Category Archives: Estate Planning

Formulating an Estate Plan with Minimal Taxes and Fees

Holidays are right around the corner, and soon families will be sharing meals and exchanging gifts across multiple generations. These gatherings prompt many to evaluate the status of their estate and their family’s broader legacy. It’s all too easy to procrastinate on estate planning decisions with the reasoning that there is ample time to take action down the road. The truth is that we never know how much time we have left.

Estate planning is the process of deciding for yourself, ahead of time, what you want to happen in the event of an untimely death, disability or health emergency. As the popular saying goes, you can’t take it (wealth) with you when you die. When it comes to what you’ll leave behind, there are basically three options for who will receive it: individual heirs, charities or Uncle Sam. Without comprehensive estate planning, you could inadvertently be naming the IRS or a creditor as your primary beneficiary.

Passing Your Legacy to the Next Generation

Estate planning is about more than just passing your assets on to the next generation. Estate planning gives you an opportunity to pass your legacy and values on to the next generation. Customizing the inheritances for your beneficiaries allows you to set goals for them and use your assets for motivation to achieve those goals, while still providing them for their health, education, and maintenance in reasonable comfort. If you have a sizeable estate or are worried your heirs won’t be wise with your money, you will be able to appoint a trustee to distribute your wealth in accordance with the terms of the trust. In addition to incorporating your family values into your estate plan, trusts can also provide strong asset protection of the funds for your children.

The appropriate estate planning strategies for your situation will depend on your objectives, state of residence, assets and several other factors. Effective estate planning will account for tax considerations and asset protection objectives to ensure that it is cohesive with the rest of your financial plan.

Physician Financial Advisor

Complex strategies and constantly-evolving estate tax law can make the process of formulating an estate plan seem daunting. However, cutting corners or procrastinating can be a costly mistake for you and your heirs. In times of grief, one of the best possible parting gifts you can leave your loved ones is the sense of security that comes with having a well thought-out estate plan.

Minimizing Estate Planning Taxes

There are some assets that can pass to your beneficiaries without a Will or a Trust. Some accounts such as retirement funds, annuities and life insurance policies let owners name beneficiaries for that particular asset. These beneficiary designations are a non-probate transfer, meaning they avoid the court, but the values of these accounts are still part of your taxable estate. Specialized trusts to remove these assets from your taxable estate are part of a comprehensive estate plan, and will serve to minimize the estate tax impact on the beneficiaries.

If you have a Revocable Living Trust as part of your estate plan, it may be the beneficiary or owner of any of the types of accounts listed above, so all of your assets will be distributed according to those customized distribution patterns.

It is recommended that you review your estate plan after any major life changes such as marriage, disability, the birth or adoption of children, divorce, the serious illness of a beneficiary, or a substantial increase or decrease in the size of your estate.

The funds in your 401(k) or traditional IRA will be subject to income tax unless it is passed to a spouse, or “stretched out” using special provisions in a trust. You can avoid leaving your beneficiaries with that tax bill by gradually converting traditional IRA accounts to Roth IRA accounts that have tax-free distributions. Since the amount converted will be taxable on your income taxes, the goal is to limit each year’s conversion so that you don’t cross over into a higher tax bracket.

Finally, one of the best ways to ensure your money stays in the family is simply to give it to heirs while you’re still alive. The IRS allows individuals to give up to $14,000 per person per year in gifts tax-free. If you’re worried about your estate being taxable, these gifts can bring its value down. Another way to reduce your estate value is through charitable contributions during your life, which can also be tax deductible, or through using charitable trusts. Certain charitable trusts allow you to retain an income stream from the assets you remove from your estate, and at death the money passes to the charity you choose.

Minimizing Estate Planning Costs

Many have attempted to draft their own estate planning documents with the help of software or a website. However, drafting wills and other estate planning documents without the oversight of an attorney can lead to mistakes that will be costly down the road. When seeking the advice of an attorney, remember that the cheapest option isn’t always the best. A skilled estate planning attorney may charge a higher price, but end up saving you money in the long run.

