Estate Planning For the Newly Married

Needham Estate Planning

Now is the perfect time to start working on an estate plan—because, as newlyweds, you may not have a list of your accounts, but you've effectively just done a working inventory of your possessions—as you've figured out how to consolidate two households into one.

You've already been working on the new banking and shared the responsibility of bills and taxes and so forth.

Use that all time and energy and work as a leapfrog into planning for your future—so you'll be that much more prepared for the house, the kids, and the next stages of your new life together.

Why Think About Estate Planning At This Point?

Even if you have few assets, as we just talked about, you have more than you think.

Still, putting together a will or a trust probably is very straightforward at this point, since you just did that accounting of your collective assets.

You may have heard of state laws that give your property to a spouse if you don't have a will.

These laws—known as intestacy laws—vary by state and can sometimes have results you wouldn’t expect.

And, intestacy requires your estate going to probate—a court proceeding that can take months, even years, to resolve. So a basic estate plan should give you some peace of mind—knowing loved ones are taken care of if anything should happen.

You can even plan for the property you don't yet own (a house you may buy someday) and provide for children whenever they arrive on the scene.

And once you have that initial plan in place, you can easily update it as your circumstances and needs change.

Furthermore, if you already have a sizable amount of assets then estate planning may lead to tax benefits, now and in the future.

Who Can Make Decisions For Me, If I Can't?

In the U.S., a power of attorney (POA) is a legal document that designates someone else (often a spouse) to make financial and other decisions on your behalf.

In the financial realm, a POA can sign contracts, file lawsuits on your behalf, and more. Depending on the exact language, you can grant the POA broad powers, or something more limited to an issue or situation.

One specific form of POA is in effect only if you are unable to make decisions on your own—such as an emergency or illness.

And you can have that type of POA for both the financial side of things, as well as one relating to your medical care.

What Kind of Care Would I Want?

An advanced directive (also known as a living will) is a document that makes clear the kinds of medical interventions you'd prefer if you're unable to make decisions for yourself. In some ways, think of this as an emotional insurance policy:

You make decisions now, so the people you love won't have to. This can also make it easier for your spouse to make decisions if necessary, as long as you name them as a medical decision maker.

Who Will Look After The Kids?

If you don't yet have kids but want them someday, realize that an estate plan is essential for families with children.

The state statute providing assets for a spouse will probably also include some inheritance for children.

However, when it comes to guardianship, you need a will to designate caregivers for the children, should something happen to both parents.

Without a will, the court decides on the children's caregiver, and the court may select someone you don’t want.

As you start your new life together, one of the best ways to begin is by planning for the future, and whatever it may bring.

We've been helping families of all ages and kinds for decades, and we'd be delighted to help you, so contact our professionals today.

Isn’t There Already A Law That Leaves Everything To My Spouse And Kids?

Needham Estate Planning

Many people think that if they die while they are married, everything they own automatically goes to their spouse or children.

They’re actually thinking of state rules that apply if someone dies without leaving a will. In legal jargon, this is referred to as “intestate.”

In that case, the specifics will vary depending on each state's law, so where you live when you die can significantly change the outcome for your family.

However, the general rule is that your spouse will receive a share, and the rest will be divided among your children.

Exactly how much a spouse will inherit depends on the state, though.

Now, it may seem like, "So far, so good." Your spouse is getting an inheritance, so are the kids.

But here are some examples of how the laws can fail many common family situations.

First off, if both parents of minor-aged children die intestate, then the children are left without a legal guardian.

Kids don't automatically go to a godparent, even if that's what everyone knew the parents had intended. Instead, a court will appoint someone to be the children's guardian. In such situations, the judge seeks to act in the children’s best interests and gathers information on the parents, the children, and the family circumstances.

But the decision is up to the court, and the judge may not make the decision that you, as a parent, would have made.

When it comes to asset division, in most cases, state intestacy law presumes that a family consists of a husband, wife, and their natural-born children.

But, that’s not necessarily the way many families are structured, and things can become legally complicated quickly.

According to Wealth Management, one analysis has 50 different types of family structures in American households.

Almost 18% of Americans have been remarried, and–through adoption and stepfamilies–millions of children are living in blended families.

The laws just haven't kept up, and absurd results can occur if you rely on intestacy as your estate plan.

Stepchildren that you helped raise (but didn’t legally adopt) may end up with no inheritance, while a soon-to-be-ex-spouse may inherit from you.

