How Do I Lessen the Chance of My Children Fighting at My Death?

There are several actions that a parent can take to decrease the chance of a fight after her death, says nj.com in its recent article, “My brothers might start a fight over mom’s will. What can she do about it?”

Trying to decide how to divide property is a common estate planning challenge. Some people decide inheritances should be split among heirs equally, with the same amount left to each heir. Others decided to divide their estate “equitably,” in some other way that is considered fair.

It may not be clear if the parent is looking to leave her only daughter the house and other assets to her sons, or if she plans to distribute her assets unevenly. If the home is valued similarly to whatever other assets the parent is leaving her sons, there may not be a fight.

However, if the house represents most of the parent’s net worth and the sons’ inheritances will be much smaller, it could create hard feelings.

The brothers can’t contest the will simply because they think the inheritance is unfair. In New Jersey, the primary reasons to contest a valid will are either because the decedent lacked testamentary capacity or was subject to undue influence.

An attorney can help draft a will that will prepare in advance for either of these grounds for a will contest. As far as testamentary capacity is concerned, an attorney should test the parent before allowing her to sign the will.

Another option would be for the parent to tape a video that shows her signing the will. This would make it more difficult for her sons to claim she didn’t have mental capacity.

The parent can also include language in the will explaining why the inheritance isn’t equal. If they see the reasoning behind her decision—and it’s rational—they may be less likely to allege undue influence.

She may want to prepare a letter of intent to explain her reasoning. This is not a legal document but may be helpful, if the will is contested.

Another option is a no-contest clause. However, these are frowned upon in New Jersey. A no-contest clause states that if an heir challenges the will and loses, then he or she will get nothing.

Another option would be for the parent to change the deed to her house to a life estate deed.

An estate planning attorney needs to be consulted to prepare the estate plan with the mother, so that she can be sure that her wishes are followed. The attorney will also be able to provide some helpful insight on the family dynamic.

Reference: nj.com (May 3, 2019) “My brothers might start a fight over mom’s will. What can she do about it?”

Key Terms: Inheritance, Estate Planning Lawyer, Will Contest, Undue Influence

What Happens When Inheritance Taxes are Paid Late?

It’s not that uncommon for an elderly relative to pass away, and for younger family members to be tasked with cleaning out her home. That can take some time.

If the siblings started cleaning up the place but it took a year to sell the home, there may be some tax issues.

Because of the delay, perhaps a sibling didn’t pay the inheritance tax on time, because the home wasn’t yet sold. The taxes were finally paid, with interest, but the question arises, could the sister have used a “guesstimate” for the value of the home to pay the inheritance tax on time? Or could she have asked for an extension or an amended return?

nj.com’s recent article, “Inheritance taxes were paid late, with interest. Can we get a redo?” explains that an extension of time to file the return can be obtained for up to four months with another two-month extension without explanation. However, the taxes must still be paid. If not, interest accrues at the rate of 10% per annum.

Interest payments could’ve been avoided, by getting a market analysis from a real estate agent to assess the value of the home. Each of the beneficiaries could have then paid their estimated share of the tax from their personal funds, assuming there were not enough liquid assets in the estate to pay the tax.

If the beneficiaries were not willing to do so, and there weren’t enough liquid funds in the estate to pay the tax until the house was sold, it may be that a fiduciary had no other option but to let interest accrue, until funds were available to pay the tax.

Also note that not every expense that’s paid by an estate, is available as a deduction on the inheritance tax return. However, if the deductions that are available weren’t taken on the original return, an amended return can be filed prior to a Notice of Assessment or other such notice being received from the Division of Taxation. That will close the matter.

Appeals and applications for refunds at that point may be made. However, limited time periods and certain procedures must be followed.

An estate planning attorney would be able assist with preparing and filing this type of return and reduce the risk of the taxing authority auditing the estate returns. The cost of working with an attorney would no doubt be less than the time and expense of handling this aspect of the estate incorrectly and racking up taxes and penalties.

Reference: nj.com (April 24, 2019) “Inheritance taxes were paid late, with interest. Can we get a redo?”

Suggested Key Terms: Estate Planning Attorney, Inheritance Tax, Tax Planning, Estate Tax

Should I Leave an Inheritance to My Kids?

Some retirees make a big mistake and give their retirement savings away without considering their own income needs. Before you make gifts to others, take a look at how much to spend on yourself. Determine how much you need to save and how much you can withdraw each year, when you retire.

Investopedia’s article, “Challenges in Leaving Inheritance to Children,” says to consider the effect of inflation and taxes and maintain a diversified portfolio of growth and income investments to help your portfolio keep pace with inflation.

