Author: Patrick Furman

The Risks of DIY Estate Planning

Many of us, including me, enjoy the satisfaction that comes from completing a DIY project. This satisfaction is a result of knowing that I completed a project without having to call a professional and that I saved a lot of money. However, all too often, we “DIY-ers” make a mistake, or something goes wrong with the project. Quickly that feeling of satisfaction turns to frustration when realizing that DIY project wasn’t done right and ultimately the project costs are bigger than they would have been if a professional was hired in the first place.

Continue reading “The Risks of DIY Estate Planning”

Selecting a Guardian for Your Children

Tragedy is an unfortunate reality in this world. It could be a drunk driver running a red light, an airplane crash, or a boating mishap that leaves someone’s children without a parent. In such a case, who would raise your children? Will it be a judge who picks that person, or have you taken the steps to name a guardian in your Will or other estate planning documents?

Few decisions in your life will be as hard as choosing the people to act as guardians for your children if you are unable to act. However, as difficult as it can be to imagine other people raising your children, it is probably the most important decision you can make. The guardian will not only be the person who will be responsible for the welfare of your children, but will also be the one responsible for instilling your values in them.

Of all the key players in your estate plan, do you want to leave the decision of your children’s guardian up to the courts? It has been said that if you can imagine the very worst person to raise your child, this is exactly the person the court will appoint. While I don’t know that is true, it is critically important that you decide now who you would want to raise your children.

How do you go about selecting a guardian? Consider these simple questions:

• Is this person physically able to take on the responsibilities? Is the person battling a
serious disease or disabled? Is he/she too old at this point to raise your toddler who
goes non-stop all day?

• Is this person emotionally able to take on this responsibility? Let’s face it, some
people are not built to raise children. Consider if he/she possess the
temperament and patience to raise your child. Furthermore, he/she may not
have yet achieved the necessary maturity to raise a child.

• Is this person’s life stable and consistent? You may not want to pick the person who
is transferred for their job every year, causing your children to constantly be
up-rooted.

• Will this person instill your values in your child? If your religious faith is of critical
importance, then you will want to appoint someone who will fully honor those
wishes. However, beyond your religious beliefs, does this person honor your
value system and will he/she teach your child those values?

• Does this person have the financial means to take on the responsibility? Often, you
should be able to provide for your child’s welfare through insurance or other assets.
However, if this person is financially irresponsible, you might run into issues.

While it’s certainly a tough decision, if you think of these questions in selecting your children’s guardian, you will be able to rest assured that if tragedy strikes, your children will be in the best hands possible.

7 Pieces of a Simple Estate Plan

What would happen if I died?  What would happen if both my spouse and I died tragically and unexpectedly? Who would care for my children? Who would provide for them? Where would they live? Would they be able to go to college?  What would happen to all my personal belongings?

No one likes to think of these types of questions. We would like to think that we will take care of those situations and questions “someday” when we get older. Yet, if we do not answer these questions ourselves someone else, like the courts, will answer these questions for us.

When you think of estate planning do you think of a method in which to answer these types of questions or do you envision a concept that brings up visions of summer homes in the Hamptons and palatial estates. At some point in our lives, everyone needs an estate plan, including the person who does not have a large estate. Quite often the concept of estate planning is misunderstood as something only the rich and famous have to do; but every person should have an estate plan in place.

At its simplest level, an estate plan is a number of legal documents that help protect you and your family in the event of your incapacity or untimely death. However, on a deeper level, it is a process that attempts to anticipate future events and then craft a plan so that your wishes are fulfilled.

At its most basic level an estate plan will consist of seven documents

1.      Will
2.      Living Will
3.      Health Care Power of Attorney
4.      Financial Power of Attorney
5.      HIPAA Release
6.      Personal Property Memorandum
7.      Marital Property Agreement

So, why do you need to make an estate plan? Well if you don’t, the State of Wisconsin will make the decisions for you.  I am willing to bet that the State’s plan does not coincide with your plan in every way.  Unfortunately, the State does not know that you would want one of your siblings to care for your minor children.  The State would not know at what ages to distribute your property and the amount of money to distribute to each of your children either.  By creating an estate plan, you could specify specific individuals, specific time periods, and specific amounts of money.  Your money can then be used for your children’s care and not used elsewhere.   Furthermore, under the State’s plan, you may not give any assets outside of the family unit.  If you wanted to leave some money to your favorite organization, you are out of luck.

