BBB Advice on the Basics of Creating an Estate Plan
by MELISSA ISHAM
08.25.09 - 04:39 pm
Estate planning isn’t only for the wealthy, nor is it a topic people enjoy thinking about. However, Better Business Bureau advises consumers that if they own something of value they would like to pass on to family or loved ones at their death, they should create an estate plan.
A 2008 Harris Interactive poll, conducted for Lawyers.com, found that more than half (55 percent) of adults surveyed didn't have a will. Some of the main reasons for why they didn’t have a will included not wanting to think about dying, not knowing where to start or who to talk to about setting up an estate plan and not believing they had enough assets to need one.
Those who don’t have a will are leaving it up to the state to decide where their money and children should go if they should pass away. While no one enjoys thinking about their death, it’s important to create an estate plan so that assets go to the people you want and your children are taken care of.
An estate plan can be as simple as drafting a will or as complex as setting up a trust and a living will. BBB offers the following guidance on the basic components of an estate plan and advice on choosing what is necessary for different situations.
Will
At the very least, anyone who has assets that they would like to pass on to specific individuals should create a will. A will can allocate assets as well as establish guardianship of children. Most wills have to go through probate after the individual’s death. In probate, a court oversees the payment of any debts and distributes inheritances—the process can last several months.
Living Trust
While a trust might sound like something only wealthy people need, it’s actually a tool for anyone who would like to set conditions on how and when their assets are distributed. A trust can also help reduce the amount of taxes paid on the inheritance and does not have to go through probate—unlike a will. Examples for creating a trust include wanting to give a child their inheritance over time, rather than in a lump sum, and restrict how the money can be spent.
Living Will
A living will provides a way for an individual to communicate their desire for life-saving measures in case they are incapacitated. In addition to a living will, individuals can also assign medical power of attorney to someone they trust who can further ensure that their wishes are fulfilled.
For simple estates, many Web sites offer an inexpensive do-it-yourself approach to creating a will; for more involved estates, it’s best to enlist the help of a lawyer. BBB advises researching any estate planning companies or lawyers first at www.bbb.org before paying for assistance.After creating an estate plan, BBB recommends communicating the terms of the plan with the family members and loved ones it impacts. An estate plan needs to be revised every time the individual moves, changes marital status or is affected by major financial changes, such as investments or buying or selling a business. An estate plan will also need to be reviewed if anyone the estate plan affects undergoes major life changes such as marriage or death.
For more advice you can trust from BBB on managing personal finances visit www.bbb.org
Friday, January 17, 2003
Adult children should help parents deal with aging, estate-planning issues
Business First of Louisville - by Susan Gosselin Business First Correspondent
If you have aging parents, it's time for a test. Do you know if their income covers their expenses? Whether they'd want to live at home or in a professional care setting if they get sick? Who their lawyer or accountant is? Where their important papers are? Who their power of attorney is?
If you don't know, it's time to start asking, elder-care professionals say.
As the elderly live longer than ever before, professionals are working to help families cope with issues such as estate planning, long-term care oversight and day-to-day financial management.
Armand Ostroff, proprietor of Ostroff Consulting and former partner of Deming, Malone, Livesay & Ostroff accounting firm in Louisville, said he's experienced an increasing amount of elder-specific work.
Ostroff, who is a member of the Eldercare Task Force for the American Institute of Certified Public Accountants (AICPA), said the trend toward offering eldercare services is definitely on the rise.
The hardest part of caring for an aging parent, advisers say, is knowing when, and how, to start. Local professionals and national associations for the elderly most commonly offer the following tips for developing an action plan.
Conversation is key
It's best to delicately broach the subject with an aging parent, who may feel suspicious that their adult children suddenly want to know about their private affairs, according to resources from the AARP.
The AARP recommends that adult children break the ice by talking about how they are planning for retirement. Then the conversation can shift to the parents' needs.
The AARP recommends questions such as: What would you like to happen if you get too sick to take care of yourself — stay at home or go to a nursing home? What would happen if you got sick, and we needed to access your documents? Have you considered who you would want to be your power of attorney?
It's best, if family dynamics allow, to involve all siblings in this conversation, so everyone is clear about the parent's wishes.
If this has not already been done by a professional, the AARP recommends sitting down with the parent and tallying up all assets they have in the "plus" column, then talking about all payments and liabilities they have in the "minus" column.
This can help adult children get a handle on whether their parents have enough money to cover their long-term needs and start planning correctly if they may need to rely on Medicaid or other social programs.
