5 Common Estate Planning Mistakes to Avoid

From time to time, it’s good to review why having a complete, up-to-date estate plan is so important. In addition to confirming our own actions, it can provide us with valuable information to pass along to friends and family who, for whatever reasons, have yet to act. So, here are five common estate planning mistakes to avoid.

1. Not having a plan.

Every state has laws for distributing the property of someone who dies without an estate plan—but not very many people would be pleased with the results. State laws vary, but generally they leave a percentage of the deceased’s assets to family members. (Non-family members, like an unmarried partner, will not receive any assets.) It is common for the surviving spouse and children to each receive a share, which often means the surviving spouse will not have enough money to live on. If the children are minors, the court will control their inheritances until they reach legal age (usually 18), at which time they will receive the full amount. (Most parents prefer their children inherit later, when they are more mature.)

2. Not naming a guardian for minor children.

A guardian for minor children can only be named through a will. If the parents have not done this, and both die before the children reach legal age, the court will have to name someone to raise them without knowing whom the parents would have chosen. 

3. Relying on joint ownership.

Many older people add an adult child to the title of their assets (especially their home), often to avoid probate. But this can create all kinds of problems. When you add a co-owner, you lose control. Jointly owned assets are now exposed to the co-owner’s creditors, divorce proceedings and possible misuse of the assets, and the co-owner must agree to all business transactions. There could be gift and/or income tax issues. And if you have more than one child but only name one to be co-owner with you, fluctuating values could cause your children to receive unbalanced/unintended inheritances.

4. Not planning for incapacity.

If someone cannot conduct business due to mental or physical incapacity, only a court appointee can sign for this person—even if a valid will exists. (A will only goes into effect after death.) The court usually stays involved until the person recovers or dies and the court, not the family, will control how their assets are used to provide for their care. The process is public and can become expensive, embarrassing, time consuming and difficult to end.

Giving someone power of attorney as a way to avoid the court process can be risky because that person can do anything they want with your assets with no real restrictions. For this reason, a living trust is often preferred for incapacity planning. With a trust, the person(s) you choose to act for you can do so without court interference, yet they are held to a higher standard as a trustee; if they misuse their power, they can be held accountable.

Someone also needs to be given the power to make health care decisions for you (including life and death decisions) if you are unable to make them for yourself. Without a designated health care agent, you could be kept alive by artificial means for an indefinite period of time.

The exorbitant costs of long term care, most of which are not covered by health insurance or Medicare, must also be part of incapacity planning. Consider long term care insurance to protect your assets.

5. Not keeping your plan up to date.

Every estate plan is based on the personal, family and financial situations, and tax laws, in effect at the time it was created. All of these will change over time, and your plan needs to change with them. It’s a good idea to review your plan every couple of years or so and make sure it still does what you want it to do. Your attorney will let you know when a tax law change might affect your plan, but you need to let your attorney know about other changes that could affect it.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Simple Steps To Take When Naming a Guardian for Your Minor Child

Parents with minor children need to name someone to raise them (also known as a legal guardian), in the event both parents should die before the child becomes an adult. While the likelihood of that actually happening is slim, the consequences of not naming a guardian are great.

If no guardian is named in the parent’s will, a judge—a stranger who does not know the parents, the child, or their relatives—will decide who will raise the child without knowing whom the parent would have preferred. Anyone can ask to be considered, and the judge will select the person he/she deems most appropriate. On the other hand, if the parent names a guardian (typically via the parent’s will), the judge will usually go along with the parent’s choice. 

Choosing a Guardian:

The guardian does not have to be a relative, so parents should consider and evaluate all candidates:

1. Parenting style, values and religious beliefs should be similar to their own.

2. Location could be important. If the guardian lives far away, the child would have to move from a familiar school, friends and neighborhood.

3. How comfortable with the candidates is the child now?

4. Consider the child’s age and that of the guardian-candidates. Grandparents may have the time, but they may not have the energy to keep up with a toddler or teenager. An older guardian may become ill and/or even die before the child is grown. A younger guardian, especially an adult sibling, may be concentrating on finishing college or starting a career. If the child is older and more mature, he/she should have some input into this decision.