The biggest unknowns with retirement income and children’s inheritance are unexpected illness and high healthcare costs. Government programs are frequently not helpful in paying for nursing homes and other forms of long-term medical care. Medicare covers nursing home stays for a very limited period. Medicaid mandates that you spend nearly all of your own money, before it will pay for long-term care. You can’t just move assets to family members to qualify for Medicaid, because the program restricts benefits, if asset transfers were made within five years prior to applying for Medicaid. The rules are tricky, when it comes to eligibility.

You can protect your assets from the costs of catastrophic illness with a long-term care insurance policy. However, these policies can be very expensive and have coverage limitations. Consider them carefully.

What happens if you outlive your retirement funds? With longer life expectancies, it’s crucial to try to manage retirement-plan withdrawals, so you do not deplete all of your assets during your lifetime.

You could purchase an immediate annuity with some retirement money to ensure a guaranteed amount, for at least as long as you live. Some pension and retirement plans may allow you to stretch payments over single or joint life expectancies, rather than receive the proceeds as a lump sum.

If you expect to inherit assets from your parents, you may be in a better position financially than someone who doesn’t expect to receive an inheritance. Note that certain inherited assets, like stocks and mutual funds, are eligible for a favorable tax treatment called a step-up in basis. If you are leaving assets to others, this could mean significant savings for heirs.

You may also want to set up a trust to control distributions from the estate to the surviving spouse and children. If you or your spouse have children from previous relationships but don’t have a prenuptial agreement, trusts can ensure that specific assets are passed to designated children.

You may share your wealth with others by gifting assets, creating a trust, deferring income or purchasing life insurance or tax-deferred variable annuities.

Talk to an estate planning attorney to determine the best options for your circumstances.

Reference: Investopedia (November 26, 2018) “Challenges in Leaving Inheritance to Children”

Suggested Key Terms: Estate Planning Lawyer, Inheritance, Medicaid, Medicare, Trusts, Life Insurance, Annuity

Communicate Your Wishes and Have the Documents in Place

Without a will or other estate planning documents, your property is distributed according to the law of intestate succession in the state where you live at the time of your death. That means any wishes you might have as to how your assets are distributed will not be considered, says the article “Make Your Wishes Known” from the Concord Monitor.

If you want to have a say in what happens to your property, including financial accounts and personal items, you need a will. However, that’s not the only document you need. Here’s a list of the documents that are part of an estate plan.

Last will and testament. This transfers property through the probate process. It ensures that you get to tell others how you want your assets distributed. It may include naming a guardian to be responsible for a minor or incapacitated heir’s personal care and assets.

If you have minor children, you may wish to include a testamentary trust so assets can be managed, and their distribution controlled. If your family includes an individual with special needs, you’ll want a Special Needs Trust (SNT), so they do not lose their eligibility for government benefits.

There are many different types of trusts, and they serve different purposes.

Revocable Trust. This can distribute property without going through probate. It also preserves privacy, since documents do not become public. To avoid probate, the trust must be funded during your lifetime, by changing the title on assets from your name to the name of your revocable trust. That may include bank and investment accounts, personal property and real estate. Income, dividends, gains and losses continue to be reported on your tax returns, while you are living.

If you own a business, talk with your estate planning attorney about whether the ownership of the business should be transferred to a trust.

Married couples should speak with their estate planning attorney about having a joint trust together, or if they should each have separate trusts for estate tax planning, creditor protection, protecting children from prior marriages, or ensuring the continuation of a family business.

You may need a pour-over will with your revocable trust, so assets may be transferred into the revocable trust that are outside of the trust at the time of your death. Your estate planning attorney will be able to discuss this in detail, to see if it is a good option.

Joint ownership. If assets are owned in joint tenancy, property automatically transfers upon death to the surviving joint owner. It is not affected by your will and is a way to avoid probate. However, there may be a loss of control and there may be gift, estate, or income tax consequences.

Beneficiary designations. Life insurance, retirement assets, annuities and other Pay on Death accounts all have a person named to receive the asset upon the death of the owner. Every asset you own with a beneficiary designation should be checked every few years to make sure the right person is set to receive the asset. The beneficiary designation supersedes anything written in your will. There should always be a primary and a secondary beneficiary named, just in case the primary predeceases you or does not want to accept the asset.

Power of Attorney. Everyone should have a Power of Attorney, in the event of incapacity. This permits someone to act as your agent in any financial matters. There is also the Health Care Power of Attorney, which gives another person the authority to make health care decisions on your behalf, if you are not able to communicate your wishes.

All these documents should be the foundation of your estate plan. Each person’s situation is different, but an experienced estate planning attorney will help determine what you need.

