If you don’t have a will, durable power of attorney and health care proxy (or advanced health care directive), you’ve made the first estate planning mistake. You need these three (3) documents to protect your family and your assets in the event you are incapacitated and for when you die.
Have you made any of these other mistakes?
1. You have not updated your will in 20 years and are not even sure where it is located.
Most people’s life circumstances change and their estate planning needs are no different. You should at least have your estate planning lawyer review your estate planning documents every 2-3 years to make sure that the documents still carry out your wishes and to ensure that changes in the estate tax laws do not mean that you will be paying federal or state estate taxes that were not in effect when your will was originally drawn up and you owned fewer assets. If you don’t know where your will is located, it is as if you never wrote one. Get a new one done and place it in a secure place. Make sure your executor knows where the will is kept.
2. You rely on joint tenancy as an estate planning tool, especially adding your children to your deed or bank accounts.
Joint tenancy can create problems you have not thought of. Frequently, you think of adding a joint tenant as a way to avoid probate. It does accomplish that goal when you die, but there are immediate consequences while you are alive. Although you may have added a child or all of your children as a convenience but they have full ownership interests and can thwart your needs and desires while you are alive.
3. You did not provide for a successor in interest if one of your fiduciaries dies before you or cannot serve.
If you have not named successor executors, trustees, health care proxies, and agents-in-fact, you may wind up having named none of those critical fiduciaries. Suppose you named your spouse as your executor, if you are both in a car crash, you die and he is unconscious, then he cannot act as your executor. If you haven't named a back-up, then the court can appoint whoever it thinks is most appropriate, even if you would have hated that choice. If your son is named as a trustee for your grandchildren’s trusts and he dies before you, then when you die, any interested person can petition the court to act as trustee. You must name at least one and maybe two backups in case there is a nasty surprise when you need these persons to act on your behalf.
4. You have a will but no advanced health care directive or durable power of attorney.
With all of us living longer than ever, many of us are also living in an incapacitated state longer. There are more Alzheimer’s disease patients, more cases of senior dementia, and more years of just slowly getting more frail and unable to take care of ourselves. We can’t pay our bills, decide whether we are unable to live on our own, or make the proper health care decisions. You may unexpectedly suffer an early heart attack, stroke, or be in an accident. Every person over the age of 18 needs a will, durable power of attorney, and advanced health care directive. You don’t have to be an old person to need someone to help you out when you can’t act for yourself.
There are many other estate planning mistakes that can cost you in time, stress, and money. Consult an estate planning lawyer to help you create your estate plan, have your estate planning documents signed, and have them reviewed every few years. That way, you will protect yourself and your family the way you would want to.
Monday, June 1, 2009
Monday, May 18, 2009
Long-Term Care Insurance
After the Baby Boomers take care of their parents’ in their last years, they start to focus on how they will pay for the care that they will need when they are old and infirm. Are you in your 50s or 60s? Do you have a plan for paying for the care that you and your spouse will need in your later years? Do you have any idea how much it will cost?
Health insurance or Medicare will not pay for someone to help you get dressed or bring you to the bathroom. Medicaid will not pay for those types of services unless you are absolutely poverty-stricken. Assisted-living in New Jersey can cost over $100,000. If you or your spouse get Alzheimer’s disease, you can be looking at 5-10 years of needing care. Do you have that kind of nest egg?
Long-term care insurance is usually obtained when you are healthy and don’t need it. As a matter of fact, you must pass a physical exam for an insurance company to offer you the insurance. If you can’t pass the physical or you are past the age limit, the insurance company may not want to insure you. Or they may charge you such a high premium that you cannot afford it. That is why the insurance agents urge you to start thinking about it when you are in your 50s.
Long-term care insurance is not for everyone but it is worth it to talk to an insurance agent who specializes in this type of insurance. You want to ask them about what type of coverage you are buying (nursing home only or it will also pay for care in your home or adult day care centers). Will the coverage start immediately or will you have to wait before the insurance starts paying. Typically, different waiting periods mean different premiums like getting a high deductible on your car insurance. How much per day does the policy pay out and will that amount pay for the total costs? This issue is hard to evaluate since you are buying coverage that you may not use for 20 or 30 years. Who knows how much your care will cost so far in the future. Many policies come with inflation riders. If you don’t get an inflation rider, you may be paying a large chunk of the long-term care out of your own pocket. How long will your policy pay out? You can choose a set number of years or until you pass on. Obviously, the longer the insurance policy pays out, the higher the premium. Will you need to be hospitalized before the insurance coverage starts? Many times, you need help when you can’t remember things and walking or feeding yourself becomes too difficult.