So with an estate plan, you should do all of the following:

1.      Designate someone to manage your affairs if you become disabled.
2.      Name a guardian for your children if you pass away.
3.      Provide for your minor children or grandchildren.
4.      Reduce or eliminate Income, Gift, or Estate Taxes.
5.      Give away your family heirlooms and sentimental items in a
Personal Property memorandum.
6.      Designate who gets your estate and how.
7.      Reduce the costs and time for administration of your estate.

The above list probably includes some facet of your estate you would want to control.  Since we have established that you need an estate plan, what is the next step?  You probably have some questions? You should give us a call at Epiphany Law and we can answer those questions.  We pride ourselves in making this process as simple and as painless as possible.  We would love to help you navigate these issues and come up with a plan to meet your wishes.  For more information, visit www.epiphanylaw.com\estateplanningsimplied.

Nursing Home Trusts

Our senior clients frequently express their concern about losing their estate to the cost of nursing home care. Clients usually want to pass some of their legacy out to their children. With nursing home care costing over $80,000 per year, most people end up paying for care out of their savings until it is gone. Once the assets run out, they are entitled to receive some assistance from the government in the form of Medicaid, but by then, it’s too late.

As the possibility of nursing home care becomes reality, people often do their own planning, which can be more of a detriment than no plan at all.  Do-it-yourself planning is often based on a misunderstanding of the rules or is based on the rules as they existed decades ago.  Careful advance planning can help protect your estate.

Generally, Medicaid funds are not available until a person enters a nursing home and their assets are under $2,000.  As most people are aware, Medicaid will look at transfers made within 5 years prior to the application for Medicaid.  This is what is generally referred to as the “look-back period”.  If the need for long term care is not immediate, your house and other real estate can be transferred into a nursing home trust.  While you and your spouse are in good health, the 5-year look back period runs.  Even though the house and other real estate are in the nursing home trust, you will live in the house and use the property as usual.  You will even get to continue to deduct your property taxes.  At the end of the 5 years, the property will be out of your estate and not susceptible to liens from the nursing home, collection from the State, and will not count against you for Medicaid coverage.

This is an important difference from transferring real estate to your kids. We see many people simply transfer their house and other property outright to their children. While this can work to shield assets from nursing home liens and attachments, it does not provide for your future care. As you are relinquishing control of your property if assets are simply transferred to your children, you run the risk of your home or assets being lost to mismanagement, lawsuits, creditors, or divorce.  Often, the loss of funds is not due to any type of wrong-doing by the children, but rather to events happening in their lives that are out of their control. Furthermore, the nursing home trust may have the added benefit of helping your children avoid many of the unforeseen consequences of having assets transferred into their names.   For example, if your children hold your assets in their name, they may run into problems getting eligibility for their children’s educational financial aid.  Furthermore, because the property was gifted to them, your children may also have to pay capital gains on the sale of the real estate when the property is sold.

If nursing home care is a concern, consider a nursing home trust as part of your estate planning. We will be happy to discuss your options with you.

Yours Truly,

Epiphany Law Estate Planning Team

IRA’s

Almost everyone can turn a modest IRA into MILLIONS of dollars for later generations. Take, for example, a typical couple that has a $100,000 IRA during their lifetime and have named their 20-year old son as the sole beneficiary of the IRA. At their deaths, the son will inherit the IRA. Assuming a reasonable rate of return, if he inherits the IRA at age 20, he may receive over $1,700,000 of income over his lifetime – the result of a concept called “IRA stretch”. The “stretch” occurs when IRA payments are prolonged over the longest possible period of time (taking into account the beneficiary’s age), thus reducing taxes and preserving wealth for future generations. In most cases, however, the IRA that is inherited by the son will produce $0.00. Why? Because 90% of all IRAs left to the next generation are cashed out or squandered within one year of receipt. Therefore, more likely than not, the son will have lost this potential million dollar IRA within 12 months.

In most estates, the IRA is one of the largest assets. The benefits of tax deferral and creditor protection, which we have not yet discussed, can be lost at your death without the proper planning. Generally, IRAs are exempt from the IRA owner’s creditors during his or her’s lifetime. However, once the IRA owner passes away, the IRA is available for the beneficiaries’ creditors because it is no longer a creditor exempt asset according to the United States Supreme Court. For example, if mom left an IRA to her son outright, and the son was going through bankruptcy, the bankruptcy court could satisfy the son’s debts with mom’s IRA.

