Bielski Law Office, Ltd.

What’s that Document Called Again?

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"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”

“Will” You or Won’t You?

Natural disasters happen! Catastrophes! Accidents! Illness! No one gets out of this world alive, but we can plan to make it easier on those we leave behind. If you have accumulated assets or have minor children, you need to do some estate planning. The more complicated your life, the more complicated your planning needs to be.

Experts say that less than 35% of us have wills, according to a CBS Boston post titled “Where There’s A Will There’s A Way!” It’s a common subject about which people procrastinate—particularly those with young children. Parents are focused on keeping their children safe day-to-day, but they rarely engage in any estate planning to keep the kids safe in the event that something should happen to them. At a minimum, you need a will naming guardians for your children if something should happen to you and your spouse. Without a will, you will leave this to be handled by whoever the court appoints. Plus, if there is life insurance involved, relatives will come out of the woodwork and offer to take the kids.

One solution is to create a trust for the children when they are minors so something is in place for their financial support in the event you pass away. You would need to designate a person or persons in the will to serve as trustee. However, many parents delay this because they can’t figure out who to designate as guardian for their children. This decision can be complicated with blended families. So many just postpone thinking about this important decision.

The wisest selection to make is an adult sibling, cousin or a friend who lives close by. You should discuss this with family members and friends. Talk about who you would like to raise your kids.

Estate planning makes things easier for those you leave behind if something should happen to you. Visit an experienced estate planning attorney and get this done now.

Reference: CBS Boston (August 27, 2015) “Where There’s A Will There’s A Way!”

The Lowdown on IRAs

Self-employed people need to save for retirement, and a tax-advantaged retirement plan is the best way to accomplish this. Designed for the self-employed, the Simplified Employee Pension (SEP-IRA) and the Solo 401(k) are relatively easy to set up. Both plans offer tax-deductible contributions, enabling you to cut your taxes and get tax-deferred growth. Another plus: you can still reduce your 2014 federal income taxes because either plan allows you to contribute up until your tax-filing deadline, including the six-month extension. If you got an extension and haven’t filed your return yet, you have until Oct. 15 to make 2014 contributions to your plan. However, while a SEP-IRA can still be established up until Oct. 15, those who wish to make a profit-sharing contribution to a Solo 401(k) must have established the plan by Dec. 31, 2014.

Which plan is the one for you? The main features and the pros and cons of each are listed in Physician’s Money Digest, “Self-Employed Can Still Cut 2014 Taxes with a Retirement Plan.”

An SEP-IRAis similar to a traditional IRA in that the investment earnings grow taxed-deferred until they are withdrawn. However, a self-employed individual can save and deduct much more than the $5,500 ($6,500 if 50 and over) for contributions to a traditional IRA. SEP-IRA contribution limits are calculated as the lesser of 20% of net business income or $52,000 for 2014, $53,000 for 2015.

A Solo 401(k) is for self-employed individuals with no employees. Your spouse is not included in the employee count and is permitted to contribute to the plan if he or she is employed by the business. This 401k can be structured as a traditional 401(k) or as a Solo Roth. The maximum 2015 contribution is $53,000 or $59,000 for those 50 and older. The contribution includes (i) an annual employee deferral up to 100% of compensation or earned income for a self-employed individual (to a maximum of $18,000 and $24,000 if 50 or older), which allows some to contribute more to a Solo 401(k) than to a SEP-IRA; and (ii) an employer discretionary contribution of up to 25% of compensation as defined by the plan or 20% of earned income for a self-employed individual.

One advantage a 401(k) offers over an IRA is that you can borrow from a 401(k). If you opt for Solo Roth 401(k), there’s no deduction, but withdrawals are tax-free if you wait until you’re 59½. The plan lets you save much more than a Roth IRA. Another advantage for the Solo Roth 401(k) is that contributions aren’t subject to income limits (unlike the Roth IRA).

Which is better… a Roth or traditional IRA?It depends on many factors. If you expect to be in a higher tax bracket in the future, the Roth version may make more sense, but if your current tax rate is low, it might be better to forgo a deduction now in order to withdraw money tax-free when you’re in a higher bracket in the future. What’s nice is that it doesn’t have to be an “either-or” proposition: you can have both traditional and Roth 401(k) plans and divide contributions between them.

For most self-employed individuals, the SEP-IRA may be a better choice than a traditional IRA because the contribution limits are much higher. Also, deductions for traditional IRA contributions are limited by income for participants who are covered or whose spouse is covered by a retirement plan at work.