Compare policies to see which offers the coverage you want and has the best premium to pay for the coverage. It is possible that you will never need long-term care insurance. But there are many scenarios in which this type of policy will be very needed. And assume that, unless you are very wealthy, you will not be able to save enough to pay for your care. For those of you thinking that your children will take care of you, please think through the scenario of your child taking you into the shower and washing you, taking you to the bathroom and wiping your bottom. Many of us don’t want our children to see us that close and personal. Until another alternative comes along, long-term care insurance should be at least considered, even if you decide that it’s not right for you and your family.
Health insurance or Medicare will not pay for someone to help you get dressed or bring you to the bathroom. Medicaid will not pay for those types of services unless you are absolutely poverty-stricken. Assisted-living in New Jersey can cost over $100,000. If you or your spouse get Alzheimer’s disease, you can be looking at 5-10 years of needing care. Do you have that kind of nest egg?
Long-term care insurance is usually obtained when you are healthy and don’t need it. As a matter of fact, you must pass a physical exam for an insurance company to offer you the insurance. If you can’t pass the physical or you are past the age limit, the insurance company may not want to insure you. Or they may charge you such a high premium that you cannot afford it. That is why the insurance agents urge you to start thinking about it when you are in your 50s.
Long-term care insurance is not for everyone but it is worth it to talk to an insurance agent who specializes in this type of insurance. You want to ask them about what type of coverage you are buying (nursing home only or it will also pay for care in your home or adult day care centers). Will the coverage start immediately or will you have to wait before the insurance starts paying. Typically, different waiting periods mean different premiums like getting a high deductible on your car insurance. How much per day does the policy pay out and will that amount pay for the total costs? This issue is hard to evaluate since you are buying coverage that you may not use for 20 or 30 years. Who knows how much your care will cost so far in the future. Many policies come with inflation riders. If you don’t get an inflation rider, you may be paying a large chunk of the long-term care out of your own pocket. How long will your policy pay out? You can choose a set number of years or until you pass on. Obviously, the longer the insurance policy pays out, the higher the premium. Will you need to be hospitalized before the insurance coverage starts? Many times, you need help when you can’t remember things and walking or feeding yourself becomes too difficult.
Compare policies to see which offers the coverage you want and has the best premium to pay for the coverage. It is possible that you will never need long-term care insurance. But there are many scenarios in which this type of policy will be very needed. And assume that, unless you are very wealthy, you will not be able to save enough to pay for your care. For those of you thinking that your children will take care of you, please think through the scenario of your child taking you into the shower and washing you, taking you to the bathroom and wiping your bottom. Many of us don’t want our children to see us that close and personal. Until another alternative comes along, long-term care insurance should be at least considered, even if you decide that it’s not right for you and your family.
Wednesday, May 13, 2009
Why Do I Need to Know About Asset Protection and How Do I Use It In My Estate Planning?
We love our children and want to make sure that they are taken care of even after we’re gone. That’s why so many of us want to leave an inheritance to our children. But how do we protect them from spending it on expensive cars, extravagant vacations, and extended shopping sprees?
Even if you don’t have a large estate to hand down to your children, how do you think an extra $50,000 or $100,000 would change their lives? Do you think that they would all invest the money wisely so that your grandchildren will have college funds and your kids will have comfortable retirements? Or do you think one or more of them will immediately run out to buy a fancy car or several pairs of expensive shoes?
Asset protection is the legal way to put assets beyond the reach of those who would like to take them away from their owners. Your estate planning lawyer knows of different ways to shield money from your children’s wasteful spending habits. In other words, you can protect your kids from themselves. That’s one reason for asset protection.
