Wednesday, July 31, 2013

Learning from the mistakes of others

In the arena of estate planning, there’s a lot to be learned from the mistakes of others. Tim Cestnick, author of several tax and personal finance books, offers some examples.

1. Don’t die intestate.

Dying without a will is called dying intestate.

When Jimi Hendrix died at age 27, he didn’t have a will. Despite being very close to his brother, the laws of the jurisdiction where he lived dictated that his estate was inherited by his father, who left it all to an adopted daughter from another marriage.

Without a will, the intestacy laws of your province will dictate who gets what – which may not jive with your wishes.

If you’re unmarried, for example, but have a partner, he or she may not be entitled to any of your assets upon your death if you don’t have a will.

And keep your will updated. When actor Heath Ledger died in 2008, his will was five years old; he hadn’t updated it when his daughter was born, so she wasn’t mentioned in his will and he left everything to his parents and sisters (he wasn’t married).

2. Watch the impact of specific bequests.

A woman I once met left her cottage to her son and her investment portfolio to her daughter. She thought she was treating them equally. There was a sizeable tax liability owing on the cottage upon her death. The only liquid assets available to pay the taxes were part of the investment portfolio.

In the end, the daughter was short-changed since the tax bill was paid out of her inheritance. The woman’s will could have been worded differently to avoid this problem. When you leave specific bequests to certain beneficiaries (including by way of joint ownership or by naming individuals as beneficiaries under your registered plans, for example) your estate may be short on cash to pay taxes or debts, leaving the taxman or creditors chasing beneficiaries for the money.

3. Avoid the wrong executor.

A reader recently wrote me to share the story of a woman who died at age 86. This woman had named her best friend, who was the same age, as executor in her will. Within two weeks of the woman passing away, her best friend also died, leaving the woman’s estate without an executor. This caused additional costs and delays in distributing her estate. When you choose an executor, choose someone who is very likely to still be around when you die (generally someone much younger) and name an alternative executor in the event your named executor is unable or unwilling to act in that role.

4. Protect your kids from a first marriage.

A gentleman I knew was in a second marriage, but his children were from a first marriage. Upon his death, he left all of his assets to his second wife who, upon her death, left everything to her own children from her first marriage. The gentleman’s children received nothing. There are different ways to ensure your children do receive what you intend for them, including leaving assets to them outright upon your death, or placing assets in a spousal trust where your second spouse can access the income of that trust, but not the capital, leaving that capital to pass to your children upon your second spouse’s death. Pre-nuptial agreements can also play a role here.

5. Remember that promises aren’t binding.

Before his death, Marlon Brando promised his caregiver, Angela Borlaza, his house, but did not write it into his will. Ms. Borlaza went to court and had to settle with his estate. Even a letter of wishes, which details who you’d like to receive your personal effects, is not binding. The late Diana, Princess of Wales, prepared a letter of wishes that left certain assets to her children and godchildren. It wasn’t followed, and the godchildren received only trinkets. A letter of wishes is still a good idea, but if you feel very strongly about specific assets, you may want to distribute those assets by way of your will.

Tuesday, July 2, 2013

Estate Planning Made Easy: Establishing Trust Bank Accounts

Huffington Post’s guest blogger, Diane Morais of Ally Bank addresses the question “How can I ensure the financial security of my family after I'm gone?"
It's an important question that we all wrestle with -- and one that has fueled an expansive network for estate planning products and services to address this important concern. If you're like most people, chances are you've been working a lifetime to build a nest egg that you can pass along to your children and loved ones. An important element of the estate planning strategy is maybe the simplest component of them all -- how to handle common bank accounts.
With many Americans now able to save for the first time in years, many are evaluating bank accounts that are ideally suited for trusts -- often on the advice of their financial planner -- to firm up their own savings while simultaneously easing the burden on their beneficiaries. There are numerous benefits:
•   Assets secured in accounts for trusts can be transferred almost immediately and without extra costs to beneficiaries when necessary
•   Accounts for trusts can be established in any amount, and those established at Member FDIC banks are insured for at least up to $250,000 per depositor
•   Some banks that offer deposit products for trusts -- such as Ally Bank -- allow them to be established by converting an already-existing savings, money market, or CD account
•    Any individual -- or organization -- can be named as a trustee

Establishing a trust
Establishing accounts for trusts does require a few steps; however, the process is hardly painful. The first step is to set up a living trust agreement, which transfers some or all of your assets to someone who will manage the trust (typically, people name themselves as the trustee; this allows them to retain control of the trust's assets). As part of the trust agreement, you also name beneficiaries who will inherit the trust upon your death. Establishing a living trust requires some paperwork and it's recommended to involve a lawyer in drafting the agreement.
The second step is even easier -- contact a bank that offers deposit accounts for trusts and provide them with the documentation. The process will differ based on the bank you use, but many, including Ally Bank, will provide step-by-step instructions for establishing these accounts.
The short process more than makes up for itself when one considers that the primary benefit of an account for trust is the ability to bypass the probate process upon the grantor's death -- which may save quite a bit of money and time for trustees as well as protecting your privacy by avoiding the often public probate process.
Call for an appointment to learn how an account for trust might fit into your estate planning strategy.