Make an effort to be prepared and decisive when meeting with an estate planning attorney. Before your first meeting, ask your attorney what documents and information you need to bring to your meeting. Similar to the way you might ask a patient the same questions from visit to visit, an attorney might repeatedly inquire about your financial situation to stay aware of changing circumstances. Keeping your physician financial advisor in the loop is also a good idea, so the attorney and financial advisor can coordinate your estate, retirement, and investment planning. The less time your attorney needs to spend gathering information, the less money you’ll ultimately end up spending.

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This article has been provided for informational purposes only and is not intended to be, nor should it be considered legal advice. Consult an appropriate legal professional regarding current laws and application to your particular situation. You should not make any decisions about any legal matter without first consulting with an attorney. This article is not intended to create, and receipt does not constitute an attorney-client relationship.

A Doctor’s Estate Plan

Add a Letter Covering These 13 Wishes

Having an estate plan is necessary for doctors, but there is a great deal of information the legal documents may not include. Here’s what to cover in a supplemental letter that specifies preferences, discloses critical logistic info, and will save your family significant stress during a difficult time.

A Doctor's Will & Testament

You might be surprised how many doctors die each year without an estate plan. There are numerous reasons for this major oversight, including those who cannot or will not think about death, those who believe talking about and creating an estate plan may cause problems with their partner or family members, and those who don’t want to spend the time with a lawyer.

Having a proper estate plan goes a long way to prevent family arguments. The guesswork is eliminated and the family is clear on your intentions. Furthermore, properly drafted estate planning documents may actually save money, time, and court costs.

Just as an estate plan brings a feeling of peace and comfort, so does an accompanying letter listing items sometimes not included in the estate plan. Here are several suggestions you may consider including in your or your loved one’s accompanying letter:

1. People to be notified at the time of death. Certain people and institutions need to be notified at time of death, including your lawyer, trustee, executor, and accountant, along with federal pension authorities. Relatives and special friends will want to know as soon as possible, so providing the names, addresses, and telephone numbers will make it easier for the person assuming this responsibility.

At the time of my father Jack’s death, my mother and family did not know who Jack’s closest colleagues at work were. As a result, a former coworker called after the funeral saying he would have appreciated attending. This oversight, which could have been prevented with a listing of people to be notified, caused much anguish for both the family and the friend who was left out.

2. Listing advanced funeral arrangements. Be sure you communicate his or her funeral arrangements and last wishes (e.g., body burial, type of casket, cremation, and music requests).

3. Location of personal papers. List the exact location of personal documents, including birth and marriage certificates, diplomas, military papers, and so on.

4. List of bank accounts and bank locations. List all bank accounts by name of institution, branch address, and type of account. Also give the location of canceled checks and bank statements with the number and location of the safety deposit box and key.

5. Listing of credit cards. List by issuer and card number.

6. Location of deed and mortgage papers. Indicate where the documents are located, the date for renewal, and the holding institution.

7. Listing of insurance policies. List life, auto, home, veterans, medical, and other insurance policies together with the responsible agent’s name and location of these documents.

8. Listing of vehicles, including registration and other papers. Provide the location of all keys and operating instructions.

9. Income and property taxes paid and owing. Provide the location of income tax returns for the past three years, record of property tax amounts, and due dates.

10. Investments, including mutual funds, stocks, and bonds. List all stocks, bonds, certificates of deposit, and other investments. Indicate the location of the investments and the name and address of the financial advisors. If owning any gold or silver coins or bars, provide the location and details.

11. Listing and location of valuables. List all jewelry and other valuables, including the names of those to whom the articles are to be given.

12. Record all loans and other accounts payable.

13. Special survivor benefits. List all possible sources of benefits not named in the estate planning documents —government pension, veteran’s pension, employee pension, fraternal associations, and so forth.