Say, for instance, a father has a will that allocates assets to his spouse and two children, then they adopt a third child.

Then, the father dies in a car accident before he's able to revise his will. In some states, because the adopted child is not mentioned in the will, she may not be entitled to any inheritance.

If that isn't worrisome enough, consider that, in some states, the law provides that an adopted child still has rights to the biological parents' assets–and the biological parents are entitled to inherit a child's wealth. (Imagine if the adopted-as-an-infant Steve Jobs had died intestate, and his biological parents demanded a share of his estate!)

Of course, with a will or trust, you can control your estate and essentially eliminate the risk of these crazy results.

What if You and Your Spouse Are Separated?

State law decides what happens to your estate if you are separated from your spouse when you die.

Much of the time, the court ignores your separation and just considers you still legally married.

Unless you have a prenuptial or postnuptial agreement, it is extremely difficult to disinherit your spouse.

Again, even if a spouse is omitted from a will, state laws might choose to give a surviving husband or wife a share of the assets.

If you are separated from your spouse, and your divorce is pending, you should definitely talk with your divorce lawyer and an estate planning attorney about your options.

Creditors Win

Intestacy provides no asset protection or preservation benefits. Without any protections in place, an estate's assets are still vulnerable to creditors, lawsuits, and others who may claim entitlement to the property.

These claims would take precedence over the statutory requirements for inheritance. In other words, the family may not receive the lion's share of the estate. They'd get the leftovers.

The best way to safeguard and pass along what you’ve worked so hard to build is to talk to a qualified estate planning attorney.

Protect yourself, your family and your assets by contacting us today.

How to Leave an Inheritance to Adult Children

When considering how to leave an inheritance to adult children, the first step is to decide how much each one should receive.

Most parents want to treat their children fairly, but this doesn’t necessarily mean they should receive equal shares of your estate.

For example, it may be desirable to give more to a child who is a teacher than to one who has a successful business or to “compensate” a child who has been a primary caregiver.

Some parents worry about leaving too much money for their children. They want their children to have enough to do whatever they wish, but not so much that they will be lazy and unproductive.

So, instead of giving everything to their children, some parents leave inheritances for grandchildren and future generations through a trust, or make a generous charitable contribution.

When deciding how or when adult children are to receive their inheritances, consider these options:

Give Some Now

Those who can afford to give their children or grandchildren some of their inheritance now will experience the joy of seeing the results.

Money given now can help a child buy a house, start a business, be a stay-at-home parent, or send the grandchildren to college–milestones that may not have happened without this help.

It also provides insight into how a child might handle a larger inheritance.

Lump Sum

If the children are responsible adults, a lump sum distribution may seem like a good choice–especially if they are older and may not have many years left to enjoy the inheritance.

However, once a beneficiary has possession of the assets, he or she could lose them to creditors, a lawsuit, or a divorce settlement. Even a current spouse would have access to assets that are placed in a joint account or if the recipient adds the spouse as a co-owner.

For parents who are concerned that a son- or daughter-in-law could end up with their assets, or that a creditor could seize them, or that a child might spend irresponsibly, a lump sum distribution may not be the right choice.

Installments

Many parents like to give their children more than one opportunity to invest or use the inheritance wisely, which doesn’t always happen the first time around.

Installments can be made at certain intervals (say, one-third upon the parent’s death, one-third five years later, and the final third five years after that) or when the heir reaches certain ages (say, age 25, age 30 and age 35).

In either case, it is important to review the instructions from time to time and make changes as needed.

For example, if the parent lives a very long time, the children might not live long enough to receive the full inheritance–or, they may have passed the distribution ages and, by default, will receive the entire inheritance in a lump sum.

Keep in mind that pushing assets out of a trust in installments, leave assets vulnerable to the problems mentioned above in the “lump sum” option.

Assets can be lost in divorce, seized in lawsuits, or spent foolishly. Some parents are concerned about lump sum, or installment gifts will fuel an addiction.

Keep Assets in a Trust

Assets can be kept in a trust and provide for children and grandchildren, but not be given to them. Assets that remain in a trust are protected from a beneficiary’s creditors, lawsuits, irresponsible spending, and ex- and current spouses.

The trust can provide for a special needs dependent, or a child who might become incapacitated later, without jeopardizing valuable government benefits.

