would have to file with the court to get to any open accounts after death.

Consult an experienced estate planning attorney before adding a non-spouse to any account.

Reference: financialplanning.com (August 27, 2015) “Titling Mistakes Can Disrupt Estate Plans”

Special-Purpose Trusts for the Mentally Ill and Those Suffering from Addiction

It was the summer between her sophomore and junior year at the University of Wisconsin-Madison when Patti Sacher’s daughter Keisha had a breakdown. She had taken LSD at a Grateful Dead concert one weekend in 1989. When Mrs. Sacher called to check on her that Monday, Keisha wasn’t making sense. “She was hearing voices after the weekend, and her thoughts were disjointed,” Mrs. Sacher said of her daughter, who was then 19. “We couldn’t understand what she was talking about.” Keisha became more involved with drugs during the fall. By January, her parents were receiving alarming phone calls from their daughter’s friends. Keisha ended up being hospitalized that winter, but she wouldn’t come home. She was an adult, and her parents had no legal power over her. After a year, she acquiesced and returned to New York City.

The New York Times recently published “For Parents With Troubled Adult Children, Financial Hurdles Abound,”which talks about what can be done to help a loved one stricken with mental illness. It noted that there are many painful and emotional issues in situations of mental illness and addiction that affect children, but also there are financial plans that parents can use, such as a Special-Purpose Trust, that provides care for the suffering child and peace of mind for the parent.

A special-purpose trust is different from a special-needs trust, which is frequently implemented to pay for additional needs of those receiving government benefits where the government has strict restrictions on the recipient’s assets. A special-purpose trust can be used to provide children more of the life they might have enjoyed without mental illness or addiction, and it allows the parents the flexibility to make changes with the distributions.

Special-purpose trusts are more complicated to establish than regular trusts because of the powers they give to the trustees and the restrictions they place on distributions. However, the toughest part of creating a special-purpose trust is getting parents to accept them as necessary: parents must first acknowledge that their children will never fully recover.

Parents are advised to set out some very specific criteria for distributions into trust documents, for example, staying on medication or staying sober for a certain period of time. In addition, those with a family history of mental illness and addiction issues should get a power of attorney and health care proxy for children over 18 who are away at college. In the event that something happens to their child, the parents will have access to medical records and will be able to help.

Work through these issues with an experienced estate planning attorney to make sure that you are doing your best to help your child.

Reference: New York Times (August 28, 2015) “For Parents With Troubled Adult Children, Financial Hurdles Abound”

The Executor’s Cheat Sheet

One of the most important things someone can do to best ensure their estate is handled without a hitch is to appoint the right person as the estate’s executor, sometimes called a representative. So what do you need to do if you’ve been appointed an executor of someone’s estate? Being selected as an executor is not only an honor, but a responsibility to the person who named you, as well as to his or her heirs. It’s also a complex job, requiring working with many types of professionals. And the duties can last for a considerable amount of time, even years, depending on the complexity of the estate. All executors receive a stipend or “commission” paid from estate assets for their services.

A recent Forbes article, titled“What an Executor of an Estate Needs to Do,” says that if you’re appointed to be an executor, you should work with an experienced estate planning attorney to help you through the steps in settling the estate.

When settling an estate, an executor is in charge of these basic functions:

• Locating, collecting, and being responsible for the estate’s assets until they are distributed to the beneficiaries.
• Paying the decedent’s debts and estate administration expenses.
• Handling tax matters, including filing the decedent’s and the estate’s income tax returns and paying the income taxes, if any.
• Distributing the remaining assets in accordance with the terms of the will.

The financial responsibilities of an executor mean that he or she must make an investment analysis of all assets in the estate to determine which to sell and how the estate’s cash needs will be met. The majority of the administrative work in handling an estate is recordkeeping.

The executor must first arrange for his or her court appointment in probate court to obtain “Letters Testamentary,” which permits the executor to represent the estate to third parties such as banks and financial companies to collect, liquidate and distribute assets and other tasks. The executor must compile information about the decedent’s finances and then sell or divide certain assets among those named to receive them in the will or to pay taxes.

In addition, the executor must cancel the decedent’s credit cards, have utilities turned off and pay expenses such as rent, taxes and insurance premiums. Home repairs or maintenance may also be needed. The executor will also need to open an estate bank account to hold the collected assets. These funds are used to pay the bills.

An estate planning attorney can be a huge help with this process to ensure that everything is done right and that the decedent’s estate is settled in an efficient manner.

Reference: Forbes (August 26, 2015) “What an Executor of an Estate Needs To Do”