Assemble the right team to help
Professionals also advise against going through the planning alone.
In the event that a parent has not already hired these professionals, Ostroff recommended families hire a lawyer to set up wills, trusts, powers of attorney and executorships; a certified public accountant to handle filing of tax returns and other accounting issues; an investment adviser to help maximize the parent's estate; and, if appropriate, a pastor or religious professional to help with spiritual needs.
Discuss powers of attorney, health care surrogates and living wills
According to James Cohen, sole practitioner of his Louisville law firm, one of the most important decisions senior citizens can make is who will act as their power of attorney.
One protection is to "designate in this document that the power of attorney does not kick in until you request it, or family is able to get recommendations from a team of doctors to do so," he said.
A health care surrogate, Cohen said, is someone the elder names to take temporary control of his or her health care decisions in the event that the person is unconscious or unable to make decisions. The surrogate also can be given power of attorney.
He also recommends the development of a living will, a legal document that gives family members instructions on what to do if that person is in a medical emergency and is not able to speak for himself or herself.
Have a clear will and a good executor
A well-done will can do much to keep a family from squabbling later on, Richardson said, if the elder's wishes are clearly stated.
The state of Kentucky also will honor a will that is "properly witnessed during a 'lucid interval' where the elder has better faculties than usual," he said. "They will also recognize a handwritten will if it was witnessed by at least two people who have nothing to gain from the will."
While many states will recognize do-it-yourself, fill-in-the-blank wills available in software packages or at office supply stores, Richardson doesn't recommend them.
Other sources agreed. "You can end up with a lot of consequences that you didn't intend, just by misplacing a comma or choosing the wrong word," Hurme said.
Choosing an executor is another important decision, Richardson said, because that individual will be responsible for distributing the elder's estate upon his or her death.
This person does not have to be the legal power of attorney.
In fact, he said, if family members are concerned about fairness, they can appoint an attorney to be the executor for a flat percentage of the estate or an hourly fee.
Relatives who are appointed as executors also are entitled by law to a percentage of the estate as their fee, usually about 5 percent, as well as 5 percent of any income earned on the estate, such as interest, he said.
Explore trusts, estate taxes
The larger the estate, generally, the more complicated it is to manage.
According to Mark Nickel, financial planning associate at the downtown office of J.J.B. Hilliard, W.L. Lyons Inc., estate tax can start at 41 percent, but estates worth less than $1 million are now exempt from estate taxes.
With the Bush administration working to lower estate taxes, current law states that the tax exemption will jump to $1.5 million estates in 2004 and to $3.5 million in 2009.
But these stipulations could change with action by Congress, Nickel said. "You can't count on these standards to stay the same."
For couples with estates between $1 million and $2 million, Nickel recommends an "A-B Trust," through which clients still can access their money, but half the money is put in a trust under the husband's name, and half is put under a trust in the wife's name.
When one spouse dies, the other inherits it tax-free. When the second spouse dies, the family is still not liable for taxes when both trusts pass to the heirs, because they are under $1 million each.
For estates over $2 million, Nickel recommends an irrevocable life insurance trust, which is accessible by the elder, but owned and applied for by an individual's life insurance company. This can be passed down to heirs without taxes.
Lew Newton, president of Highland Financial Management on 2500 Bardstown Road, agreed that these are common methods for reducing the tax burden.
Buy long-term care insurance sooner, rather than later
Newton also said a long-term care insurance plan is one of the most important estate-planning purchases an elder can make.
Newton said most long-term health insurance plans must be bought before long-term care is needed. "If an elder is in good health, they'll pay $2,500 to $3,000 a year. That's less than one month in a nursing home, so it's well worth it," Newton said.
But, Newton said, it's important to keep in mind that "costs for insurance go up the older you are. … So it's best not to wait past your late 60s to get it."
The longer someone waits, the greater the likelihood of developing a health condition that makes him or her ineligible for coverage, Ostroff said.
Know the rules and regulations for Medicaid
Medicaid is another area needing study, sources said.
Newton said that Medicaid will not seek dissolution of an elder's primary residence, but any secondary residences or properties would need to be sold to meet financial requirements for Medicaid coverage.
Elderly people can gift away their estate to organizations or relatives, thus reducing their financial assets and helping them qualify for Medicaid, Newton said. But three years must pass between when the gift is made and when Medicaid is needed, he said.