If a child needs some incentive to earn a living, the trust can match the income he/she earns. (Be sure to allow for the possibility that this child might become unable to work or retires.) If a child is financially secure, assets can be kept in a trust for grandchildren and future generations, yet still provide a safety net should this child’s financial situation change.

This is our preferred method of inheritance planning as it’s a win/win for all.  Assets are protected yet available.

3 Ways Not to Leave Property for Your Children

Estate planning offers many ways to leave your property to your children, but it’s just as important to know what not to do.

Here are some things that are all-too-common, but textbook examples of what not to do or try.

Oral Wills

If you feel you have a good rapport with your family or don’t have many assets, you might be tempted simply to tell your children or loved ones how to handle your estate when you’re gone.

However, even if your family members wanted to follow your directions, it may not be entirely up to them.

Without a written document, any assets you own individually must go through probate, and “oral wills” have no weight in court.

It would most likely be up to a judge and the intestate laws written by the legislature, not you or your desired heirs, to decide who gets what.

Joint tenancy is one strategy not even to try.

Joint Tenancy

Instead of setting up a trust, some people name their children as joint tenants on their properties.

The appeal is that children should be able to assume full ownership when parents pass on while keeping the property out of probate.

However, this does not mean that the property is safe; it doesn’t insulate the property from taxes or creditors, including your children’s creditors if they run into financial difficulty.

Their debt could even result in a forced sale of your property.

There’s another issue.

Choosing this approach exposes you to otherwise avoidable capital gains taxes.

Here’s why.

When you sell certain assets, the government taxes you. But you can deduct your cost basis—a measure of how much you’ve invested in it—from the selling price.

For example, if you and your spouse bought vacant land for $200,000 and later sell it for $315,000, you’d only need to pay capital gains taxes on $115,000 (the increase in value).

However, your heirs can get a break on these taxes if you use a trust.

For instance, let’s say you die, and the fair market value of the land at that time was $300,000.

Since you used a trust rather than joint tenancy, your spouse’s cost basis is now $300,000 (the basis for the heirs gets “stepped-up” to its value at your death).

So, if she then sells the property for $315,000, she only has to pay capital gains on $15,000, which is the gain that happened after your death!

However, with joint tenancy, she does not receive the full step-up in basis, meaning she’ll pay more capital gains taxes.

Giving Away the Inheritance Early

Some parents choose to give children their inheritance early–either outright or incrementally over time.

But this strategy comes with several pitfalls.

First, if you want to avoid hefty gift taxes, you are limited to giving each child $14,000 per year. You can give more, but you start to use up your gift tax exemption and must file a gift tax return.

Second, a smaller yearly amount might seem more like current expense money than the beginnings of your legacy, so they might spend it rather than invest.

Third, if situations change that would have caused you to re-evaluate your allocations, it’s too late. You don’t want to be dependent on them giving the cash back if you need it for your own needs.

Shortcuts and ideas like these may look appealing on the surface, but they can do more harm than good.

Consult with an estate planner to find better strategies to prepare for your and your families’ future.

 

 

How to Build Freedom From Court Interference Into Your Estate Plan

probate

It’s clear why you might want to avoid court involvement in your estate for financial reasons, knowing that probate can quickly get costly and time consuming for those involved.

But there is an emotional component to it as well.

Your assets are just that: yours.

And the idea of them being discussed and deliberated on in a public forum might not be such an appealing one.

If you feel that the matters of your estate should be kept private and that your assets should be distributed to your loved ones rather than eroded by court fees, you’re not alone.

And luckily, all it takes to get there is a proactive attitude toward planning your estate. Let’s dive in:

Court Interference 101

Two of the most common situations in which the court becomes involved in your estate is guardianship and probate:

Guardianship and Conservatorship

When someone experiences mental incapacity, documents in their estate plan can direct a trusted person to carry out that individual’s wishes for the situation.

But what if no such documents have been drafted? Then their business becomes the government’s business, too.

A court proceeding called guardianship or conservatorship (also known as “living probate”) will be held to appoint guardians and conservators to manage the affairs of the incapacitated person.

Probate 

When an estate goes through probate, the court oversees the gathering of the probate assets, payment of any outstanding debts, determining whether a will is valid, and who the deceased’s heirs are.

The proceedings ultimately determine who should receive the assets that are left after payment of debts, taxes, and costs.

Free your estate from interference

To avoid guardianship, conservatorship, and probate, you can work with us to keep your affairs out of court entirely.

