Common Mistakes Of Estate Planning

Even though planning your estate isn’t an enjoyable job it’s necessary so that you can efficiently and successfully transfer all of your assets to those you leave behind. With a bit of careful planning, your heirs can avoid having to pay estate taxes and federal taxes on your assets. As well, a well planned estate avoids confusion for your loved ones. Still, with all the advantages of estate planning, many people make a great many mistakes in the process.

The most common mistake when it comes to estate planning is not getting around to doing it at all. Make sure that you take the time to plan at least the financial portion of your estate so that you leave your loved ones behind with some amount of security.

Don’t fall into the trap of thinking that estate planning is just for the rich. This is completely false as planning your estate is essential for anyone who has any amount of assets to leave behind. Many people don’t realize that their estate is as large as it really is, especially when they fail to take into account the assets from their home. Remember to update your will and to review it at least once every two years. Factors that can change information about your beneficiaries include deaths, divorce, birth, and adoption. As your family structure changes so does the change in your assets and who you want to leave them to.

Don’t assume that taxes paid on your assets are set in stone. Talk to your financial planner about ways that your beneficiaries can avoid paying taxes on your assets. There are several strategies for tax planning so that you can minimize taxes or avoid them altogether. All of your financial papers should be in order so that it’s easy for someone to find them. Make sure that one of your loved ones has information on where to find the papers necessary for planning after your death.

Many people take a lot of time deciding what to do with their assets and forget that they need to appoint guardianship for their children. There are many details to take into consideration when it comes to guardianship.

The above mistakes are common when people are planning their estate. Take the time to plan for your death even though you think that you have years before it becomes an issue. The key to successful estate planning is being prepared.

Estate Planning: Reviewing Your Plan

An important part of your estate planning is taking the time to review it at certain times in your life. Many people overlook the review process and fail to update important information. There are many events that occur in your life that can affect the way you distribute assets and property to the loved ones you leave behind. Perhaps the most important part of estate planning is having a will in place that manages your assets.

If you have minor children make sure that you review your guardianship issues at least once a year. You don’t have to make changes to your estate plan however, you should be aware of who you’ve chosen to have custody of your children and the reasons why. Over time circumstances may change and the person you first felt was right as guardian may no longer be a good choice. Don’t forget to take into account the ages and living circumstances of your chosen executor. If you have to make changes to guardianship don’t be afraid to hurt the feelings of your family. Making choices about custody should be all about your children and what’s best for them.

Choose an executor for your will that you know you can trust. The role the executor plays can be difficult both emotionally and time-wise. Review your power of attorney at least every couple of years. The power of attorney, or the executor of your will, needs to be someone who is capable of dealing with a lot of legal issues and who has the confidence to step up and make sure that your final wishes are carried out. If you have a living will, or medical decisions that you’ve made, you need to be sure that your executor will carry out your wishes and is strong enough to speak on your behalf.

Consider having trusts in place as part of your estate. A trust is one way that you can help your family out with finances after your death or in the event that you’re unable to make decisions. There are many different types of trusts available so be sure to review your current trusts on a regular basis. As your assets increase you’ll have to make changes to the way the money is distributed.

Part of reviewing your estate plan is finding out which type of taxes will have an effect on the inheriting of your assets and property. As you review your estate, find out about the latest tax laws. If your will was valid when it was first drafted it will remain valid however, there could be significant changes in the laws where you live that can impact the legality and outcome of your will.

Estate Planning: The Importance of Your Will

Estate planning is all about taking control of what happens to your property and assets after your death. There are many different tools available to help you plan your estate but perhaps the most important tool is your will. No matter how old you are, or your current state of health, you should always have a will that is up to date and valid. If you have minor children your will becomes even more important. Many states insist on a will in order for you to name custody for your children with the guardian of your choice. Your will doesn’t need to be summarized by a lawyer, however legal advice can help you accomplish what you want with your will.