5. How prepared emotionally are the candidates to take on this added responsibility? Someone who is single may resent having to care for someone else’s children. Someone with a houseful of their own children may not want more around, or they may welcome the addition.

6. Ask the top candidates if they would be willing to serve, and name at least one alternate in case the first choice becomes unable to serve.

Raising the child should not be a financial burden for the guardian, and a candidate’s lack of finances should not be the deciding factor. The parent will need to provide enough money (from assets and/or life insurance) to provide for the child. Some parents also earmark funds to help the guardian buy a larger car or add onto their existing home, if needed.

Naming someone else to handle this money can be a good idea. Having the same person raise the child andhandle the money can make things simpler because the guardian would not have to ask someone else for money, but the best person to raise the child may not be the best person to handle the money; and it may be tempting for them to use this money for their own purposes. 

Naming a guardian can be a difficult decision for many parents. Keep in mind that this person will probably not raise the child because odds are that at least one parent will survive until the child is grown. By naming a guardian, however, the parent is being responsible and planning ahead for an unlikely, yet possible, situation. Finally, all parents must realize that no one else will be the perfect parent for their child, so typically this means making compromises in some areas. Finally, parents should remember that they can change their mind; in fact, parents should review and change the guardian as their child grows and if the guardian’s situation changes.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Opportunities Created By Our Current Historically Low Interest Rates

Opportunities Created By Our Current Historically Low Interest Rates:

A recent WSJ article highlights the opportunities created by our current historically low interest rates. In How Low Rates Can Cut Your Tax Bill, Tax Report columnist Laura Saunders points out that our current low interest rates (a Section 7520 rate of only 1.4% in October) create several unique planning opportunities:

1. Loans to family members—the rate for long-term loans (more than 9 years) is only 2.95% in October. The author gives an example of a $100,000 loan from parents to a child and his spouse to buy a home: the parents could either collect annual interest of $2950 or they could forgive the loan (up to $52,000 of debt forgiveness per year) in whole or in part. 
    

2. Installment Sales—with interest rates low, more of the sale counts as capital gain than interest income (i.e., ordinary income); 
    

3. GRATs—noting that we have seen proposals to eliminate short-term GRATs, combined with low interest rates, the author urges consideration of a strategy “sanctioned by the tax code”;

4. CLTs—Charitable lead trusts are more likely to pass tax-free assets to beneficiaries when interest rates and asset values are low.  Given historically low interest rates and low asset values, lifetime CLTs are also worthy of consideration, particularly for charitably inclined clients.

The full article is available by clicking here. 

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

The Value of Having a “Plan” in Estate Planning

All too often, estate planning is viewed as a transaction: a will, a living trust, powers of attorney, etc. But the best planning happens when the professional can get to know the client on a deeper level, to uncover hopes, dreams and aspirations. It becomes more about family and values, and it becomes a process instead of a transaction. 

This process begins with having a plan for our lives. There is a certain power in planning. When plans are carefully thought through and written out, they tend to come true. A plan can also serve as a guide, helping to align our deepest values, beliefs and goals with our financial resources so we can realize our dreams. Having a plan allows us to live richer, fuller lives—personally, professionally, financially and spiritually. 

How to Formulate A Life Plan:

1. Think broadly and deeply about what matters most to you. If you had all the money you needed, what would you do with it? If you had only five or ten years to live, how would you live them? If you learned you have 24 hours left to live, what did you miss?

2. Take this vision, sweep away any doubts, and craft your ideal life in as much detail as possible. This can energize you to achieve your vision in the shortest time possible. Goals are no longer something to be hoped for “some day,” but can become immediate and vibrant.

3. A thoughtful professional can help you identify obstacles and roadblocks that may be keeping you from achieving your vision. These are sometimes financial, but more often they are internal beliefs.

4. An experienced professional can then recommend the best ways to achieve your goals. Quite often, this professional will put together a team of professionals from different disciplines to make sure all of the needs are being met. The team may include an estate planning attorney, a financial advisor, an insurance advisor, a CPA, a retirement plan advisor, even a planned giving expert.

The right professional for this approach in planning will ask open-ended questions and listen carefully to the answers. The client, on the other hand, will need to be open, honest and willing to make an emotional connection, with both the professional and with him/herself. The two will be building a mutual trust and relationship, one that can last for many years, possibly even into the next generation.

