Category: Estate Planning Blog

The Pitfalls of P.O.D. Accounts

We all hope to have someone help us in our old age. Many of us might also plan to thank that caregiver by leaving them a larger gift than originally intended. Rather than redo an entire estate plan, however, some people turn to the easy and inexpensive option of making a caregiver the beneficiary of a particular account (such as savings) using a payable on death (P.O.D.) designation.

Unfortunately, a P.O.D. account is especially vulnerable to attack by the people who otherwise would’ve received the account. They often claim “undue influence”—that the caregiver wrongly influenced the account owner’s decision. Even worse, Wisconsin law doesn’t allow the caregiver to testify about the owner’s actual reasons for the designation.

If you’re going to use a P.O.D. designation to thank a caregiver, the most important thing to remember is to document your reasons. That means making your intent clear to third parties, because you won’t be around to testify and your caregiver can’t.

The easiest way to do this is to discuss your decision and your reasons with your attorney. That addresses two issues: 1) Your attorney can testify (if necessary) about what you intended and 2) Your attorney can make sure the P.O.D. designation doesn’t conflict with or undo the rest of your estate plan. It’s also a good idea to discuss your reasons with other third parties who could testify, like a financial planner or friend.

After discussing your reasons, make sure to carefully document them and identify who you discussed them with. Put the document somewhere it can be easily found (like an estate plan folder). The more evidence you have the more likely the P.O.D. designation will stand and the less likely your other beneficiaries will challenge it.

Keeping It In The Family: Protecting Your Family Cottage With an LLC

Some of your family’s best times were probably spent at your family cottage. It’s only natural, then, that you want to keep the cottage in the family for your children and grandchildren to enjoy. Simply leaving the cottage to your relatives, however, can lead to unexpected problems in the future.

Take an example: you decide to leave your Door County cottage to your three children. The default result means that each of your children becomes a tenant in common (TIC). As TICs, each child has the right to use the entire property at any time and is responsible for certain costs such as taxes, mortgage and insurance.

On the other hand, TICs don’t have to chip in for repair or improvement costs and, if one wants out, the property can be partitioned or sold. Additionally, creditors could get a hold of one child’s interest and force a partition or sale of the property—your other two children would get their share, but the cottage wouldn’t belong to the family anymore.

A better option is to create a family LLC, where the company owns the cottage and your family members own units of ownership in the company. Properly drawn up LLC documents can solve many of the problems tenants in common have. You can set rules for use and a method for paying expenses. You can also determine who will make important decisions and how. You can also restrict transfer of ownership interests to non-family members. Most importantly, because the company owns the cottage, creditors can’t force a sale or partition, protecting other family members from losing the cottage.

While it sounds odd to form a company to protect family property, a family LLC can help you avoid the pitfalls of multiple owners and ensure family days up at the cottage for years to come.

Government Benefit Programs and Your Estate Plan

There’s been a lot of talk in the news over whether or not the government should give out benefits, how much, and to whom. But what you don’t hear about is the effect changes to government programs will have on estate planning.

There are many different types of government benefits, from Medicare and Social Security, to veterans’ benefits, to disability and so on. Nearly everyone receives some type of benefit or knows someone who does. They can be important tools for estate planning and come with their own sets of advantages and challenges.

In the past, many estate planning attorneys focused on maximizing the government benefits a person can receive and relying on those benefits to estate plan. The downside is that many benefits require a person to have limited personal assets to qualify (leading some critics to call this form of estate planning “poverty planning.”)

No matter how you feel about benefit programs, the fact is that many have been reduced or cut. Others now have stricter requirements. And while your attorney might have a guess, they can’t tell you what will happen to these programs in the future. Your current estate plan maximizing these benefits may not fully address your needs.

The better choice is to reexamine your plan now. You may find that maximizing government benefits isn’t your best option. Or you may find better ways to maximize those benefits. At the same time you can make sure your estate plan lines up with the rest of your goals.

An effective estate plan is updated with personal developments but also, as in the case with government benefits, with political and legal developments that change how your plan will work. It’s far easier to address these issues now, instead of ending up with an ineffective plan.

Long Term Care

With rising life expectancies and healthcare costs, it’s no surprise that many Americans will need long term care (home health care, assisted living, nursing home, etc.) at some point in their lives. That’s why it’s so important to consider long term care when doing estate planning.