Another risk is second marriages. An IRA can be “rolled over” to a surviving spouse upon the death of the first spouse, and the surviving spouse becomes the owner of the IRA. The surviving spouse is free, then, to change the beneficiaries of the IRA. Upon remarriage, the surviving spouse may name the new spouse as a beneficiary of the IRA. Upon death, the new spouse then becomes the new owner of the IRA and is free to name their own new beneficiaries. If the original owner of the IRA had planned on the IRA going to their children, they are out of luck. Understanding and planning could have ensured this result.

A standalone retirement trust (commonly referred to as an “SRT”) is an under-utilized tool used to overcome these issues. The IRA will, upon death, flow into the third-party trust instead of passing directly to the beneficiary. The beneficiary can access funds, but creditors cannot. Nor can the beneficiary control who ultimately gets the trust funds upon their death. It will continue to grow, thus preserving the potential for that million dollar IRA.

Yours Truly,

Epiphany Law Estate Planning Team

Power of Attorney and Marital Property

The financial durable power of attorney and the marital property agreement are often forgotten pieces of estate planning. Frequently overlooked, both of these documents are necessary to a good plan.

The financial power of attorney is simply a legal document that gives someone authority to conduct financial transactions for you if you are unable to do so. The powers granted under the financial power of attorney can include simple transactions, such as paying your cell phone bill, to more complicated transactions, such as running a business.

An often mistaken belief is that a spouse will automatically have the power to deal with the finances of the other. Meet a hypothetical couple named Dick and Jane, who probably have all of their assets titled jointly, including their house. If Dick is involved in an accident and is left incompetent, can Jane act on his behalf? Without a financial durable power of attorney, Jane can still access joint accounts that they own together; however, Jane is unable to transact any acts involving Dick’s IRA, 401K, pensions, life insurance- even things as simple as a cable bill if Jane is not on the account! Jane would have to be named guardian by a court to make any changes to or withdrawals from these accounts, or even to receive information!

Therefore, it is important to have a properly drafted financial durable power of attorney to take care of your affairs if anything happens to you. This is true even if your spouse is listed on all of your accounts, and even truer if you are unmarried! With a durable financial power of attorney, the acting spouse (or other agent) will have full access to all of the family accounts and will avoid court involvement in the middle of a crisis.

Similarly, the marital property agreement is also frequently overlooked. Wisconsin is a marital property state. Generally, the Marital Property Act presumes that almost all property is owned equally between the spouses.  However, certain assets are individual, such as inheritances. Under the Marital Property Act, Dick’s paycheck would be considered marital property, as would their house. However, Jane’s inheritance from her grandmother is Jane’s individual property. Dick has no automatic right to share in the inheritance. This seems simple enough; however, the Marital Property Act can get confusing.  If any marital property is mixed in with individual property, all of the individual property can become marital property. If Jane mistakenly deposits Dick’s paycheck into the account where she holds her inheritance, the whole account may very well be considered marital property. This could really be a problem if Dick and Jane ever divorce.

How does all of this pertain to an estate plan?  We use the marital property agreement to classify assets of spouses. By defining all of the assets as marital property, we are able to equalize the marital assets for estate tax planning, or to make certain that a spouse receives more favorable tax treatment after death. If a couple is on their second marriage with children from previous marriages, the marital property agreement can allow each spouse to leave individual property to their own children at death.

Dick and Jane’s story, while hypothetical, can and does happen. Ensure these important financial documents are part of your estate plan so a court isn’t in control of your family’s financial future.

Yours Truly,

Epiphany Law Estate Planning Team

Funding The Revocable Trust

As most people know, one of the major benefits of creating a trust during your lifetime is that you can avoid probate. However, if the trust is not funded, you will not avoid probate. Funding your trust is the process of transferring ownership of your assets from your individual name to your trust.   To do this, you physically change the titles from your individual name (or joint names) to the name of your trust. You will also change most beneficiary designations to your trust so those proceeds will flow into your trust when you die.

When you sign a will, no further action is needed. The Will is filed away and usually forgotten about. The title to property is changed after you die when you have a Will. The probate court oversees this transfer of title. When create your trust, you must change the titles now so there will be nothing for the courts to do when you die (or incapacitated).

