Many of us think that estate planning is for very wealthy people only. You hear about the federal estate tax exemption of $3.5 million per person and think I don’t have that kind of money, why should I bother spending the money on estate planning?
No matter how much or how little money you have, you need a durable power of attorney, to have someone manage your bill-paying and banking affairs, and an advanced health care directive, which appoints someone to make medical decisions for you when you cannot make them for yourself. You also need to think about how you will be taken care of when you can’t take care of yourself. Is there a spouse who will have the strength and energy to take care of you when you are both old? Do you have children who can take care of you? Do they live on the other side of the country and have a job to help support their families? Do you have enough money to pay for assisted living or a nursing home? These are all questions that an estate planning lawyer can help you decide and plan for.
No matter how much or how little money you have, you need a will if you have minor-aged children. You need to appoint a guardian for your children and it must be in writing. Otherwise, you can have all of your relatives fighting over your children to be their guardian and a judge deciding which one of them will make the best substitute parent. Or you can have no one fighting over your children, and they have to go to foster care. Isn’t that a nightmare in either case?
If you have a blended family, you need a will to protect your assets from going to your spouse’s family and not to your children. Many couples struggle with the issues raised by having separate families. If you leave things to luck, you are almost guaranteed that chaos will follow after you die. It is smart to work through these issues now and get all your legal affairs in order.
Is one of your children a spendthrift? He spends more than he earns and has enormous credit card debt? Do you worry that any money that he inherits from you will just go to his creditors and he will not be able to keep any of it? An estate planning lawyer will talk to you about different trusts that can be set up so that your child will never lose the money he inherits from you to a spouse who is divorcing him, to a judgment creditor who sued him for an accident that he was in, or to pay his debts (especially when you know in your heart that the minute he clears his current debts with your money, he will just run up new debts again).
Even if you don’t have “wealth”, you could use the advice of an estate planning lawyer. It will be money well spent.
Tuesday, April 21, 2009
Tuesday, April 14, 2009
Leaving a Mess Behind
Many of us in the Sandwich Generation are encountering a dreadful scenario: your parent has suddenly died, if there is another parent still alive he/she does not know if there is a will or who the lawyer is. You have the unenviable job of combing through your parents’ house to find a will (if it exists), to find bank and financial statements to marshall the assets, and to distribute them according to the will (if it exists) or according to state law if there is no will.
How do you find out whether there is a will? If one of your parents is still alive, ask him/her if they had their wills done and where you would find them. If the remaining parent is unable to remember, you need to comb through their house and look at their papers, one by one, until you find a lawyer’s name or a financial advisor’s name. Hopefully, that person will know if there is a will.
If there is a financial advisor, ask about the assets that he is managing and if he knows if there are any other financial advisors in the picture. Frequently, people don’t trust all of their investments to just one advisor. Recent tax returns will list which banks paid interest to your parent and you should contact those banks to find out whether there is an existing bank account or certificate of deposit. The tax returns will also list stocks that paid dividends.
It is possible that you will not locate all of your parent’s assets. Each state has a department that takes possession of assets that revert to the state because the holder of that asset cannot find the owner. You need to check with that department in each state in which your parents lived and keep checking for at least 5 years after your parent’s death to see if any assets show up in their database. You can google “unclaimed property” to find the official websites. Don’t use the services of any company who can “find” money for you for a fee, they are just googling the same websites.
You also have to check for debts that your parent incurred. Were there medical expenses, credit cards, automatic deductions from a bank account for any expense? You must pay all of the legitimate debts and stop the automatic deductions before distributing to the beneficiaries. If the debts are greater than the assets, the estate is insolvent and the creditors will have to settle for less than full payment. If your parent was receiving Social Security or pension benefits, you need to inform the Social Security Administration or the pension provider of his/her death to stop the payments.
Finally, you may be cleaning out your parent’s house if this is your second parent to die. Frequently, this means disposing of years of accumulated mementos, old furniture that was never discarded, collections of items that your parent loved but which have little monetary value, clothing and other assorted junk. If there are items that have sentimental value, you may wish to keep them. But that still usually leaves tons of “stuff” to go through to find the few possessions that are worth keeping. It will take days and even weeks to go through everything.