Otherwise, Medicaid can approach the receivers of that gift to recover costs, he said.
Think through beneficiaries carefully
As part of an elder's legal planning, he or she should make sure beneficiaries are properly named on all assets such as life insurance and retirement plans.
Plan well and prosper
The most difficult part of estate planning with older parents can be just getting over the hump of getting started, sources said.
Susan Gosselin is a free-lance writer for Business First. Send comments on this article to rray@bizjournals.com.
Estate planning can prevent family feuds
By LaTina Emerson | Staff Writer
Sunday, August 23, 2009
Randolph Wade Jr., of Augusta, takes seriously his obligation to his family. The 70-year-old and his wife, Lilly, prepared a will several years ago "to protect the ones that are left behind."
"You never know when the end of the road of your life is going to be," Mr. Wade said. "It could happen all of a sudden. I have seen time and time how much chaos there can be if a will is not in place in the proper way.
"Some folks have waited too long, and it's been disaster for their loved ones who were left behind. I want my children to be happy because I left them in good shape."
Mr. Wade has two daughters and a son, and his wife has one daughter. They have combined all of their children in the will and named them executors in a particular order. Planning ahead is especially important for blended families, he said.
Many people fail to do estate planning because they don't want to think about dying, said Judith Becker, a lawyer for Donsbach & King LLC, which focuses on estate planning.
"One of the worst things that we see is people who procrastinate," said her law partner, John Donsbach. "When they procrastinate in this area of planning, it's making problems down the road."
Regardless of the size of the estate, a person should still have a plan, said Aubrey Rhodes, whose law office also focuses on estate planning. There are different options for handling your estate, such as wills and revocable living trusts.
"They don't realize how much of a mess it can be when they pass away," Mr. Rhodes said. "We've been doing nothing but this for 30 years. We've seen a lot of messes. Just huge family fights."
Sibling rivalry is especially an issue when dividing personal property, such as china, silver and jewelry -- it can often cause more fights than the money. He instructs his clients to focus on making sure their family's needs are met, he said.
"We often make them realize that as part of the planning, they may consider something other than a will," he said. "That's been the traditional recommendation, but the will requires probate and tends to allow people to put off things to be handled at death. And that's not a good time to handle things."
THE LAST WILL AND testament is a document for death planning, and doesn't come into authority until a person dies, said Dewitt R. Dent, a local lawyer who has done estate planning since 1974.
When a will exists, the family must go to court to have it probated. While it is the less expensive option, a revocable living trust avoids the need to go to probate court when someone dies, he said.
"The revocable living trust is becoming increasingly more popular," Mr. Dent said. "It's a more comprehensive document that you create while you're alive and well. You actually bring it into existence and transfer all the ownership of your property ... to yourself and your spouse as trustees of your revocable living trust. Now you own everything as a trustee."
When the person dies, the successor can step in and take over the estate the same day, he said.
Mr. Donsbach recommends having a will or revocable trust, or both. Revocable trusts are more common in South Carolina, Ms. Becker said.
"A lot of that has to do with the complexities and cost of the probate process in South Carolina," Mr. Donsbach said.
Ms. Becker said: "The probate process in Georgia is relatively cheap. That's not true in South Carolina. The probate court costs are based on the size of the estate. In Georgia, it's simply a flat fee."
In South Carolina, for estates that approach $1 million, it makes more sense to do revocable trust planning and avoid the probate process altogether, Mr. Donsbach added.
Even if a person gets a revocable trust, Mr. Rhodes said, organization is the key.
"The living trust by itself is just a piece of paper. It's the combination of the right tools with the organization that minimizes the problems and cost for the family at death," he said.
This involves making sure assets are titled according to your wishes and don't involve unnecessary expense or burden at death, he said.
PARENTS SHOULD START plan- ning as soon as they have children, Mr. Rhodes said. They should determine who would rear the children and manage the money, which is sometimes two different people, Ms. Becker added.
"Even young couples have insurance and retirement accounts," Mr. Rhodes said, "so they don't feel like they have much money, but if they both pass away there's going to be money that should be managed by somebody."
Children cannot legally own property, Mr. Donsbach said, so if their parents die without making plans, there becomes a need for guardianships and conservatorships, which are expensive.
Also, if parents don't want their children to receive all of the property at age 18, when they might be too immature to handle it responsibly, parents should plan accordingly, he said.
It's important to seek counsel from a lawyer with experience in estate planning. It's a common misconception that every lawyer can draft a good will. People often don't get asked the right questions, Mr. Donsbach said.