14. Website logins and passwords. List of computer and website login, pin, and password information, including for general computer login, email account(s), file hosting services, and online banking, retirement, and investment services.

Once you’ve completed a current estate plan and accompanying list of assets, document location, and burial wishes, you can feel more at ease knowing your final plans will be fulfilled. Let one or two other family members know where the estate planning documents and accompanying letter are stored and the name and address of your lawyer. Better yet, give a copy of the accompanying letter to one or more of the following: your spouse, a trusted friend, and/ or a family member. These trusted companions can begin the process of notifying family and friends and fulfilling the wishes named in the estate plan.

Copyright © 2012 by Horsesmouth, LLC. All Rights Reserved.

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A Widow’s Worst Nightmare

Financial Planning for Physicians

What can be worse than losing a spouse—especially when there are still young children to raise? How about being forced to go through probate and losing needed assets to ex-spouses and estranged family members?

If only there had been a will.

Physician Financial Advisor

Advisors are used to beating the drum about proper estate planning and predictably, year after year, the same physician clients will give an awkward laugh and sheepishly admit that they still haven’t made a will. It just doesn’t seem that important. Dead is dead, right? And besides, all the assets will go to the physician’s spouse, so he or she can worry about passing it on to the kids.

If only that were true.

When a physician dies without a will, the law of the state they died in determines how assets will be dispersed. Distribution formulas vary according to state law, but they are usually some variation of the following:

  • The physician’s spouse gets everything if the deceased had no children, parents, siblings, nieces, nephews, or there are no children of a deceased child.
  • The physician’s spouse gets half if the deceased had one child or there are children of one deceased child.
  • The physician’s spouse gets one third if there are two or more children or one child and descendants of one or more deceased children.

Within weeks of each other, two young widows came through our doors seeking financial advice. Their physician husbands died suddenly without wills, and now they’re facing the grim reality that the assets in the husband’s name will not all pass to them.

The widow from Maryland discovered that she’s entitled to one half of the net probate estate, and her minor child will get the rest. The widow from Virginia will receive only one third of the probate estate, and her children and stepchildren are getting the rest. In both cases, the majority of the financial assets were in brokerage accounts in their husbands’ names.

A Widow’s Worst Nightmare

These widows have some serious problems, as their outright shares of the assets are insufficient to maintain their lifestyle and support their children. Additionally, both face ongoing and cumbersome reporting requirements to their county commissioners, not to mention legal and bonding expenses as they manage assets belonging to their children under court supervision. In the case of the widow with minor stepchildren, it remains to be seen whether the court will appoint her or the ex-wife as conservator of that child’s account.

We often counsel clients who are widowed to try to wait several months before making large financial decisions. But if money is tight and the courts are involved, time is of the essence. The first hurdle is probate. The court determines how to divide the assets—what goes to which beneficiary. The costs can add up quickly and may include court fees, attorney fees, accounting fees, appraisal fees, and business valuation fees.

When minor children inherit, the bureaucratic red tape begins and costs can be excessive in comparison to the value of the assets that are being protected. It can be a constant struggle to access the children’s inheritance for their own upbringing. Interaction with the courts occurs in the following ways:

  • The court appoints a conservator to administer the assets in accordance with its rules. This conservator will not necessarily be the surviving parent.
  • Court supervision involves formal accountings, which can be costly and complicated.
  • The conservator may also require legal representation in court.
  • The court controls how funds are to be used and when they can be withdrawn.
  • The court’s interpretation of reasonable costs for health, education, maintenance, and support is usually very conservative. A parent may be unsuccessful arguing that tutors, orthodontia, music lessons, sports camp, or help paying a mortgage is a necessity. It may be hard to justify using a larger share of the assets for a child with special needs.

What happens when the children are no longer minors?