The biggest advantage of having a will is so that you get to choose who will get your assets and property rather than having the courts decide for you. If you die without a will, the state will provide one for you. This means that the courts will distribute your assets and property using the most generalist of terms. Your blood relatives will be given portions of your estate as dictated by law. The thing to keep in mind is that what the courts mete out won’t necessarily be where you wanted your assets to go. The biggest disadvantage when you don’t have a will is that you’ll end up paying more in taxes than you would if you had a legal will.

A legal will allows you to leave gifts for the loved ones you leave behind. You can leave any portion of your assets to your children, other relatives, friends, charities, or a trust. There are some limits that are imposed on the distribution of property. For example, your spouse has certain rights to your property regardless of what you state in your will. Gifts that you leave behind can take the form of money, jewelry, or any other property of value. As well, you can include general bequests in your will, such as leaving a percentage of your property to more than one person.

When you plan a will you can designate a particular person to act as the executor to your estate. The executor will manage many of the tasks that are involved with settling your estate such as collecting all your assets, paying off any debts that you owe, paying taxes that are owed by your estate, and distributing what remains of your assets to those people you have named in your will. The probate court will have the final say in who your estate executor will be however, naming someone in your will carries a lot of weight in the court.

The Essentials of Estate Planning

Most people don’t look forward to estate planning. However, it’s important that you ensure your estate is in order long before you need it. You’ve worked hard to build up your estate; now it’s time to make sure that everything ends up where you want it to after you die. There are many areas of estate planning that will require the help of a professional, such as estate taxes, trusts, and probate. Following are some essential details that you need to think about when you’re planning your estate.

The most important thing about estate planning is that you have a will. Your will should indicate exactly where your property and assets should go when you die. You should also have what is called a “living will”. A living will specify certain health care and medical instructions that should be followed in the event that you are on life support or otherwise unable to make these requests yourself. You’ll need to name a power of attorney that will be in charge of managing the details of your living will.

Take the time to review your beneficiaries at least once every year. Your personal family situation will change during the course of your lifetime so you’ll need to make changes to your beneficiaries. Don’t forget to make these changes in your life insurance policies as well as any other documents where you have listed a beneficiary. If you have any minor children you’ll need to determine who will have guardianship over them if you die. Your will should clearly state what you want for the future of your children.

You might want to think about setting up a trust so that you maintain even tighter control of your hard earned assets. A trust can also be set up to carry out certain requests when you die. Another benefit of setting up a trust is that a trust bypasses the probate process, which can be quite lengthy and drawn out. Talk to your lawyer about the different types of trusts that are available. The time of your death will be emotional and difficult for your loved ones. You can make it easier by ensuring all the information they need is well organized. Make sure that you have all your documents in one place. This includes financial statements, insurance policies, your will, and the key to your safety deposit box.

The more care you have taken when it comes to estate planning, the easier it will be for the ones you leave behind to manage at the time of your death.

Why An Estate Plan Is Vital for Real Estate Investors

Estate planning is the process of making arrangements for how you want your assets to be disposed of if you pass away or become incapacitated. Sure, it might not be everyone’s favorite topic, but estate planning is nevertheless an important task that ensures your hard-earned assets are passed down to the right people and organizations. By making your arrangements in advance, you can leave specific instructions for which of your possessions are distributed to whom, at what time, and how.

While estate planning is important for everyone, it is especially important for those with a real estate portfolio–or at least in the process of building a real estate portfolio. Below are important documents to include in your estate plan if you are a real estate investor.

Wills & Living Trusts

Wills and living trusts are both tools used in estate planning. These documents are mainly used to designate beneficiaries for your property in the case of your death, but each option has different applications. Many choose to keep both wills and living trusts concurrently, so as to take advantage of the different benefits.

One of the main differences between a will and a living trust is that a living trust ensures that your property is passed on in private without going through probate, and without challenges from the court. A will, on the other hand, must be filed in probate court and becomes a public document. The property included in a will is subject to probate court and claims, which can be lengthy and expensive processes. There are multiple ways in which estate attorneys use these documents in order to ensure that real property is transferred as smoothly as possible upon an investor’s death.

