One of the most important things you can do to protect your wealth and care for your family is creating a life and estate plan. An estate plan is your key to ensuring that your hard-earned assets are distributed (or saved or invested) as you designate. An estate plan is your family’s safety net. Unfortunately, too many people attempt to take shortcuts with their plan, and find themselves with a safety net that is falling apart just when they need it most.
Here are some of the worst mistakes families make and how you can easily prevent them.
1. Neglecting to fund your trust. A trust can be a wonderful tool for protecting your assets; flexible and customizable, a useful trust can be created for just about every situation. But a trust is like a strongbox—if you don’t fill it up it has nothing to protect. Accounts and assets must be put in the name of your trust for it to work as you’ve designed it to.
2. Not enlisting the help of an estate planning attorney. There are a number of Do-It-Yourself will and estate planning programs out there that promise you a full estate plan for a cheaper price; but estate plans are complicated things, requirements change depending on your state of residence, the size of your estate, the age and situation of your beneficiaries, and much more. If you aren’t able to work with an attorney to create your plan, at the very least we urge you to have an attorney review your plan before you sign it.
3. Neglecting to mention previous estate planning documents, or making unofficial changes in the margins of documents that have already been signed. When creating a will or a trust or any other common estate planning document it is usually necessary to revoke any previous documents so there is no confusion about which document is current and valid. Neglecting to do this can end with your assets tied up in probate court for months or years—or even worse, invalidating both documents completely.
4. Putting your plan somewhere safe—somewhere so “safe”, in fact, that nobody can find or access it! People recognize that estate planning documents are things of value, and as such should be protected in a locked filing cabinet or safe deposit box. Wherever you choose to store your documents, be sure one or two trusted individuals have not only the knowledge of where the documents are, but also the ability to access them. An estate plan does no good if it cannot be accessed when it’s needed.
5. And finally, one of the most common missteps that can sabotage your estate plan is failing to update your plan regularly. Not only do federal and state laws change periodically (as we have recently experienced) but also you will undoubtedly experience changes in your own life and fortune. Failing to update your plan to keep up with the law or with your own life can result in an estate plan that is as useful as a car you neglected to maintain—it may look fine on the outside, but it simply won’t run anymore.
Don’t Let Your College Freshman Leave Home Without These
The year your child turns 18 is the year your child becomes an adult in the eyes of the law. It’s hard for parents to make this transition to thinking of your child as an adult. After all they’re still dependent on you. That’s why many parents are surprised when suddenly school, state, and healthcare officials are no longer able to share information with parents due to privacy protection laws.
Parents of college freshman are often shocked to learn that even though they are paying $50,000 a year or more for college tuition and expenses, they are not entitled to get information about how their college student is doing unless the child shares it voluntarily.
That’s when they come face to face with the reality that when they turn 18 they are adults and have the same privacy rights as any other adult. This means that if you are going to be able to be there for your child in case of a medical emergency, your child needs these three documents.
- A Health Care Proxy lets the college allow you to be your child’s voice about medical decisions for example, if your college student child is unconscious and not able to communicate.
- Most important is a HIPAA authorization. The Health Insurance Portability and Accountability Act of 1996 requires health care providers and insurance companies to protect the privacy of patient’s health care information and means they won’t share health information with you without it.
- A Durable Power of Attorney will allow your child to authorize you to manage his financial affairs either immediately or in the future should he become mentally or physically unable to do so. This would authorize you to handle tasks such as paying bills, applying for social security or government benefits and opening and closing accounts if necessary.
Blended families face challenges and complexities in finding a way to leave assets to their spouses, stepchildren, children from previous marriages, ex-spouses, and other various people who become “family” when two existing families are combined.
A particularly painful, often overlooked, problem for blended families is: if you remarry, where are you buried after you pass away? Will your children reunite you with your first spouse? Or will your second spouse bury you in a new plot where he or she will join you in the future? Whichever the answer, there is a high probability there will be a fight about it!
Even the Kennedys Have This Problem.
Jacqueline Kennedy Onassis is buried next to John F. Kennedy, not Aristotle Onassis. Writer Jack Kerouac remains buried by his third wife, but only after his daughter from his second marriage lost her fight to disinherit him. Seem a little extreme? Some funeral directors claim fights such as this occur at least once a week. Over 40% of marriages today have a spouse who has been previously married.
In a recent situation, a son was fighting with his father’s new spouse about whether to bury his dad next to his deceased mother, or in a plot where his new stepmother would one day rest beside him. In Michigan, where this case occurred, the law lets the current spouse make the burial decisions, so the stepmother won. However, the funeral director informed the son that once his step mom passes away, he becomes his father’s next of kin and can legally disinter him and move the body.
The son promptly told his stepmother that she could bury his dad wherever she likes, but he will move the body as soon as she dies. Realizing her loss of control, the stepmom agreed to let her husband be buried next to his first wife, and refused to attend the funeral. This example shows how complicated blended family issues can become.
The Law Preempts?