Children gain full control of their assets at the age of majority, and this can have tragic consequences. Few 18-year-olds are emotionally and financially responsible enough to handle a large inheritance. This sets the stage for a lifetime of regrets if the children spend through all the assets. They may even become injured by an excessive life style due the toxic combination of immaturity and sudden wealth. This is not a great legacy for any parent to leave their child.

At a minimum, parents need to establish wills to protect their spouses and their children. Physical guardians should be designated for any minor child, and any assets that might pass to a minor should be titled to a named custodian under the Uniform Trust for Minors Act (UTMA) or as a trustee for a minor’s trust. The guardian and trustee do not need to be the same person, and separating the guardian of the children from the “conservator” of the financial resources is often a very good idea.

Provisions can be made so that the guardian will receive sufficient funds to raise the children without creating an unreasonable burden on their own family and resources. A thoughtful will can also be structured to allow gradual distribution of assets at ages older than 18 or 21.

Our two widows would have been spared all these problems if their husbands had even simple “I love you” wills naming them as the beneficiary of all the separate property. And don’t forget, they each need to draft a will now to prevent this from happening all over again if they should experience a loss of capacity or a premature death.

Physician Financial Advisors

Check with your financial advisor for the name of a good estate attorney. Financial advisors and estate planning attorneys often work together to ensure their clients’ estates are financially and legally protected.

And the next time you procrastinate on creating a will, remember the stories of the two young widows now struggling to support their children with far less in assets than they expected or their husbands intended. It can be a nightmare working through the courts for support and maintenance of the children. A proper will is a true act of love and generosity and is absolutely critical in situations where the spouses have separately titled property.

Above all, remember that if you don’t create a will of your own, the state will write one for you. Knowing how probate really works work might be all the incentive you need to visit that nice lawyer and create a will that can enforce your last wishes and protect your family’s assets.

Copyright © 2013 by Horsesmouth, LLC. All Rights Reserved

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4 Key Steps for Planning Your Digital Estate

When a close family member of mine passed away back in the spring, no one was surprised that this meticulous planner had left his financial affairs in good shape. The family’s longtime financial advisor coached his wife about how to open an inherited IRA to stretch out the tax-saving benefits of the vehicle, and the family attorney got to work on tying up all of the other loose ends, both financial and legal.

But not every aspect of his estate has been attended to, almost six months later. His LinkedIn profile is still up, as is his old Facebook page. In the scheme of things, the fact that those accounts are still live may not seem like a big deal. But that may not have been what he had wanted, either. Because he never specified his wishes for those accounts, his family doesn’t really know.

Financial Advice for Doctors

My relative’s situation illustrates that even people who think they’ve ticked off all the usual boxes on their estate-planning to-do lists may have overlooked an increasingly important component of the process: ensuring the proper management and orderly transfer of their digital assets after they die or become disabled. Just as traditional estate planning relates to the management and transfer of financial accounts and hard assets, digital estate planning encompasses your digital possessions, including the tangible digital devices (computers and smartphones), stored data (either on your devices or in the cloud), and online user accounts such as Facebook and LinkedIn.

The basic idea is to knit these digital assets in with the rest of your estate plan. “We need to do the next step in planning,” says James Lamm, an attorney who coaches other attorneys on the importance and specifics of digital estate planning. “Who should get the data? And more importantly, are there things we don’t want others to have?”

‘The new reality’

As we’re all spending more and more time pecking at our phone screens and transacting online, digital assets are taking up an increasingly important role in all of our lives. “The new reality is that our lives are largely digital, and the artifacts of our digital lives have value, from both sentimental and financial standpoints,” notes Evan Carroll, cofounder of TheDigitalBeyond.com and coauthor of Your Digital Afterlife, a book about digital estate planning.

At first blush, making plans to allow your loved ones to gain access to your digital property may not seem like a pressing concern—certainly not on par with issues like who should inherit your financial accounts or look after your minor children. Lamm concedes that many digital assets have little or no financial value. But he also notes that “there can be significant value if you know what to look for.”