Talk to a qualified estate planning attorney to see how these IRA options may fit into your strategy.

Reference: Physician’s Money Digest (August 27, 2015) “Self-Employed Can Still Cut 2014 Taxes with a Retirement Plan”

Know When to Update Your Estate Plan

Updating your estate plan isn't something you think about too often. Why should it be? You're happy, healthy, and you have a good life. Letting the negative "what ifs" creep in only puts a damper on your day. As painful as it is to consider, estate plans are critical. If anything happens to you, it's important to know your loved ones are taken care of and your wishes are honored. Throughout life, those last wishes change with the major events you go through.

The Huffington Postrecently posted an article titled “9 Life Changes That Require An Estate Plan Review.” These life changes, if nothing else, signal when you should update your estate plan.

Marriage. Did you know that your spouse may not be the sole beneficiary or heir of your estate?Depending on where you live at the time of your death, this may be unknown without a solid estate plan. To ensure your spouse, or anyone else gets certain belongings from your estate, you need to detail this in your plan. When you wed, you should review your estate plan and make any necessary adjustments.

Remarriage. A marriage license typically doesn’t set up your new spouse to receive your entire estate after your pass away. The laws of most states say that your new spouse will share in your estate assets along with your children from your first (or previous) marriage unless you change this in your will, living trust, or other estate planning document. If you get remarried, it's critical that you update your estate plan to add your new spouse and any of his or her stepchildren should you want them to inherit from you.

Divorce. Typically when a divorce decree is entered, the laws automatically disinherit a former spouse. Nonetheless, if you included provisions in your estate plan that give specific property to your former spouse by name, make sure to change this to disinherit him or her.

Birth of a Child. This big change definitely qualifies for an update of your estate plan to protect your child or children. You need to nominate guardians to care for your children in case something happens to you. If not, your children will be cared for by guardians appointed by the court. That could be anyone. Same thing applies if you adopted a child. Designate a guardian to care for your child in your will.

Death of a Beneficiary. Updating your estate plan may be the furthest thing from your mind if this should occur. However, it's important. If your beneficiary dies, you will need to ensure your estate plan still does what you want, such as if the beneficiary had children and you want his or her portion to go to them. You’ll typically need to talk to your estate planning attorney to make sure that happens.

Illness or Disability. One often overlooked aspect of estate planning is illness or disability. There are lots of things to consider regarding your care, and you need to articulate your desires before you become ill, disabled, or incapacitated. This can save your loved ones heartache. In addition, you need to think about the situation if you passed away and one of your beneficiaries became incapacitated. Money from your estate could actually harm them by causing him or her to be ineligible for needs-based government care programs. You need to look at a special needs trust. Plan for both of these scenarios by updating your estate plan before anything happens.

A Substantial Increase in Assets or Income. If you have more money or assets now than when you first created your estate plan, then that is a good thing up to a point. That point is when you and your beneficiaries are subject to federal or state estate taxes. Your estate planning attorney can structure your estate to minimize these taxes and keep more money for your estate.

Moving to Another State. Every state has its own unique set of estate laws, so you should talk to your estate planning attorney.

Changes in the Law. State and federal tax and estate laws are always changing. When this occurs, your estate plan may be at risk.

Review your plan with your attorney to make sure everything is OK.

Reference: The Huffington Post (August 17, 2015) “9 Life Changes That Require An Estate Plan Review”

How to Care for Your Pet … After You Pass Away

We love our pets. Nearly two-thirds of all Americans have a pet, and among those who do, nearly 70% have a dog; 50% have a cat; 11% have fish; 8% have birds; and 7% have horses, rodents or reptiles. Nearly 90% of all pet owners consider their pets to be part of their family, and in some cases, their pets are their only family. Many pet owners, however, are unaware or uninformed as to what might happen to their pets should they die or become incapacitated. Traditionally, a legal obstacle to leaving money to care for pets, both during life and after death, was common law. Pets had been treated historically as personal property and therefore could not own property in their name – nor could they be beneficiaries of a trust. That began to change in 1990 when the Uniform Probate Code was amended to recognize the creation of Pet Trusts, and states began to enact pet trust laws that govern in the event of an owner’s death or disability.