While the funding process is not difficult, it will take some time and it’s easy to get sidetracked or procrastinate. Make a list of your assets, their values and locations, then start with the most valuable ones and work your way down. Your attorney will usually transfer the real estate. However, many assets can be transferred yourself therefore saving some attorney’s fees. If there is an asset that you are finding difficult or complicated to transfer, you can always go back to the attorney for some additional assistance. While the funding process can sometimes take a bit of time and effort; you can look forward to your peace of mind once you have completed it.

Protecting Inherited IRAs from Creditors and Predators

Inherited IRAs are not protected retirement funds. They are subject to creditors’ claims if the beneficiary files for bankruptcy. The Supreme Court decided that inherited IRA accounts were not protected retirement funds since the beneficiaries of these accounts were required to withdraw a minimum amount of money each year regardless of whether these beneficiaries are retired. In the case of bankrupt estates, inherited IRAs will now be considered assets—fully available to satisfy creditors’ claims. It seems obvious that the holding can be expanded to permit other predators and creditors to collect from inherited IRA accounts.

If you want to protect these hard earned assets, a Standalone Retirement Trust should be established in order to protect your assets without restricting the beneficiary’s access to the funds. Upon the retirement plan participant’s passing, his or her funds will flow into the third-party trust instead of passing directly to the beneficiary. Because the beneficiary does not establish the trust, doesn’t fund the trust with his or her own money, and cannot modify the trust, the trust will be protected from the claims of the beneficiary’s creditors.   However, the IRA assets continue to grow at a tax deferred rate “stretched“ over the lifetime of the beneficiary.

When do I need a probate attorney?

When a loved one names you as the administrator of their estate, it’s a sign that they trust you and believe you’ll carry out their wishes. Unfortunately, even the best administrators can find themselves overwhelmed by the probate process. The probate process comes with its own set of rules and regulations to follow, some of which aren’t always easy to understand.

 

In many cases, hiring a probate attorney can help relieve some of the anxiety and ensure your loved one’s estate is handled the way they intended. Here are some questions to ask yourself to decide if you need a probate attorney’s help:

  • How large is the estate? In Wisconsin, if the estate is worth less than $50,000, there are simplified probate options available. While $50,000 sounds like a lot of money, most estates are worth more than that. Large estates will have to deal with estate taxes.
  • Are there creditor issues? If an estate can’t pay all creditors or if you expect a creditor to cause problems, talk to an expert. Remember: some creditors will have priority over others.
  • Are there family issues? While rare, contested wills are difficult and expensive to deal with. If you expect a fight, consult an attorney ahead of time to limit the financial and emotional fallout.
  • Is there a business involved? Managing, valuing and transferring a business are extremely complicated and shouldn’t be done on your own.
  • Are there other “special” assets? If the estate has assets that are unique (such as rental or commercial property), these should also be managed, valued and transferred with the help of professionals.

Serving as administrator of an estate is an important job. While it can be tempting to go it alone, sometimes asking for help is the best thing you can do to ensure your loved one’s wishes are met.

Changing or Revoking Your Will

It’s a smart idea to begin estate planning early. Hopefully, you won’t need that estate plan for many years to come. In the meantime, lots of things can change and you may find yourself wanting to make changes to your will along with them. Before you get out a red pen, however, you should know the requirements for making changes.

While some states recognize handwritten changes, Wisconsin generally does not. The main reason for this is because handwritten changes are often challenged in court—anybody could have written on the will after the fact. Instead, you should contact your estate planning attorney to draft a codicil. A codicil is a legal document with the same formal requirements as your will, such as signatures and dates and witnesses.

 

If you plan to make a lot of changes, it may be better to revoke your will and make a new one. There are several ways to do that, but the best way is to physically destroy the old will (usually by tearing it up) in the presence of witnesses. Then have your lawyer draw up a new will and make sure you follow the formal requirements.

Whether you’re adding a codicil or making a new will, it’s always a good idea to discuss the change and your reasons with the people it affects. Beneficiaries are far more likely to challenge something in your will that comes as a surprise. Making your loved ones aware of the decision also reduces the likelihood they’ll accidentally produce a copy of your old will, which can only lead to confusion.

You should periodically review your estate plan to make sure it still reflects your wishes. If you need to make changes, take the time to do them the right way.