Reference: Concord Monitor (April 22, 2019) “Make Your Wishes Known”

Suggested Key Terms: Last Will and Testament, Revocable Trust, Will, Pour-Over, Power of Attorney, Health Care Power of Attorney, Beneficiary Designation, Special Needs Trust, Joint Ownership

Estate Planning Hacks Create More Problems

The estate planning attorney in this gentleman’s neighborhood isn’t worried about this rancher’s plan to avoid the “courtroom mumbo jumbo.” It’s not the first time someone thought they could make a short-cut work, and it won’t be the last. However, as described in the article “Estate planning workaround idea needs work” from My San Antonio, the problems this rancher will create for himself, his wife, and his children, will easily eclipse any savings in time or fees he thinks he may have avoided.

Let’s start with the idea of putting all the man’s assets in his wife’s name. For starters, that means she has complete control and access to all the accounts. Even if the accounts began as community property, once they are in her name only, she is the sole manager of these accounts.

If the husband dies first, she will not have to go into probate court. That is true. However, if she dies first, the husband will need to go to probate court to access and claim the accounts. If the marriage goes sour, it’s not likely that she’ll be in a big hurry to return access to everything.

Another solution: set the accounts up as joint accounts with right of survivorship. The bank would have to specify that when spouse dies, the other owns the accounts. However, that’s just one facet of this estate planning hack.

The next proposal is to put the ranch into the adult children’s names. Gifting the ranch to children has a number of irreversible consequences.

First, the children will all be co-owners. Each one of them will have full legal control. What if they don’t agree on something? How will they break an impasse? Will they run the ranch by majority rule? What if they don’t want to honor any of the parent’s requests or ideas for running the ranch?  In addition, if one of them dies, their spouse or their child will inherit their share of the farm. If they divorce, will their future ex-spouse retain ownership of their shares of the ranch?

Second, you can’t gift the ranch and still be an owner. The husband and wife will no longer own the ranch. If they don’t agree with the kid’s plans for the ranch, they can be evicted. After all, the parents gave them the ranch.

Third, the transfer of the ranch to the children is a gift. There will be a federal gift tax return form to be filed. Depending on the value of the ranch, the parents may have to pay gift tax to the IRS.  Because the children have become owners of the ranch by virtue of a gift, they receive the tax-saving “free step-up in basis.” If they sell the ranch (and they have that right), they will get hit with capital gains taxes that will cost a lot more than the cost of an estate plan with an estate planning attorney and the “courtroom mumbo jumbo.”

Finally, the ranch is not the children’s homestead. If it has been gifted it to them, it’s not the parent’s homestead either. Therefore, they can expect an increase in the local property taxes. Those taxes will also be due every year for the rest of the parent’s life and again, will cost more over time than the cost of creating a proper estate plan. Since the ranch is not a homestead, it is subject to a creditor’s claim, if any of the new owners—those children —have a financial problem.

We haven’t even mentioned the family business succession plan, which takes a while to create and complements the estate plan. Both plans exist to protect the current owners and their heirs. If the goal is to keep the ranch in the family and have the next generation take the reins, everyone concerned be better served by sitting down with an estate planning attorney and discussing the many different ways to make this happen.

Reference: My San Antonio (April 29, 2019) “Estate planning workaround idea needs work”

Suggested Key Phrase: Estate Planning, Family Business, Joint Ownership, Heirs, Federal Gift Tax Return, Step Up In Basis, Capital Gains Taxes

Here’s Why You Need an Estate Plan

It’s always the right time to do your estate planning, but it’s most critical when you have beneficiaries who are minors or with special needs, says the Capital Press in the recent article, “Ag Finance: Why you need to do estate planning.”

While it’s likely that most adult children can work things out, even if it’s costly and time-consuming in probate, minor young children must have protections in place. Wills are frequently written, so the estate goes to the child when he reaches age 18. However, few teens can manage big property at that age. A trust can help, by directing that the property will be held for him by a trustee or executor until a set age, like 25 or 30.

Probate is the default process to administer an estate after someone’s death, when a will or other documents are presented in court and an executor is appointed to manage it. It also gives creditors a chance to present claims for money owed to them. Distribution of assets will occur only after all proper notices have been issued, and all outstanding bills have been paid.

Probate can be expensive. However, wise estate planning can help most families avoid this and ensure the transition of wealth and property in a smooth manner. Talk to an experienced estate planning attorney about establishing a trust. Farmers can name themselves as the beneficiaries during their lifetime, and instruct to whom it will pass after their death. A living trust can be amended or revoked at any time, if circumstances change.

The title of the farm is transferred to the trust with the farm’s former owner as trustee. With a trust, it makes it easier to avoid probate because nothing’s in his name, and the property can transition to the beneficiaries without having to go to court. Living trusts also help in the event of incapacity or a disease, like Alzheimer’s, to avoid conservatorship (guardianship of an adult who loses capacity). It can also help to decrease capital gains taxes, since the property transfers before their death.

If you have several children, but only two work with you on the farm, an attorney can help you with how to divide an estate that is land rich and cash poor.

Reference: Capital Press (December 20, 2018) “Ag Finance: Why you need to do estate planning”