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.

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.

Six step checklist of your estate plan

Steve Shaw an estate planning attorney practicing in South Carolina and Florida offers this Six-step checklist of your estate plan.

1. Define your goals

2. Gather and organize your data

3. Analyze your situation

4. Develop your strategies

5. Implement your plan

Read the full article for details on each step. Shaw on the Law: Six-step checklist of your estate plan

Elder Abuse: How to stop it

The following is an excerpt from a recent article in The Mercury by Kathy Martin regarding elder abuse.

Our aging population is increasingly vulnerable to abuse, with financial exploitation having risen to the third most common form of elder abuse (following self-neglect and caregiver neglect). The message is that we need to step up and report abuse, or suspected abuse, when we see it.
Elder victimization is most concentrated in the very old, most victims are Caucasian and female, and a large proportion of older adult victims have cognitive difficulties. These statistics on victims are not surprising since cognitive issues increase in frequency in direct proportion to age, and the more help someone needs in their home, the greater chance of exploitation. Perpetrators spend time with their victims, and this time and attention results in gaining the trust of the victims. Many older adults are socially isolated, and the family member or other person who spends time with the older person becomes their new best friend and lifeline.
Victims fail to report exploitation even if they realize it is happening. They might fear the perpetrator, or fear being taken to a nursing home, or even fear losing the attention and time that the perpetrator is giving them. People have the right to make their own decisions, even if that decision seems like a poor choice. However, sometimes those choices are made out of fear or undue influence, and it becomes an invisible but very real problem.
As people age, everyone has changes in cognitive ability, especially in processing new information. This change in ability to understand new information, or even a great deal of information at once affects financial decision making ability. Add any cognitive deficits such as from depression or early dementia, and the senior’s ability to make good independent financial decisions can be compromised. It is easy for bad intentioned family members, or scammers, or new “friends” to step in.
What can we do to help our older family members or friends? One step is to make sure that older persons have good Power of Attorney documents in place before signs of dementia start occurring. If there are early signs of dementia, such as new aggressive behavior, anxiety, depression and/or confusion, assist the senior in seeking help and early intervention. Power of Attorney documents can be abused, but it is more protection than allowing a thief to gain control of the senior’s assets by gaining their trust when incapacity is already evident.

5 Estate planning documents all parents should have in place

When you're a parent, you can't imagine a time when you won't be around for your children. The reality is, however, that there is a possibility that during your lifetime, there might be a time when you are incapacitated or otherwise unable to make decisions about your care or your assets.

With that in mind, the best gift you can give to your children is a well thought-out estate plan. Kelly Phillips Erb lists the estate planning documents all parents should keep in one place.

1.Will

A will is a formal document which controls the disposition of probate assets following your death. Probate assets are those things that you own in your own name; non-probate assets, such as joint accounts or life insurance, do not pass according to your will but rather by titling or designations of beneficiary.

“WILLS AREN'T JUST FOR THE RICH.”

Wills aren't just for the rich. In addition to the assets you associate with wills — like bank accounts in your own name — a will allows you to designate how your personal tangible property will be distributed. You can think of personal tangible property as things in your home you can touch — your jewelry, furniture, car and other personal items.

You also have the opportunity to name fiduciaries under your will. This would include an executor, who would be responsible for handling the administration and disposition of your estate — including the filing of any income and inheritance tax returns. This would also include a trustee, who would manage any trusts created under your will for your children, who might not be old enough to properly manage assets on their own. Finally, if your children are still minors, you are able to designate a guardian under your will, who would care for your children after you are deceased. The executor, trustee and guardian can be — but don't have to be — the same person or persons. All of your fiduciaries should be a person or persons that you trust to make decisions.

2. General power of attorney

A general power of attorney is a document that allows you to name an agent to handle your financial affairs in the event that you become incapacitated or are unable for any reason to administer your finances during your lifetime. There are two kinds of powers of attorney — a durable power of attorney, which survives incapacity, and a nondurable power of attorney, which is generally used for limited transactions such as the sale of a home. A power of attorney can be immediate or springing — an immediate power of attorney is effective at signing while a springing power of attorney is effective only upon a triggering event, such as incapacity.