The Naples Daily News recently published an article, “Pet Trusts Gaining Popularity.” The article describes how the state of Florida enacted laws that authorized the establishment of pet trusts in 2003. These rules allow for people to provide for the care and maintenance for the lifetime of their pets.

Now almost every state recognizes these trusts (which vary in each state). A named trustee will typically be responsible for the investment, management and distribution of the trust assets. Another individual is named to avoid conflict of interest as the pet’s caregiver. The trust will include details for caregivers, medical needs, and the final arrangements for the pet’s death.

However, Internal Revenue Code typically doesn’t recognize pet trusts, as an animal isn’t a “person” by definition. The trust wouldn’t work because it doesn’t have a legal "beneficiary.” Nonetheless, the IRS does recognize pet trusts for tax purposes.

If the trust is validly established under state law, the assets passed to a pet trust are included in the decedent’s gross taxable estate. But no part of the assets qualifies for a charitable deduction—even if the remainder beneficiary after the passing of the pet is a qualifying charity.

You should speak with a qualified estate planning attorney because estate taxes and other expenses attributable to the trust will need to be considered when drafting a pet trust. Planning for your pets can be an important part of your estate planning process. Make sure that all members of your family—including your pets—are cared for in your estate plan.

Reference: Naples Daily News (August 17, 2015) “Pet Trusts Gaining Popularity”

Estate Planning Lessons in the Death of Whitney Houston’s Daughter

Bobbi Kristina Brown’s tragic death offers a number of poignant end-of-life lessons for parents, young adults, and seniors alike. First and foremost, health and legal experts say Brown’s death spotlights the need for establishing written advance medical directives as early as age 18. These include the designation of a healthcare proxy, a living will, and a “HIPAA Release,” clearing the way for a healthcare agent to communicate with providers about the care of a patient who is in a coma or otherwise incapacitated. Such planning is typically viewed as a concern for older Americans, but younger people — like Brown — can also find themselves unable to communicate their end-of-life wishes as a result of accidents, brain injuries, infections, or other illnesses.

Last week’s NewsMax article, titled “End-of-Life Lessons of Bobbi Kristina's Tragic Death,” suggests that parents of college-bound freshman (18 and older) should think about having a healthcare designation, a living will, HIPPA release, and durable power of attorney prepared for the ‘new’ adult so that parents can act on behalf of their kids if the unforeseen occurs.

Bobbi Kristina was only 22 and the only child of the late Whitney Houston and Bobby Brown. She passed away after a very public six-month family fight over how to treat the comatose Brown, after she was found face-down in a bathtub in the Atlanta townhome she shared with her boyfriend Nick Gordon.

This story illustrates the difficulties families deal with when confronted with complex healthcare decisions. The article emphasizes the need to create advance medical directives to help family members of patients. These end-of-life instructions should be in a legal document, prepared by an estate planning attorney so that it satisfies the requirements of state law. The directives should include:

• A Healthcare Designation. This is a very critical part of an advance directive, as a “healthcare designation” or “healthcare proxy” names an individual you authorized to make medical decisions for you, if you are unable to do so on your own. This friend or relative is given what is also called “durable healthcare power of attorney (POA).” This allows them to speak on your behalf.
• A HIPPA Release. This allows your proxy to communicate with your healthcare providers about your care.
• A Living Will. This formal statement communicates your wishes for medical care should you end up in a “persistent vegetative state” with little or no chance of recovery, and you can’t communicate your wishes. Talk to an estate planning attorney as every state has its own regulations for living wills.
• Treatment Restrictions. You should spell out exactly the circumstances under which you would want to have life-sustaining care or when you want to pass, many times with only medication for pain. Distribute copies to your doctor, family members, and (if appropriate) close friends. The article lists several specific treatments you might want to address:

• A Do Not Resuscitate (DNR) Order. This states that you do not want providers to perform extraordinary measures (like CPR) if your heart or breathing stops.
• Mechanical Ventilation. State when and for how long you would want a mechanical respirator to take over your breathing.
• Nutritional Assistance. Discuss your feelings about nutrition if you could only be fed through an intravenous or stomach tube.
• Dialysis. Kidney failure can be the first step toward death in terminal patients. State parameters around which you would want this treatment.
• Brain Death. State what you would want if your brain function was deemed minimal or immeasurable.
• Organ Donation. Make your wishes known if you want to donate your organs and tissues for transplantation.