The biggest misconception about long term care is that it’s something only the elderly need. Younger adults can end up needing long term care due to injury or illness, so it’s important to plan for the possibility now. Another misconception is that health insurance covers long term care costs. If you’re lucky, your health insurance will cover some of the costs immediately after you get sick or injured, but after that you’re on your own.

There are two main things you can do as part of your estate plan to minimize the problems associated with long term care. First, consider purchasing long term care insurance. For a relatively small premium, you can protect yourself against the high costs of long term care should you need it.

Secondly, consider creating a trust. With a trust, you can name someone to take over managing your assets if you become incapacitated due to injury or illness. The transition happens automatically. That person can then use the assets in the trust to cover the costs of long term care. In the meantime, you continue to manage your own assets as you normally would.

Estate planning requires planning for the unexpected. For many, needing long term care is an unexpected and costly situation to find themselves in. But with a little advanced planning, you can make sure it doesn’t derail your estate planning goals.

Minor Challenges: Estate Planning With Young Children

As parents, the last thing we want to consider is not being there for our children. It’s understandable, then, that when asked to consider that “what if” we try and avoid it. But it’s critical to confront the “what ifs” when estate planning to make sure your minor children are supported and cared for. Two of the biggest issues to address are: who manages their inheritance and how they’ll receive it.

A traditional will poses unique problems when minors are involved. While the probate court will probably agree to the guardian you name for your children in the will, that guardian won’t have any control over the children’s inheritance. Your children’s expenses are paid out of their inheritance and must be approved by the court, which has limited flexibility to consider individual needs. Then, when your children come of age, they get the remaining inheritance in one lump sum (no matter what!).

A better approach is setting up a revocable living trust (RLT) for your children.  The guardian you appoint as trustee manages the children’s inheritance. You can give them the flexibility to spend more or less of the inheritance depending on each child’s needs.  You can also provide for your children to receive their inheritance only when they’re older (for example, 25 rather than 18) or over time (instead of one lump sum). An extra advantage is that property in the trust can be protected from creditors.

Hopefully, the only guardian your children ever need is you. But thoughtful estate planning now ensures that your children will be taken care of if the unexpected happens. A properly set up RLT can meet your children’s needs and give you peace of mind.

Estate Gameplan Part 3: Updating Your Estate Plan

Setting up an estate plan is a great start to accomplishing your estate planning goals. But too many times we take the plan we’ve drawn up and lock it away until it’s needed. In this series, we’ll take a look at what you can do now to make sure that your estate plan will actually meet your goals when it’s time to be carried out.

Part 3: Updating Your Estate Plan

Hopefully, your estate plan won’t be needed for years to come. In the meantime, a lot can happen. The plan you created today may not be what you want or need tomorrow. Estate planning is a process that needs periodic updating.

Generally, you should review your estate plan every 3-5 years to make sure it still reflects what you want. But you should also update your estate plan anytime a major life event occurs. These events may change the amount or type of property you own; your needs or that of your loved ones; or the legal or tax consequences. The following are all reasons to update an estate plan:

  • Marriages, divorces or remarriages (yours or a loved one’s)
  • Birth of a child or grandchild
  • Death of a spouse, child, personal representative or trustee
  • Major changes in your financial situation like starting a business, buying a home, receiving an inheritance or retiring
  • Children reaching the age of majority (and no longer needing a guardian)
  • Disability or long-term illnesses
  • Changes to Wisconsin’s estate planning or tax laws (an estate planning attorney can help with this one)

Congratulations on taking the time to create an estate plan. But that plan is a working plan that needs to be updated when your situation changes. Periodically reviewing and updating your estate plan is the best way to ensure that it still reflects your wishes down the road.

Thoughtful Gifts: Using Beneficiary Planning to Take Care of Loved Ones

Estate planning is about taking care of those you love. So doesn’t it make sense to consider what they might need? That’s the idea behind “beneficiary planning”—an approach to estate planning that considers the individual needs and situation of each beneficiary.

Beneficiary planning helps you create an estate plan that addresses the real needs and concerns of your loved ones. Your family members aren’t identical. Some beneficiaries might have more expenses, such as long-term healthcare costs or higher education costs. Others might have independent sources of income and need less financial help.