3. Healthcare power of attorney

A healthcare power of attorney is a document that allows you to name an agent to make health care decisions for you in the event you are incapacitated. A healthcare power of attorney only acts on your behalf if you are unable to do so and have not otherwise communicated your wishes. It's important to keep in mind that a healthcare power of attorney does not supersede your living will (see immediately below). Your healthcare power of attorney doesn't have to be a family member and should be someone you trust to understand your wishes and act accordingly.

4. Living will

A living will doesn't involve your assets at all, but rather focuses on your end-of-life care.

Also called an advance directive, health care directive, or a physician's directive, a living will allows the people you care about and your medical professionals to know what type of care you do (or don't) want to receive should you be permanently unconscious. A living will is only effective when you are not able to express your own wishes.

5. Temporary guardianship

In some states, you can also execute a temporary guardianship for your children. If you need to turn over the care of your children temporarily to another adult because you are having a medical procedure or are out of town on business, you may want to set up temporary guardianship. A formal temporary guardianship allows another person the right to approve medical treatment, sign permission slips for school or otherwise make decisions for the benefit of your children while you are not able to care for them.

Nobody wants to talk about estate planning when you're young. But you should — especially if you have children. Do yourself and your family a favor and make sure you have your estate planning documents in place now so that you don't force your family to worry about it later. If you need assistance with these documents, I’m available to meet with you.

Estate planning: it's ok to be charitable

Christopher W. Yugo, Times Business Columnist answers a frequent question in estate planning:

Q: I intend to leave all of my money to two charities but I'm concerned that my children will object. I'm worried they will challenge the will. Is there anything I can do to make sure that my wishes are carried out? Should I name someone other than a child executor?

A: First off, you can leave your property to whomever you want. If you want to leave it to a charity or the neighbor, you can do it. Now don't get me wrong, I understand why a child might be upset they are excluded. However, that doesn't mean that you can't or shouldn't do it.

As I've written before, will challenges are rare and successful will challenges are even rarer than that. There really needs to be a compelling reason to set aside a will. For example, a will can be set aside if it can be shown that the testator was subject to undue influence or if he wasn't competent to execute a valid will in the first place.

I wish there was a magic bullet to prevent a will challenge, but there isn't. If your kids want to challenge your will, they can do it. Fortunately, or unfortunately if you are the child, will challenges are expensive. That in itself could be enough to discourage a challenge.

I suggest you discuss your options with your attorney. He or she will be able to help you plan for trouble. Your attorney may suggest you obtain a letter from your doctor demonstrating your competency or perhaps suggest a video recording of the will signing be made. The attorney will almost certainly want to meet with you alone so the chances of a successful undue influence claim are greatly reduced. The key is bringing your concerns to your attorney's attention.

As for naming someone other than a child personal representative, I'm kind of torn. On one hand, naming a child personal representative may help your family understand why you were so charitable. On the other hand, it seems a little twisted to request a child you disinherited to administer your estate. If you decide to name someone other than a family member, you could contact your bank's trust department and inquire about it serving as personal representative. The bank will do its best to assure your instructions are carried out.

Finally, you might consider discussing it with your family ahead of time so they aren't surprised when you pass. Maybe explaining to them why you are leaving your property to the charity will help them understand and perhaps avoid hard feelings, and possible litigation.

Protecting your future: Inheritance can come with unintended consequences

Some people might want to avoid difficult conversations about inheritances by keeping silent and allowing family members to find out facts only when the estate is settled. However, waiting until the end opens the door to potential feuding and costly legal challenges.

The goal of proper planning is to make transfers as seamless and efficient as possible. Meeting that goal requires others to know what to expect when the time comes.

The article titled “Protecting your future: Inheritance can come with unintended consequences” by Bonnie Kraham, an elder law estate planning attorney in Wallkill, NY talks about how sometimes an inheritance can be unwelcomed, in which case the recipient can file a legal “disclaimer” (a legal form of saying “no” to avoid or reduce state estate taxes.

Failing to follow the rules properly can lead to many complications. If you are concerned that someone may want to disclaim their inheritance from you, or if you need to disclaim an inheritance, I’m available to answer questions and to meet with you.