Another reason that you may want to explore asset protection tools is that your child’s spouse can go after your child’s inheritance in the event of a divorce. Typically, assets inherited by one spouse during the marriage cannot be claimed as a marital asset to be divided during a divorce settlement. However, typically, while the marriage is going well, your child will want to share his inheritance with his spouse and kids (your grandchildren) and will spend part or all of it for the good of his family. Or maybe he will commingle his inheritance with his family’s other investments so that the inheritance can no longer be considered a separate and distinct asset of your child. All of your children may seem to be in happy marriages right now but who can say what will happen in 5 years? In 10 years?
Another possible concern that you may have about your child losing the money you pass on to him is if he is sued. Does one of your children own his own business? People sue businesses all the time and your child has to follow all the rules of limited liability to ensure that only the company assets are at risk and not his personal assets as well. How does a business owner make sure that his personal assets aren’t at risk if his business is sued? Is the business a corporation or a limited liability company? These forms of running a business are the starting point for ensuring that your child’s personal assets don’t get seized by someone suing his business. Is your child a doctor or lawyer who could be sued for malpractice? Then, he may possibly get sued individually for malpractice and his personal assets are at risk.
Even if your children don’t own their own businesses, they can get sued for any number of reasons. If your child is in a car accident and the judgment is bigger than the amount of insurance he carries, the judgment can be satisfied from your child’s personal assets (including the money you leave to him). If someone slips and falls on his lawn and then sues, the injured person can collect against any of your child’s personal assets.
In order to be effective, asset protection techniques must protect against liability, must not be in your child’s name, and must be done at the right time. Talk to your estate planning lawyer about how to help your children’s spending or losing their inheritance.
Even if you don’t have a large estate to hand down to your children, how do you think an extra $50,000 or $100,000 would change their lives? Do you think that they would all invest the money wisely so that your grandchildren will have college funds and your kids will have comfortable retirements? Or do you think one or more of them will immediately run out to buy a fancy car or several pairs of expensive shoes?
Asset protection is the legal way to put assets beyond the reach of those who would like to take them away from their owners. Your estate planning lawyer knows of different ways to shield money from your children’s wasteful spending habits. In other words, you can protect your kids from themselves. That’s one reason for asset protection.
Another reason that you may want to explore asset protection tools is that your child’s spouse can go after your child’s inheritance in the event of a divorce. Typically, assets inherited by one spouse during the marriage cannot be claimed as a marital asset to be divided during a divorce settlement. However, typically, while the marriage is going well, your child will want to share his inheritance with his spouse and kids (your grandchildren) and will spend part or all of it for the good of his family. Or maybe he will commingle his inheritance with his family’s other investments so that the inheritance can no longer be considered a separate and distinct asset of your child. All of your children may seem to be in happy marriages right now but who can say what will happen in 5 years? In 10 years?
Another possible concern that you may have about your child losing the money you pass on to him is if he is sued. Does one of your children own his own business? People sue businesses all the time and your child has to follow all the rules of limited liability to ensure that only the company assets are at risk and not his personal assets as well. How does a business owner make sure that his personal assets aren’t at risk if his business is sued? Is the business a corporation or a limited liability company? These forms of running a business are the starting point for ensuring that your child’s personal assets don’t get seized by someone suing his business. Is your child a doctor or lawyer who could be sued for malpractice? Then, he may possibly get sued individually for malpractice and his personal assets are at risk.
Even if your children don’t own their own businesses, they can get sued for any number of reasons. If your child is in a car accident and the judgment is bigger than the amount of insurance he carries, the judgment can be satisfied from your child’s personal assets (including the money you leave to him). If someone slips and falls on his lawn and then sues, the injured person can collect against any of your child’s personal assets.
In order to be effective, asset protection techniques must protect against liability, must not be in your child’s name, and must be done at the right time. Talk to your estate planning lawyer about how to help your children’s spending or losing their inheritance.
Tuesday, May 5, 2009
Per Stirpes and Other Legal Terms
When you consult an estate planning attorney, she might be using legal terms that you don’t know. It is best if you ask her to explain everything so that you know that you understand everything that she is telling you. However, here are a few legal terms that she might mention and what they mean.
Estate – the assets you own less the debts that owe at the time that you die.