Lifetime Planning For Investors: Powers of Attorney & Advanced Directives

A power of attorney is a document that gives one person (an agent) the authority to act on behalf of another (a principal). The principal may grant a limited or wide range of authority to the agent, depending on the principal’s needs. This document is often used for those who want to make sure someone is designated to make financial and business matters on their behalf in case they ever become unable to do so due to incapacitation or other reasons. Real estate investors may find granting an agent power of attorney useful for carrying out business functions such as collecting rents, making payments and managing tenants in their absence.

While powers of attorney generally allow someone to make business and financial decisions on another’s behalf, an advanced directive allows you to designate someone to make medical decisions on your behalf when you are unable to speak for yourself. Times in your life when you may want an advanced directive include if you have a chronic, ongoing health condition, are planning a surgery, receive startling health news, or have other concerns for your well-being. If this hasn’t happened to you, that’s wonderful. But the reality is we can all get sick.

Asset Protection & Tax Planning

An estate plan for real estate investors should also include strategies to protect your assets as well as provide tax sheltering strategies for your investments. To begin protecting your assets, start by creating an inventory of your assets and break them down based on how they are owned. Next, take the necessary measures to ensure that your assets can legally be passed on to your beneficiaries. This process can get a bit more complicated for real estate investors who purchase properties with partners or through an LLC. They will need to form a plan for how to to transfer the ownership of their investments, including those with a surviving business partner.

Our Office Can Help

Our office has served many real estate investors. We have extensive experience in how the various estate planning documents are used for investors. Contact our office today if you have any questions about estate planning. We will review your personal circumstances and help execute the best strategy for you, your business, and your heirs.

Standalone Retirement Trusts

Nowadays, most Americans hold their wealth in retirement accounts. When it comes to
inheritance and estate planning, special considerations are necessary to ensure that these assets are protected and distributed according to the account holder’s wishes. 

Retirement assets, such as IRAs, are typically passed via beneficiary designation. For example, for a married couple with children, it would be common to designate the spouse as primary beneficiary and children as secondary. However, in almost all occasions it is advantageous to name a trust—rather than a particular individual—as the designated beneficiary. Once the retirement account becomes inherited by a non-spouse beneficiary (i.e. children), it is important to understand that IRS regulations
treat this inherited retirement account differently. Specifically, once inherited, the beneficiary is obligated to begin taking required minimum distributions from such funds within a more immediate time horizon of either five years or over the beneficiary’s life expectancy.  An IRA administrator will also offer the option of receiving the proceeds as a lump sum payment, which is very often discouraged, especially in the case of minor or financially irresponsible children. The preferred goal in planning for inheriting retirement assets is to maximize this window of time so that the tax-sheltered, long-term growth benefits of retirement accounts are maximized.

IRAs and other retirement instruments were designed precisely for a specific purpose: retirement. They were not intended as a savings mechanism for future generations. Tax laws work according to this assumption, and so foresight and planning are necessary when including such holdings in an estate to be passed on to beneficiaries. Trusts can serve as an appropriate conduit to protect and preserve these assets.

Some will consider a standard revocable living trust by default when structuring a retirement trust.  This could cause unfavorable consequences, however, including a more fixed distribution schedule and the lack of creditor protection. Further, the IRS may a not consider the revocable living trust as a designated third party beneficiary, resulting in the assets becoming immediately, taxable income.

A Standalone Retirement Trust is a trust that is created for the sole purpose of serving as the beneficiary of the remainder of your IRA funds (and other qualified funds, e.g. 401(k)). Thus, the trust will be funded after you pass with whatever is left of your retirement assets. Then, the trustee of the Standalone Retirement Trust will oversee the distribution of the funds to your heir(s) in a manner you see fit.

A Standalone Retirement Trust will provide you with significantly greater control over the manner in which your remaining retirement funds are distributed to your loved ones, rather than just control who will receive the funds after you die—as is the case with leaving your IRA through a simple beneficiary designation.