Ninety percent of people with a simple will are not asked how they want to handle their IRA, 401(k) or insurance designations. If not properly handled, they can trigger an income tax issue, he said.
Mr. Donsbach once dealt with a $400,000 estate, of which $300,000 was an IRA. The beneficiary was dead, and the heirs didn't want to spread out the funds over five years.
"It triggered almost an immediate 50 percent tax on the IRA. They had to pay $150,000 in tax because they couldn't agree what to do with it," he said.
Also, a will does not affect the following assets: joint accounts, life insurance beneficiary designations, IRA or 401(k) designations, and jointly titled property, which could include the house, Mr. Donsbach said.
Health care is another topic Mr. Dent discusses with clients.
"Most people are concerned about creating a power of attorney for someone to handle their health care matters," he said. "The state of Georgia now has statutory forms for medical powers of attorney. They're called the durable power of attorney for health care and the advanced directive for health care."
In Georgia, the living will is out of date. Powers of attorney normally "die when the person dies, but these statutory documents survive death to allow your agent to handle funeral arrangements and burial, including disposition of remains," he said.
It's important to review your planning periodically, Mr. Rhodes said.
"Your plan has to be maintained," he said. "Things change. A lot of people have wills that are so old that they're appointing guardians for their children, and their children are grown up and moved away now."
WILLS CAN STIR UP controversy.
In the probate process, you have to invite people who "may not benefit from the document to come in and participate in the legal process," Mr. Rhodes said.
"People don't realize that. These laws were written at a time when maybe it didn't cause that much controversy," he said.
Jennie Hyatt, a lawyer for Glover, Blount & Millians PC, drafts wills and helps to probate wills when people die. If someone dies without a will, called dying intestate, she works to get administrators appointed, she said.
"What happens is, the law takes over at that point and says where your property is going to go and who it goes to," Ms. Hyatt said. "If you don't have a spouse or children, then their property is going to end up going to some distant relative based upon the statutes.
"If you have a specific desire for your property to go someplace, if you don't have a valid will, your desires cannot be considered by the court."
In Georgia, if a will is signed, dated, notarized and witnessed, the court considers it valid and the executor is ordered to follow it, Ms. Hyatt said. The family must attend probate court in the county where the person was a resident when he or she died, Mr. Dent said.
If a person had property in other states, such as a rental or vacation home, the family must attend probate court in these places, too, Mr. Rhodes said.
In Georgia, the average cost for probate court, with or without a will, is about $300. Most of the costs result from attorney's fees, Ms. Hyatt said.
"It could be very easily several thousand dollars if you've got something that's contested," she said. "Either they want to object that it's not a valid will or maybe the deceased was coerced or tricked. It can get very sticky."
DID YOU KNOW?
YOU MIGHT NOT GET THE HOUSE.
Most people don't realize that joint real estate doesn't automatically pass on to a surviving spouse, said Augusta lawyer Dewitt R. Dent. A married couple can be joint tenants with right of survivorship, meaning they are both 100 percent owners while they are living. When one of them dies, the surviving spouse receives the property.
If they are tenants in common, meaning they each own half of the home, the surviving spouse doesn't automatically get the home, however. Half belongs to the deceased person's heirs. If they had children from a previous relationship, they're entitled to half of the house, said Judith Becker, a lawyer for Donsbach & King LLC.
IS THIS YOUR SECOND MARRIAGE?
Second marriages can make matters complex, said John Donsbach, a lawyer for Donsbach & King LLC. This is a common situation: A husband and wife have been married before, and each has children from a previous marriage. The husband dies and leaves his entire estate to his second wife. He has disinherited his children, Mr. Donsbach said.
Then, the wife gets remarried and leaves everything to her new husband when she dies.
"They disinherited all of their heirs, and the guy who is not related to any of them got all of the assets. That's a disaster. I can't tell you how many times I've seen wills that are drafted that way," he said.
Also, having family members as trustees that are involved in opposing positions (such as a second wife and child from a first marriage) can lead to problems, Ms. Becker said.
DO YOU HAVE JOINT ACCOUNTS?
Another mistake is joint accounts, Ms. Becker said. By law, the account passes to the surviving account holder. If a parent includes one child on the account to assist with paying bills, even though the will indicates the money should be distributed evenly among the children, the child on the joint account receives all of the money.
From the Sunday, August 23, 2009 edition of the Augusta Chronicle