Is this what you want for your family to go through? Think about it - if you were in a fatal car accident tomorrow, would your heirs know where to find your important legal documents? Would they know who to ask if they couldn’t find them? Organize your papers now. Create a document locator and list where your will is located, in which banks you have accounts or certificates of deposit, which company your financial advisors work for, whether you have life insurance and which company the policy is with. Create a list of important people in your financial life – your lawyer (if you have one), your accountant, your financial planner, your clergy, your bank, and your life insurance agent and put their phone numbers all on one sheet. Give copies of the document locator and list of important financial people to your executor and your back-up executor. If you haven’t written your will yet, give a copy of your document locator and important financial people to your spouse (especially if one of you is handling all the finances for the family), your parents (if they are not too frail), your children (if adults) and your siblings. Don’t leave a mess for your family to deal with if you unexpectedly die.
How do you find out whether there is a will? If one of your parents is still alive, ask him/her if they had their wills done and where you would find them. If the remaining parent is unable to remember, you need to comb through their house and look at their papers, one by one, until you find a lawyer’s name or a financial advisor’s name. Hopefully, that person will know if there is a will.
If there is a financial advisor, ask about the assets that he is managing and if he knows if there are any other financial advisors in the picture. Frequently, people don’t trust all of their investments to just one advisor. Recent tax returns will list which banks paid interest to your parent and you should contact those banks to find out whether there is an existing bank account or certificate of deposit. The tax returns will also list stocks that paid dividends.
It is possible that you will not locate all of your parent’s assets. Each state has a department that takes possession of assets that revert to the state because the holder of that asset cannot find the owner. You need to check with that department in each state in which your parents lived and keep checking for at least 5 years after your parent’s death to see if any assets show up in their database. You can google “unclaimed property” to find the official websites. Don’t use the services of any company who can “find” money for you for a fee, they are just googling the same websites.
You also have to check for debts that your parent incurred. Were there medical expenses, credit cards, automatic deductions from a bank account for any expense? You must pay all of the legitimate debts and stop the automatic deductions before distributing to the beneficiaries. If the debts are greater than the assets, the estate is insolvent and the creditors will have to settle for less than full payment. If your parent was receiving Social Security or pension benefits, you need to inform the Social Security Administration or the pension provider of his/her death to stop the payments.
Finally, you may be cleaning out your parent’s house if this is your second parent to die. Frequently, this means disposing of years of accumulated mementos, old furniture that was never discarded, collections of items that your parent loved but which have little monetary value, clothing and other assorted junk. If there are items that have sentimental value, you may wish to keep them. But that still usually leaves tons of “stuff” to go through to find the few possessions that are worth keeping. It will take days and even weeks to go through everything.
Is this what you want for your family to go through? Think about it - if you were in a fatal car accident tomorrow, would your heirs know where to find your important legal documents? Would they know who to ask if they couldn’t find them? Organize your papers now. Create a document locator and list where your will is located, in which banks you have accounts or certificates of deposit, which company your financial advisors work for, whether you have life insurance and which company the policy is with. Create a list of important people in your financial life – your lawyer (if you have one), your accountant, your financial planner, your clergy, your bank, and your life insurance agent and put their phone numbers all on one sheet. Give copies of the document locator and list of important financial people to your executor and your back-up executor. If you haven’t written your will yet, give a copy of your document locator and important financial people to your spouse (especially if one of you is handling all the finances for the family), your parents (if they are not too frail), your children (if adults) and your siblings. Don’t leave a mess for your family to deal with if you unexpectedly die.
Tuesday, April 7, 2009
Why Joint Tenancy is a Bad Idea
If you own a house with your spouse, you probably own it as joint tenants or as tenants by the entirety (a form of joint tenancy that is only allowed between spouses). You can own any kind of property as joint tenants with anyone else – real estate, stocks, bonds, cars, or bank accounts. It’s easy to transfer property owned as joint tenants when one of the joint owners dies - you don’t need to go to court and you don’t need a will. The surviving owners automatically own the dead person’s share.