The result of this type of planning is far more rewarding than any transaction.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Estate Planning for Second Marriages

In first marriages, the couple generally has the same goals when it comes to their estate planning: take care of the surviving spouse for as long as he or she lives, then whatever is left will go to the children. They may own many of their assets jointly and, at the death of the first spouse, more than likely everything will go to the surviving spouse just as they had planned.

In contrast, second marriages, which occur after a divorce or death of the previous spouse, are different. There may be his children, her children and sometimes their children. Each spouse probably has assets they brought into this marriage, and they will want those to go to their own children after they die. At the same time, they will probably want to make sure the surviving spouse will have enough to live on. 

More than likely, estate planning methods relied upon in the first marriage will not work now. For example, let’s say the husband adds the new wife’s name on the title of his home and they own it as joint tenants with right of survivorship. If he dies first, his share will immediately transfer to his wife, who now has complete ownership of his home. She can do whatever she wants with it now, regardless of what his will or trust says. She can leave it to her own children and completely disinherit his.

There are similar problems with beneficiary designations. Many people name their spouse, as beneficiary of their life insurance, IRAs and other tax-deferred plans to provide for his or her spouse, should he or she die first. Nevertheless, this can be a problem with second marriages because the spouse-beneficiary can name anyone he/she wants as new beneficiaries or to inherit the proceeds, bypassing the owner’s children. Promises may be made now to include them, but promises can be broken after one spouse is gone.

Other Considerations:

1. If each spouse has considerable assets, it may make sense to create a separate trust for each spouse. If there will be a pre- or post-nuptial agreement, it should be reviewed by an estate planning attorney (before signing).

2. If one spouse has considerably fewer assets than the other does, it is possible to provide for this spouse until death or remarriage, then have the remaining assets distributed to the children of the “wealthier” spouse. This is often accomplished through a life estate or QTIP trust.

3. If the new spouse is much younger, the children of the older spouse may be concerned that the new spouse is only after the money. These feelings may subside as the marriage lengthens. However, if the younger spouse is closer in age to the children, they may be wondering if they will ever receive their inheritance. Consider distributing some of their inheritance upon their parent’s death, then the rest at the surviving spouse’s death or remarriage.

4. Naming a trust as beneficiary for life insurance policies and tax-deferred plans is often a good choice for second marriages. This will allow the owner-spouse to keep control over how and to whom the proceeds are distributed. The surviving spouse can receive lifetime income, yet the owner-spouse can keep control (through the trust) over the rest of the proceeds. Keeping the proceeds in a trust will also protect them from irresponsible spending, creditors, predators, divorce, remarriage and even estate taxes, if done properly.

5. Be sure to include planning for disability and long-term care. If one spouse becomes ill and Medicaid assistance is needed, the combined assets of the couple will be considered “available assets” to pay for the care of the ill spouse. Long-term care insurance may be needed to protect the assets of one or both spouses.

6. It is a good idea for the couple to discuss their individual estate planning goals together. If they are similar, then the task may be somewhat easy. However, if they are considerably different, separate attorneys may be needed.

If you are in a second marriage situation, you may have already considered some of these issues. Regardless, it is important to consider these issues with the advice of an estate planning attorney conversant in such situations.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

MAKING ESTATE PLANNING LESS DAUNTING

NPR is currently running an interesting series on financial basics for Baby Boomers. An NPR article published today (Article Link)  struck a chord with me because my office works to make the process of creating an estate plan as streamlined and friendly as possible. Of course, this can prove to be challenging at times, because many people do not realize that good estate planning is necessarily a collaborative process. That is, the Estates attorney must be able to determine the client's estate planning goals based upon information provided by the client. The attorney then uses this information to draft estate planning documents that best effectuate the client's objectives. However, many view the creation of an estate plan akin to having a CPA complete annual tax returns. In contrast, to create an estate plan the effectively meets your wishes your lawyer must understand more than your financial positions. 

Generally, this process includes the client filling out an intake sheet and then meeting with the Estates lawyer. Afterwards, a draft of the estate planning documents are drafted, which the client reviews. Finally, a signing ceremeony is scheduled—where the client executes the documents.