Per stirpes – is a method for distributing your estate. It divides a family into branches. Typically, a share of the estate will go to one of the persons in each of the branches. If that person has already died when it comes time to inherit, that person’s children will inherit the share and divide it among themselves. For example, if you leave your estate of $450,000 to your 2 children, and Child A has 1 child and Child B has 3 children, if Child B dies before you do, the 3 children of Child B will divide Child B’s ½ share of $225,000 among themselves (so each child of Child B gets $75,000). Child A will inherit the other ½ share of $225,000.
Per capita – the other method for distributing the estate of a deceased individual. If we use the previous example of you and your 2 children, and Child B has died before you, when you die, there are 4 people to divide your estate – Child A and your 3 grandchildren from Child B. Child A and the three grandchildren from Child B each take a ¼ share of your estate.
Executor – the person whom you appoint to carry out the wishes that you state in your will. The job requires that person to submit the will to the court for probate, to find all of your assets, to pay your debts, and then to distribute the estate in accordance with the terms of the will.
Fiduciary – a person who acts for the benefit of others in a trust relationship. Examples of fiduciaries are your executor (or administrator if you died without a will), trustee, and guardian of your children.
Letters Testamentary – the formal court order issued by the probate judge giving the executor the power to act on behalf of the estate.
Estate taxes – there are federal estate taxes and New Jersey estate taxes. The taxes are assessed on your estate based on the size of your estate when you die. In 2009, you can die (in most cases) without paying any federal estate tax if your estate is $3.5 million or smaller. In New Jersey, the state estate tax is assessed if your estate is greater than $675,000.
Ancillary probate – a probate proceeding conducted in a state other than the one in which you lived and where you own property. For example, if you are a New Jersey resident and you have a vacation home in the Poconos, your primary probate will take place in New Jersey and your executor will need to start an ancillary probate in Pennsylvania to get the court order that allows the transfer of your vacation home according to the terms of your will.
There are other legal terms that your lawyer will reference. If you don’t know the meaning of any term of concept that she discusses, you should ask for an explanation. After all, it’s your estate plan and you want to be sure that it carries out your wishes.
Estate – the assets you own less the debts that owe at the time that you die.
Per stirpes – is a method for distributing your estate. It divides a family into branches. Typically, a share of the estate will go to one of the persons in each of the branches. If that person has already died when it comes time to inherit, that person’s children will inherit the share and divide it among themselves. For example, if you leave your estate of $450,000 to your 2 children, and Child A has 1 child and Child B has 3 children, if Child B dies before you do, the 3 children of Child B will divide Child B’s ½ share of $225,000 among themselves (so each child of Child B gets $75,000). Child A will inherit the other ½ share of $225,000.
Per capita – the other method for distributing the estate of a deceased individual. If we use the previous example of you and your 2 children, and Child B has died before you, when you die, there are 4 people to divide your estate – Child A and your 3 grandchildren from Child B. Child A and the three grandchildren from Child B each take a ¼ share of your estate.
Executor – the person whom you appoint to carry out the wishes that you state in your will. The job requires that person to submit the will to the court for probate, to find all of your assets, to pay your debts, and then to distribute the estate in accordance with the terms of the will.
Fiduciary – a person who acts for the benefit of others in a trust relationship. Examples of fiduciaries are your executor (or administrator if you died without a will), trustee, and guardian of your children.
Letters Testamentary – the formal court order issued by the probate judge giving the executor the power to act on behalf of the estate.
Estate taxes – there are federal estate taxes and New Jersey estate taxes. The taxes are assessed on your estate based on the size of your estate when you die. In 2009, you can die (in most cases) without paying any federal estate tax if your estate is $3.5 million or smaller. In New Jersey, the state estate tax is assessed if your estate is greater than $675,000.
Ancillary probate – a probate proceeding conducted in a state other than the one in which you lived and where you own property. For example, if you are a New Jersey resident and you have a vacation home in the Poconos, your primary probate will take place in New Jersey and your executor will need to start an ancillary probate in Pennsylvania to get the court order that allows the transfer of your vacation home according to the terms of your will.
There are other legal terms that your lawyer will reference. If you don’t know the meaning of any term of concept that she discusses, you should ask for an explanation. After all, it’s your estate plan and you want to be sure that it carries out your wishes.
Tuesday, April 21, 2009
Why You Need Estate Planning if You Belong to One of These Groups
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.
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 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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