It’s no shock that end-of-life planning is a difficult topic to discuss. Just 26.3% of Americans have completed advance directives, according to a 2013 study. But as the Bobbi Kristina Brown case shows, it’s important and never too early to discuss this topic with spouses, family members, partners, adult children, and parents.

Reference: NewsMax (July 31, 2015)“End-of-Life Lessons of Bobbi Kristina's Tragic Death”

Check Out This Estate Sale!

The Orange County Public Administrator’s Office has dealt with its share of unusual inheritances. There was the protection they once had to arrange for a $500,000 ring. And there was the pet eel. But theupcoming estate sale of Gerald Willits, a Buena Park man who died in August 2014 and left 69 cars in his yard, is “very unusual,” according to Elizabeth Henderson, chief deputy public administrator for the Orange County District Attorney’s Office. “A lot of times, we get a couple of cars; occasionally we’ll get a fancy sports car,” she said. “But this is massively interesting.” And not only because of the cars.

The one thing that’s lacking in this story is a legally recognized beneficiary, according to The Orange County Register. “A Buena Park plumber's death left behind 69 cars and one big mystery,” tells the story of the cars’ owner, who created three wills which all disinherited his only child, Melinda Willits Sanchez, a resident of Hawaii.

The most recent will designates a California charity as the beneficiary. However, this one isn’t considered valid because it’s a copy, which leaves the 1996 will in play. That one has the estate going to his parents, who were already deceased. As a result, the county is trying to settle an estate that is basically “up for grabs.” Several people are making claims.

Gerald Willits was a plumber and, in addition to all of the vehicles, he also owned four homes that together are worth at least $1.2 million. Willits was a pack rat who was cited for trash, overgrown trees, peeling paint, a lack of running water, and housing inoperative vehicles on his property. He was eccentric and a very private person.

The auto auction is scheduled for September 1 and is expected to net $60,000 to $150,000 from 110 “lots.” This sale includes a 1930 Ford Model A Roadster and a 1965 Volkswagen van. There will be dozens of Fords, Chevys, rusted flathead V8s, as well as an experimental aircraft.

Many people believe that the Public Administrator is trying to get the estate, but that never happens. That office is entitled to a maximum of 4% of the estate’s value under California law.

Don’t have your loved ones fighting over your massive collection of cars or other assets of your estate. Talk to an experienced estate planning attorney. He or she can help you draft a legal will and other estate planning documents to ensure that your wishes are carried out properly.

Reference: The Orange County Register (August 17, 2015) “A Buena Park plumber's death left behind 69 cars and one big mystery”

New Regulations Affect Family Limited Partnerships and Family LLCs

The Internal Revenue Service is about to toughen the rules on a type of investment vehicle that has been abused by some very wealthy families to avoid millions of dollars in taxes. The wealthy are allowed to use family limited partnerships, family limited liability companies and their variants to hold family businesses, real estate or other illiquid, hard-to-value investments. And they can discount the value of the assets because that is seen as the only way people outside the family would buy in, particularly since nonfamily members have no control over what the partnership does. But some partnerships have put marketable securities, even cash, into the entities and still claimed a discount even though the investments have a value that is easy to determine. Others have taken steep and unreasonable discounts on the value of the partnership shares solely on the basis that the entity itself is family-owned. A few have gone so far as to value the assets they hold at a steep discount for estate tax purposes only to turn around and liquidate the partnerships and distribute the cash as soon as the statute of limitations on estate tax audits has passed.

The New York Times recently reported more on this subject in “Navigating Tougher I.R.S. Rules for Family Partnerships.” It appears that there may be new regulations restricting what will be allowed with family partnerships. There’s no definitive information on the exact terms of those regulations, their effective date or whether or not the wealthy should scramble to make transfers now.

The White House estimated in 2012 that closing this loophole could net at least $18 billion in tax revenue over 10 years. Assets in family partnerships, like securities and cash, still have a value that does not support a discount of 30%. Some advisers argue that the partnership, not the individuals, controls when securities are bought and sold and distributions are made. However, tax experts expect that entities set up to hold businesses or assets that require consolidated management, like rental properties, will still see some discount.

If a family has significant real estate, typically they use discounts to transfer interest in the entity. If you’re already setting up a partnership or making gifts to one to accelerate what they were doing, get it in under the deadline. The IRS won’t make the date retroactive, so get going.

Talk to your estate planning attorney about how this change may affect your estate planning.

Reference: The New York Times (August 17, 2015) “Navigating Tougher I.R.S. Rules for Family Partnerships”