An obvious example of a valuable digital asset would be a manuscript on the PC of a best-selling author. But domain names and advertising from webpages and blogs may also have financial value. Downloaded assets such as digital music and book libraries may be worth something too.

And even if they don’t have monetary value, digital assets may have sentimental worth. If you don’t specifically outline what should happen to such assets when you craft the rest of your estate plan, Carroll notes, “The implications could be that your wishes are unknown to your heirs and they won’t have access to precious family mementos or important documents.”

Logistical hurdles abound

Digital estate planning is, in many respects, more complicated than traditional estate planning. Whereas finding and managing financial and hard assets after a loved one has died or become incapacitated isn’t always straightforward, identifying and gaining access to the digital assets of a loved one is apt to be an even more cumbersome process.

Lamm says that unless the owner of those assets has left specific guidance about the existence and whereabouts of the digital assets, the deceased or disabled individual’s fiduciaries may not even be aware of their existence. Additionally, those digital assets may not only be password-protected or encrypted, but they may also be covered by data-privacy laws or criminal laws regarding unauthorized access to computer systems and private data. Fiduciaries may be able to unearth passwords and gain access to their loved ones’ online accounts, but they may not be doing so legally.

The field of digital estate planning is also evolving rapidly, as are digital providers’ policies on what should happen to digital assets that are left behind. For example, Google has created an Inactive Account Manager, which allows you to name a trusted person who can gain access to your data once your accounts have been inactive for a certain period of time. Facebook, meanwhile, does not currently allow others to gain access to data stored on the social media firm’s site. Digital assets are also governed by a complex web of rapidly evolving laws, both at the state and federal levels.

The fact that state and federal laws and digital providers’ rules are so piecemeal, notes Carroll, should serve as an impetus for individuals to “take a few minutes and get their plans in order.” Here are several key steps to take.

1. Conduct a digital “fire drill”

Lamm thinks a good first step in the digital estate-planning process is to conduct a digital fire drill, which tends to jog clients’ memories about what digital assets they deem important. He urges his clients to consider the following questions:

  • What valuable items would you lose if your computer were lost or stolen today?
  • If you were in an accident, would your loved ones be able to gain access to your valuable or significant digital information while you were incapacitated?
  • If you were to die today, to what valuable or significant digital property would you like your loved ones to have access?

2. Take an inventory of your assets

The next must-do is to create an inventory of the digital assets you named during the fire drill. Document the item/account name as well as user names and passwords associated with that item.

Among the items to document in your digital inventory are:

  • Digital devices such as computers and smartphones
  • Data-storage devices or media
  • Electronically stored data, including online financial records, whether stored in the cloud or on your device
  • User accounts (Facebook and LinkedIn accounts, for example)
  • Domain names
  • Intellectual property in electronic format (a book you’re working on, for example)

As with the “master directory” I’ve discussed in the past, this document is chock-full of sensitive information, so keeping it safe is crucial. A printed document will tend to be the most vulnerable, unless you store it in a safe or safe deposit box. A password-protected electronic list of your digital assets and instructions on how to gain access to them is a step in the right direction, but it, too, will need to be updated on a regular basis as passwords change.

Lamm is a fan of software programs such as LastPass and Dashlane, which securely store your online account information and passwords on your computer and smartphone. Web-based services such as LegacyLocker and AssetLock aim to take the extra step of making this information available to your fiduciaries, after a verification procedure.

Lamm recommends a hybrid approach for most individuals. Maintain an electronic list of digital property and passwords, protected with strong encryption and a strong password and backed up in the cloud (as opposed to on your computer and smartphone alone). From there, he advises creating a master password for the electronic list, storing the password in a safe deposit box or home safe, and providing fiduciaries and family members with instructions about how to gain access to it.