Even people who write down burial instructions can get foiled by the law. The surviving spouse is allowed to make the burial decision in 60% of states. Some states have passed laws to allow written burial instructions by the decedent to prevail. Illinois and Kansas let you designate someone to make your funeral arrangements for you. This was partially in response to situations where gay lifetime partners had no legal ability to influence funeral arrangements.
To complicate matters, religious beliefs can also direct burial arrangements. For example, the Jewish custom is that if a deceased person does not leave any instructions, they should be buried with the person with whom they had children.
To some, being buried in a military cemetery carries great prestige and honor. The family of a veteran is allowed to be buried in the cemetery; however, if the veteran remarries, the first spouse may lose that right even if his or her children are buried there.
A Growing Issue
As the number of blended families continues to grow, this issue will become more and more common and will continue to tear families apart. Some current suggestions from funeral directors are:
Cremation, which enables the deceased’s remains to be divided between spouses and children;
Have the new spouse purchase a burial plot in the same vicinity as the deceased and his/her previous spouse;
Leave written instructions (though not always legally binding, the families will often adhere to them).
Dealing with these often overlooked issues in a thoughtful and caring way will enable blended families to think them through before they result in hurtful confrontations.
Today’s blog post examines one of the most common estate planning mistakes that people make. It's using joint ownership as a quick and "simple" fix in place of a well thought out comprehensive life and estate plan or seemingly simple solution.
Today I’m not talking about the common practice of using joint accounts between spouses. This has its own potential problems if it is seen as the ultimate "estate planning" solutions. And for couples in second-marriage situations or who may be subject to estate tax, including Massachusetts estate tax, there are important reasons not to hold all assets as joint owners.
But the area where I have seen significant unintended consequences and problems is when a parent adds a child's name to an asset, such as a bank account, investment, or real estate. This is often done to help with bill paying, used as a will-substitute to avoid probate court (often called a "poor-man's will"), or simply to help an elderly loved one who needs assistance managing his or her assets.
Too often, what seems like a well-intentioned simple solution created huge problems, including large legal fees and destroyed family relationships.
One example of how this kind of joint ownership of a bank account can backfire is this common situation that I see quite often. Margaret is 74 years old and depends upon her son, Joe who lives nearby. His brother and sister keep in touch but they both live in other states. Mom adds Joe's name to her checking and savings accounts (and sometimes even the house) "to make things easier" and to avoid probate. Here's just one common example of what can and often does go wrong with this seemingly simple "solution".
After Margaret dies, Joe's brother and sister naturally want to sit down and talk about her estate, but Joe says there is no estate that his name is the only name on everything and there is no need to probate or do anything. He may even claim that Mom intended that result because he was the one who was around and helping out, etc.
And by law, the surviving owner is presumed to be the 100% owner of the account and gets to keep everything. Meanwhile Joe’s siblings “know” this account was joint only as a convenience for their Mom. But their only recourse now is to bring a challenge to Joe’s claim in court to enforce their mother's actual intent. This leads to a protracted court battle and family relationships are destroyed in the process – probably forever.
Parents (and grandparents) of an adult disabled child often wonder what’s the best way to make provisions for that member of the family who will not be able to be self-sufficient. Parents generally try to consider the future non-financial needs of the child after the parents are gone. With whom or where will the child live? What housing options or assistance are available? What activities does the child enjoy? Next, there is a need to estimate the future financial needs of the child, taking into account projected government assistance.
When the parents of disabled children think about a financial and estate plan, they plan for their future, as well as the child’s. How will the parents’ estate be allocated to reach the goals they have for themselves and their child? They may consider leaving a larger share for the disabled child who has greater need than the other children. However, this is generally not a good option if government benefits may be needed, since most government assistance requires the recipient to have very low income, very low assets, or both. An outright bequest to the child or a trust which gives the child too much ownership over the money will disqualify the child from government assistance until the child spends down the trust assets.
Parents with disabled children understand the need to protect their own savings from risks during their lives. Nursing home costs pose a threat to every estate. Luckily, the Medicaid rules offer important special protections for parents of disabled children by allowing gifts to be made to supplemental needs trusts for the benefit of adult children with disabilities. These gifts do not create a disqualification or penalty period for the parents if they will need nursing home care for themselves in the future.
As part of their overall estate planning, parents of special needs children can have a portion (or all) of their estate stay in a trust for the benefit of their disabled child after they die. This can have several benefits. First, if done as part of a revocable living trust, the assets bypass probate.
Second, the assets will be managed by someone the parents choose, not by the guardian the court chooses, or by the child. Third, the parents can control what happens to the money when the child dies. Fourth, the parents can include guidance or legally binding directives about how the money is to be used for the child.
Finally, and sometimes of most importance, the trust can be drafted so as to not disqualify the child from government assistance. This is called a supplemental or special needs trust.
Even small amounts in a special needs trust can make a huge difference in the quality of life of a disabled child. For example, while the child’s basic needs could be met with government assistance, the trust could be used to provide “extras” like a television, a trip to visit relatives in California, (or tickets for relatives to visit the child), a special van, or computer with voice-recognition technology.