So why can joint tenancy be a bad idea? Suppose you and your siblings own the family summer cabin as joint owners and you die. Your share does not go to your spouse and children, it goes to your siblings.
Suppose you own a bank account with your child to make it easy for him to write out the checks for your bills. But he can write out a check for everything that is in the account and pay off his gambling debts. And you can’t stop him from writing that check. After all, he’s one of the owners of that account, even though he didn’t contribute a penny to it. Additionally, the tax code says that when you put you son’s name on that account, and he didn’t contribute to that account, you gave him a gift of one-half of that account. Depending on the size of that bank account, you gave him a large enough gift to be required to pay gift tax.
Many parents put their children’s name on the deed as joint tenants when the parents get older. They believe that this will make it easier for their children to inherit the house. But it creates problems during your lifetime that you never thought about. Suppose you want to sell the house and move into an assisted-living apartment. But your children don’t want to sign the deed. Without their signatures (because they are owners too), you can’t sell. You can’t get a home equity loan without their signatures on the loan documents. They have the right to live in the house even if you don’t want them living there. And if one of your children’s spouses is divorcing your child, that spouse can have a claim against your house (because the spouse that he/she is divorcing is one of the owners of your house).
Another problem that a parent does not consider is when a parent puts a child’s name on the parent’s property and the child loses a lawsuit and has a judgment filed against him. One of his assets is your property that you hold in joint tenancy with him. Now that creditor can own your property in satisfaction of the judgment against your child.
Another common situation is when one of the joint owners becomes mentally or physically disabled and cannot sign documents. If the incapacitated person has not appointed an attorney-in-fact using a durable power of attorney, you cannot sell, mortgage, or gift your property until you go to court to get a conservator appointed for the other joint owner. This is expensive and time consuming.
While placing property into joint tenancy is a common estate planning technique, it is often a very bad idea. There may be unintended tax consequences, loss of control and/or liability risks. Other methods exist to plan an estate, whether the estate is large or small. Call an estate planning lawyer to discuss the better estate planning tools.
So why can joint tenancy be a bad idea? Suppose you and your siblings own the family summer cabin as joint owners and you die. Your share does not go to your spouse and children, it goes to your siblings.
Suppose you own a bank account with your child to make it easy for him to write out the checks for your bills. But he can write out a check for everything that is in the account and pay off his gambling debts. And you can’t stop him from writing that check. After all, he’s one of the owners of that account, even though he didn’t contribute a penny to it. Additionally, the tax code says that when you put you son’s name on that account, and he didn’t contribute to that account, you gave him a gift of one-half of that account. Depending on the size of that bank account, you gave him a large enough gift to be required to pay gift tax.
Many parents put their children’s name on the deed as joint tenants when the parents get older. They believe that this will make it easier for their children to inherit the house. But it creates problems during your lifetime that you never thought about. Suppose you want to sell the house and move into an assisted-living apartment. But your children don’t want to sign the deed. Without their signatures (because they are owners too), you can’t sell. You can’t get a home equity loan without their signatures on the loan documents. They have the right to live in the house even if you don’t want them living there. And if one of your children’s spouses is divorcing your child, that spouse can have a claim against your house (because the spouse that he/she is divorcing is one of the owners of your house).
Another problem that a parent does not consider is when a parent puts a child’s name on the parent’s property and the child loses a lawsuit and has a judgment filed against him. One of his assets is your property that you hold in joint tenancy with him. Now that creditor can own your property in satisfaction of the judgment against your child.
Another common situation is when one of the joint owners becomes mentally or physically disabled and cannot sign documents. If the incapacitated person has not appointed an attorney-in-fact using a durable power of attorney, you cannot sell, mortgage, or gift your property until you go to court to get a conservator appointed for the other joint owner. This is expensive and time consuming.
While placing property into joint tenancy is a common estate planning technique, it is often a very bad idea. There may be unintended tax consequences, loss of control and/or liability risks. Other methods exist to plan an estate, whether the estate is large or small. Call an estate planning lawyer to discuss the better estate planning tools.
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