While this process does involves the client providing the attorney with information, the back and forth is imperative to the ultimate plans success. While one can choose to create his or her own or purchase a pre-made "estate plan", doing so will not distribute your assets and protect loved ones pursuant to your wishes. To create an estate plan that actually meets your goals and desires after you are no longer around, it is imperative to consult with an attorney who takes the time to know your overall objectives, family situation, and estate planning goals. While the process of creating and executing such a plan can seem work intensive—it is much easier and less expensive than failing to make any plan.

Because you have no say how your assets are distributed and your legacy is protected after you are gone—it is worth the time and effort to create an estate plan to ensure that your wishes are met.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Baby Boomers—Necessity for Estate Planning Discovered

NPR published an interesting article about baby boomers and retirement planning in—what has been since 2008—such a volatile economic environment. In light of this confusion is the fact that many men and women of the baby boomer generation do not currently have an estate plan in place. For some, this stage of life is a time when an individual or family begins to realize the importance of having a well-drafted estate plan in place.

Similarly, new families—those who have had a child in the last three years—also begin to see the importance of having an estate plan in place. Beyond these two categories of people, this time of the year makes estate plan creation make sense. Because most people are in the heat of tax preparations, this time of the year is one where we all tend to gather financial information and documents, and our current and future finances are on our minds. Accordingly, this time of year presents a good opportunity for the creation or review of an existing estate plan as we are already in a financial mode—collecting and analyzing our financial documents and positions—which makes estate planning naturally flow.

For any of us who do not currently have a comprehensive estate plan in place that match our wishes and desires for the distribution of assets and protection of our legacies after our passing, it is time for us to consider getting a properly drafted estate plan in place.

If you are interested in ensuring that your family is cared for after you have passed away, please call our office at 415-625-0773 to schedule your free estate planning consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

What’s On Your Worry List?

A comprehensive financial plan that is effectively executed delivers dollar savings in improved investment returns, lower taxes, lower fees, more efficient wealth and more stable income. However, an important outcome of this process addresses what may be on your worry list: running out of money, family strife, unexpected losses and making financial mistakes.

The Key Takeaways:

• Financial stress can negatively affect the health and emotional well being of you and other family members.

• Working with a financial planning professional can help you handle your financial situation, alleviate worry and, in general, help you feel more in control of your life.

Financial Worry is Common:

If money worries keep you awake at night, you’re not alone. People are living longer and health care costs, especially for long-term care, continue to rise. As a result, retirement savings must last longer and stretch farther than most anticipated. Even those who thought they were prepared for retirement may now be afraid of running out of money, especially for the surviving spouse. Many families are still recovering from losses in the stock market and job market. Credit card debt is at an all-time high, as is the cost of a college education. Many families find themselves in the middle of the sandwich: taking care of elderly parents and raising their own children.

What You Need to Know:

Worry about financial matters can negatively affect your health. It can lead to unhealthy coping behaviors like drinking, smoking and overeating. Cutting back on health care in an effort to save money allows small health problems to escalate into larger ones. If you have trouble sleeping, your mood, immune system and cognitive functions can be affected. All of these inevitably lead to more stress and can cause friction within the family.

Actions to Consider:

1. Planning is an essential activity. A comprehensive plan incorporates budgeting, income planning, tax planning, retirement analysis, insurance and trusts.

2. A plan that isn’t executed lacks value. Expect to work with specialists to bring your plan to fruition: an advisor for planning and investments; a trust and estate attorney to draft the trust and estate documents; a CPA to implement tax strategies; an insurance agent to institute insurance products. If your resources are insufficient or uncertain, be open to changes that will alleviate financial stress and help you meet your financial priorities. For example, you may need to move to a less expensive neighborhood (or state). Your children may need to go to community college or state school instead of a four-year private university. A parent may need to live with you.

3. The sooner you take action, the sooner you can stop worrying.

If you want to ensure that your family is cared for after you have passed away, please call our office at 415-625-0773, to schedule your free consultation with San Francisco’s premiere estate planning attorney, Matthew J. Tuller.

Doesn’t Everything Go To My Spouse And Kids When I Die?

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. If you want to ensure that your family is cared for, please click here to schedule your complimentary Estate Planning Strategy Call with San Francisco’s premier estate planning attorney, Matthew J. Tuller.