3. Back it up

We’ve all been schooled on the importance of regularly backing up digital assets, and Lamm points out that estate-planning considerations make it doubly important to do so. Even if a specific device malfunctions, storing digital assets on another storage device or in the cloud helps ensure the longevity of those assets. Moreover, online account service providers may voluntarily disclose the contents of electronic communications, but they’re not compelled to do so. If you want to help ensure that your loved ones have access to the information in your online accounts, backing it up on your own device is a best practice.

4. Put your plan in writing

Experts also recommend formalizing your digital estate plan. That means naming a digital executor—someone who can ensure that your digital assets are managed or disposed of in accordance with your wishes after you’re gone.

If your primary executor is savvy with technology, there’s probably no need to name a separate digital executor. But if not, or if you have particularly valuable or special digital property, such as intellectual property, Lamm advises a separate fiduciary/executor for digital assets.

Depending on the type of property, the fiduciary may also need special powers and authorizations to deal with specific assets. “Because of the complexities of criminal laws and data-privacy laws,” Lamm says, “you need the right kinds of authorizations in place.”

He also advises individuals to mention specific digital assets in their wills. “If you don’t want to pass it on, that’s fine. But if I had something valuable I wanted to pass on, I’d put it in my will.”

Copyright © 2013 by Horsesmouth, LLC. All Rights Reserved

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Understanding the Different Ways to Title Property

There’s satisfaction to be had in owning something valuable. In many ways, the property we possess serves as a testament to the sweat equity we apply to our daily lives. Property consists of rights and interests a person holds in anything of value that is capable of being owned. Real property (real estate) is land and everything permanently attached to it such as buildings, fences, pavement, storm drains and tress. Personal property covers all other assets, even the intangible ones.

Asset Protection for Physicians

Ownership is a surprisingly nebulous term. There are several different types of ownership, each with a unique set of features. Understanding the characteristics of each type of ownership is crucial for formulating a proper estate plan.

Types of Ownership

  • As the sole owner of a property, you can sell, mortgage or gift the property at your own discretion and are entitled to all of the income. You can also designate an heir in your will who will inherit the property if anything were to happen to you. The only exception would be a life estate, where a person’s interests cease when the owner dies.
  • Joint Tenancy with Right of Survivorship (JTWROS): This is common form of joint ownership between spouses, although non-married owners can also qualify. In this scenario if one of the owners dies, the property is automatically transferred to the surviving owner by operation of law.
  • Tenancy in Common: A form of ownership between two or more persons in which each owns part interest in the whole property. The proportion of ownership can be of any combination but it must be officially stated. Any income generated from the property is split based on these fractional shares. Each party can legally sell their share without the other party’s approval or consent. Unlike JTWROS, rights do not pass from one owner to the other(s) at death.
  • Tenancy by the Entirety: This form of ownership is similar to JTWROS in terms of survivorship but provides far more asset protection. However, it may only exist between married spouses. This permits spouses to own property as a single legal entity by giving each spouse an equal and undivided interest in the property. Consent from the other spouse is always required before making the decision to sell or rent the property. It’s important to note that Tenancy by the Entirety is not recognized in all states.
  • Community Property: Another form of ownership that can only be held between spouses. It generally does not include property acquired prior to marriage or to property acquired by gift or inheritance during the marriage. These laws generally presume that all property owned by a married couple while residing in that state is community property regardless of titling. However, it’s possible to have a written agreement to the contrary. Currently, only 10 states (Arizona, California, Nevada, New Mexico, Idaho, Texas, Washington, Louisiana, Wisconsin, and Alaska) recognize some form of community property laws, which should be considered if you plan on relocating to another state.

When planning your estate, it’s important to be informed about the laws controlling transfers at death. You can make things a lot less complicated for your grieving loved ones by seeing that your assets are automatically transferred to their respective beneficiaries without having to go through a probate court. An effective estate plan will ease the burden during this stressful time by eliminating the guesswork when honoring last requests. Having property correctly titled and keeping beneficiary designations up to date will do just that.

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Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal advice or services. Please consult the appropriate professional regarding your legal needs.