Other potential benefits of Standalone Retirement Trusts include 

  • Asset protection in the event of a divorce;
  • Creditor protection;
  • Generation-skipping tax benefits;
  • Special Needs/Supplemental Trust benefits;
  • Alerts the beneficiary of any tax consequences of an immediate payout;
  • Allows beneficiary’s to thinly stretch tax obligations over time;
  • Alleviates the need for a court appointed guardian for minor beneficiaries
  • Provides a beneficiary with asset protection in the event the beneficiary becomes disabled; and 
  • Allows for successor beneficiaries. 

For more information on Standalone Retirement Trusts contact our office today. 

Funding Your Living Trust

Hopefully by now you’ve heard about the benefits of having a living trust as part of your estate plan. The most notable benefit is the ability to keep your assets from having to go through probate. You can retain control of assets during your life, and exercise control over how they are managed and used after your death. A trust can reduce, and in many cases eliminate income, estate, and capital gains taxes on assets.

Meeting with a skilled estate planning attorney and creating the best type of trust for your particular needs is a big step. Creating the trust, however, isn’t all you need to do. Consider how silly it’d look if you bought a safe deposit box or opened a bank account, but never put anything in it. They can only protect your assets if they’re inside. If you die or become incapacitated and your trust is not funded, it is mostly useless, no matter how well-drafted it might have been.

How to Fund a Living Trust

So how exactly do you go about funding a living trust? That depends on the nature of the assets intended to be placed in the trust. Many types of assets can be used to fund a trust by re-titling them in the name of the trust.

For instance, if your name is John Doe and you currently have a bank account or cars in your sole name, you could change the name on the bank account or vehicles to that of the trust, with yourself listed as trustee of the trust. Also, if you are married, you and your spouse can both be listed on an account as co-trustees.

Other assets that can be re-titled in order to fund a trust are real estate, stocks, and other investment accounts. Legal requirements for funding a trust with real estate are somewhat complicated, and it is best to have an attorney’s assistance to make sure you use the right type of deed and that it is properly prepared. More likely than not, you will deed the property directly to the trust.

Certain types of assets may be used to fund a trust by designating the trust as the beneficiary of those assets. Many of our clients choose to make their trust the primary beneficiary of their life insurance policies. This allows the client to have lots of control on how the policy proceeds are disposed of at the death of the policyholder. Annuities or retirement accounts, including 401(k), 403(b), and IRAs can also fund a living trust after death through beneficiary designations.

Having retirement account assets payable to certain trusts can significantly reduce the tax deferral period for your taxes. On the other hand, other trusts can enhance the likelihood of attaining the maximum stretch-out period for your heirs. At the Law Office of Rodney Davis, LLC, we can assist you in re-titling your accounts to avoid a bad outcome.

Getting the Help You Need to Fund Your Living Trust

If you have not yet had your attorney draft your trust, prepare a list of the assets that you want to place in the trust. Understanding how you plan to fund your trust will help your attorney guide you in doing so efficiently. If you have created your trust, but have not yet funded it, don’t delay, act now! Call our office today to learn how you can fund your living trust. 

Where Should I Store My Estate Planning Documents?

One of the most common questions that estate planning attorneys are asked is where original estate planning documents – Wills, Trusts, Powers of Attorney, and Health Care Directives – should be stored for safekeeping.  While there is no right or wrong answer to this question, there are a few things to consider: Continue reading Where Should I Store My Estate Planning Documents?

Integrating Long Term Care Into Your Estate Plan

What Is Long Term Care?

When most people think of estate planning they focus on how their assets will be disposed of when they are deceased. A well drafted estate plan, however, can and should take into consideration the need for long term care.

Long-term care provides a range of services and support for you individuals who are unable to care for themselves due to a chronic illness or disability. Most long-term care isn’t medical care, but rather help with basic personal tasks of everyday life, sometimes called activities of daily living. All too often, individuals and families wait until a medical crisis actually happens before considering long term care, which usually leads to throwing together a hasty estate plan in the face of mounting medical costs.

Why Consider Long Term Care?