Powers of attorney

Agents or attorneys-in-fact are the individuals or entities you appoint to make decisions for you, be they medical or financial. You designate agents or attorneys-in-fact in a document known as a power of attorney.

Durable powers of attorney are documents that continue to be valid after the incapacity of the maker of the document (i.e. “durable” against incapacity).

Since a durable power of attorney continues to be valid, a durable power of attorney can help bypass the need for court-appointed guardianship or conservatorship.

Trusts

Trusts are agreements that hold some or all of your assets, and trustees can be either individuals or corporate entities.

Unlike wills, trusts do not go through probate.

There are several types of trusts, and we can help you decide exactly which kind is best suited to your estate.

By setting up and completely funding a revocable living trust, you can accomplish two important things.

First, you can rest assured that your assets will be distributed to your chosen beneficiaries and won’t go through probate upon your death.

Second, you also retain the ability to change or cancel the arrangement during your lifetime enabling you to adjust your plan as your financial or family circumstances change.

Make sure your estate plan is air-tight

Deciding on appropriate powers of attorney and drafting revocable living trusts are just two of the many steps we can take together to keep your affairs free from court involvement.

With a solid estate plan put into place with the help of a trusted attorney, you can take comfort knowing that everything you’ve worked so hard to build and maintain will be passed along to only the people who matter most.

Give us a call today to learn more about interference-proofing your estate plan.

Do You Really Need a Will?

You may not think you need a will, but you do.

You might believe that a will is only for the rich and famous, and not the average person who has a far smaller net worth.

On the other hand, you may think that a will is entirely unnecessary since you have a trust, jointly owned property, or have named beneficiaries on your insurance.

So, do you need a will?

The short answer to this question is “yes.”

In fact, everyone who owns anything – no matter how little value it may seem to have – should have a will.

This is because a will puts you in charge of directing others to your wishes and distribution of assets upon your death. Without a will or other estate plan – referred to as intestacy – you have no control and your state’s rules determine who gets what after your death.

Even if you have a trust, jointly owned property, or have named beneficiaries on your insurance, a will is an important, even as just a “backup” plan.

As a practical matter, the simpler your affairs are – typically, the fewer assets you own – the less complicated your will and overall estate plan is going to be.

Surprisingly to most, it does not take much to complicate your estate.

For example, if you have minor children, your will must name a guardian for those children in the event of your death.

Likewise, if you have a relative who is disabled, elderly or without the financial sophistication to manage your assets after your death, a will allows you to name someone to watch over these assets for your loved ones in a special needs or supplemental needs trust.

And, these are just two examples of the many things that can complicate your affairs and your estate plan.

Many people believe if they have made beneficiary designations on life insurance policies, property deeds or retirement accounts that a will is not necessary at all.

While it is true that those particular designations will ensure the right people you elected will receive benefits or inherit those assets, the distribution stops there.

If there are other assets that you own – such as a car, a china set, or jewelry to name a few – or if you would like to give part of your estate to a charitable organization, a will is essential to your estate planning needs.

Furthermore, when a person dies without a will (referred to as intestate), the estate goes into probate.

Probate is a judicial proceeding by which the court decides the rightful heirs and distribution of assets of a deceased.

Going through probate can be both more time consuming and expensive without a will than it is with a will. This is because your will can waive certain probate requirements (like having the executor post a bond or obtain judicial approval to have an estate sale).

At the same time, probate without a will follows the governing state’s intestacy laws which may likely result in a less-than-perfect split of assets that not only may not be in line with the deceased’s wishes but may leave many surviving loved ones unhappy.

Consequently, for many reasons the creation of a will can fill in gaps of property assignment or plug holes in beneficiary claims on life or other insurance policies.

Family dynamics also play a part in estate planning; something state intestacy laws do not account for.

Many people have blended families. There may have been second or third marriages.

Older couples may choose to cohabitate after a death or divorce and never legally get married. You may have to treat your children differently on current accounts due to distance, and without a will, those assets will not be distributed fairly.

It is important to note that a will can also include a no contest clause, reducing the likelihood that potential heirs from arguing over its contents, something that simply isn’t possible if you don’t make a will.

Creating a will as part of your estate plan is primarily about passing your wealth to your loved ones after you die since a will only “works” after it’s gone through the probate court process.

It is about giving you both independence and control of what happens to your assets after your death.

Instead of leaving the distribution of your property to local intestacy laws, a will can put your wishes down on paper and direct a selected person to carry out your desires exactly as expressed.