In addition to just considering the relative health, education and other sources of wealth each of your beneficiaries has, here’s a list of things to consider before you start planning:

  • Do any of your beneficiaries need protection from creditors and how much protection do they need?
  • What might happen if any of your children get married, divorced or remarried? Along those same lines, what might happen if your spouse remarries and/or gets divorced?
  • What are your children’s individual educational needs or plans?
  • How well do your beneficiaries handle money matters? Do some of them spend more than they should?
  • Do your children have or plan to have children of their own who will need support?

Just as a “one size fits all” approach to estate planning can’t really address your personal goals and concerns, a “one size fits all” approach to providing for your beneficiaries can’t really address their needs. Beneficiary planning can help you make the most of estate planning by providing for your loved ones the way they need.

Wanted – Personal Representative: Why You Need to Choose the Right Person for the Job

Your personal representative forgets to pay taxes on your estate and, as a result, most of your property ends up going to the IRS rather than your loved ones. It sounds far fetched, but it has happened. The truth is that a personal representative has a lot of obligations and it can quickly become a full-time job. That’s why it’s important to choose the right representative and avoid problems like the one above.

Every estate is different, but generally a personal representative needs to:

  • Manage and possibly sell estate property: managing might include repairs, collecting rent or investing property and definitely includes maintaining insurance on it
  • Pay taxes and bills on time
  • Notify and handle the claims of creditors and beneficiaries, many of whom want to get paid as soon as possible
  • File all appropriate court forms and meet court deadlines
  • Distribute estate property and close the estate

Not only does the personal representative need to do all of the above, but he or she can be held personally liable for failing to do them, even if the mistake was unintentional. They can also be removed by the court, resulting in delays and extra costs.

There are no guarantees, but the best way to avoid problems is to choose a personal representative who has some familiarity with managing and selling property. A good personal representative should also be well-organized and good at communicating with people. Finally, your representative should have an idea of the overall process and what’s expected of them.

Your personal representative is responsible for making sure your wishes are carried out. For that reason, it’s important to choose someone you trust who’s willing and able to do the job right.

Not Your Average Estate Plan: Additional Challenges for Business Owners

You already know that owning a business is both rewarding and challenging. But owning your own business also presents unique challenges when it comes to estate planning. It’s important to keep that in mind so that you can create a plan that protects both your loved ones and your business. Below are four things every business owner should consider when creating their estate plan.

  1. 1.What do you want to happen to the business? Your estate plan is going to look very different if you want to pass the business on to your children than if you want to sell it and leave them the proceeds.
  2. 2.What exactly are your business interests? How those interests are classified (for example, “business property” for a sole proprietorship or “corporate stock” for a corporation) makes a big difference. You’ll have different estate planning options for different types of interests.
  3. 3.Is your estate plan consistent with your business plan? There can be major problems if the two plans don’t match. Take an example: you won’t be able to leave your stock to your children if a buy-sell agreement gives other shareholders the right to buy your shares.
  4. 4.Do you have life insurance? Many business assets aren’t liquid (i.e., easily converted to cash). A life insurance policy that names the business as beneficiary can provide much needed capital to keep the business going or allow other partners to buy out your share.

Just like your family and friends, your business is important to you. Ultimately, that’s what estate planning is about—protecting what matters most to you. Make sure your estate plan protects both your loved ones and your business.

Executing Your Estate Game Plan Part 2

Setting up an estate plan is a great start to accomplishing your estate planning goals. But too many times we take the plan we’ve drawn up and lock it away until it’s needed. In this series, we’ll take a look at what you can do now to make sure that your estate plan will actually meet your goals when it’s time to be carried out.

Part 2: Discussing Your Estate Plan

Discussing your estate plan with your loved ones can be difficult, but it’s one way to ensure that your wishes will be carried out.

The most important discussions should happen before you draw up your estate plan. These are the discussions you need to have with anybody you want to assign responsibility to. Those people include guardians for your minor children, trustees, powers of attorney and healthcare powers of attorney. Make sure that person understands what you’re asking of them and is willing to take on the tasks that come with the position.

After you draw up your estate plan, it’s a good idea to go over what you’ve decided, in general terms, with the people who will be executing it. For example, trustees will probably want to have at least a basic idea of how you set up the trust so they know what to expect.

Finally, many family members have emotional attachments to some of your personal effects, like family heirlooms. Being up front about why you made certain gifts can soothe any hurt feelings, not to mention avoiding a court battle.

Ultimately, it’s up to you how much of your estate plan you want to share with others. But a few honest discussions now can avoid some of the headaches and stress down the road.

Next: When to Update Your Estate Plan