Long term care costs can easily drain one’s finances in a relatively short time. According to the Harvard University Study in Compensation & Benefits Review, 72% of Americans become impoverished after just one year of nursing home care. Long term care isn’t typically covered by private medical insurance and major medical insurance plans. Medicare only pays for skilled and rehabilitative care after a three-day hospital stay; this excludes custodial care, the assistance someone needs for daily living. Medicaid only covers nursing home bills after a loved one is bereft of assets.

Whether the care you need takes place in a nursing home, assisted living facility, or with an in-home provider, the costs can mount with alarming speed. According to the Genworth 2016 Annual Cost of Care Study, the cost of receiving long term care continues to rise sharply year over year, especially for services in the home, where the vast majority of Americans receive long term care and for a longer period of time than facilities. The median monthly costs for the services of a homemaker or an in-home health aide for 44 hours a week are $3,813 and $3,861, respectively. The average monthly cost of a private nursing home room is $7,698, up 1.24 percent from 2015.  The cost of a semi-private room is up 2.27 percent to $6,844 per month.  Assisted living communities saw a slight increase in costs of .8 percent to $3,628 per month.

Long Term Care Planning in Your Estate Plan

As with all major life situations, careful planning will ensure the financial resources are available when they are needed. If your estate plan does not consider long term care, chances are you haven’t taken a realistic look at your assets and how the potential need for long term care may affect them. Talk to an estate planning attorney about the following factors to get on the right track:

  • Set Reasonable Expectations for Long Term Care

While we can’t predict what will happen to us and when it will happen, we can take an educated guess. For example, are there any major diseases that run in your family? Are you involved in any kind of activity that could affect your body long term? While considering these things may feel uncomfortable, it is far better to consider them early on and plan accordingly, rather than face the reality of long term care with no plan at all.

  • Consider a Long Term Care Insurance Policy

Since it is highly likely that Medicare or medical insurance will not cover long term care costs, a long term care insurance policy can ensure that your financial assets are not drained due to long term care costs. Most people assume that long term care will be covered by Medicaid and face the rude awakening of having their financial assets drained after learning that it doesn’t.

Consider and discuss long term care insurance policies with affordable premiums that won’t rise drastically over time. Begin this process as early as possible, as the younger you are when you apply, the lower the long term care insurance premiums are.

Benefits of Long Term Care Insurance Policies Include:

– Preserve savings and assets for family and friends;

– Help maintain one’s financial independence from family and friends, often    eliminating the need to borrow money for long-term care costs;

– Relieve family and friends of caregiving tasks, as paying for professional care becomes an affordable option;

– Allow a loved one to choose where he receives care. If Medicaid pays for care, a nursing home is the only option. People can design their policy depending on where they want to receive care: in a nursing home, in the community, at home, or in an assisted living facility; and

– Expand the range of services a loved one receives, including: care from visiting nurses, home health aides and friendly visitors programs; home-delivered meals and chore services; and time in adult daycare centers and respite services for caregivers.

  • Have Your Advanced Medical Directive, Power of Attorney, and Trust(s) Drafted

In the event that you are unable to make medical decisions for yourself, the last thing you want is for your family and/or friends to fight over them. Have an estate planning attorney draft you an Advanced Medical Directive outlining the treatment you want to be given if you are unable to do so. Otherwise, you run the risk of a lengthy court process in which a court will appoint someone to make decisions on your behalf.

Revocable or irrevocable trusts, such as a life insurance trusts have proven to be effective long term care planning tools for individuals of all ages, as they provide tax benefits and allow the donor to direct how the life insurance proceeds will be disposed of at the donor’s death.

While planning for long term care may seem like a daunting task, those who do plan are able to live with the peace of mind of knowing that they are covered if a need for long term care ever arises. Contact our office today to learn how we can help you create an estate plan that includes long term care.

Leaving Money to A Financially Irresponsible Kid

So you’ve finally decided to do your estate plan and you decide to leave everything to your only son, now 15-years old. There is only one problem: your son is not financially proficient, and you are worried he may not be able to handle all of the money and property that is being left to him. In fact, you believe he would blow through his inheritance in less than 5 years. So how do you handle such a situation? Continue reading Leaving Money to A Financially Irresponsible Kid