Carlsbad CA Estate Planning

C19 UPDATE: Emergency Estate Planning Decisions to Make Right Now

“Don't panic” has been a common refrain from government leaders, public health professionals, and across social media from well-meaning people trying to keep everyone calm during the coronavirus pandemic.

Though it may be hard not to panic when the grocery store shelves are empty, the number of confirmed cases of COVID-19 keeps rising, and we see sobering statistics across the globe … we will not overcome this challenge with a panicked response.

Nonetheless, there are certain things we all need to be doing right now – and your public health officials are the best resource on how to stay personally safe and help prevent the virus from spreading.

When it comes to the seriousness of this outbreak, however, there also are some critical estate planning decisions you should make – or review – right now.

Ask yourself these questions:

1. Who will make medical decisions for me should I become severely ill and unable to make these decisions myself?
2. Who will make my financial decisions in that same situation -- for example, who will be authorized to sign my income tax return, write checks or pay my bills online?
3. Who is authorized to take care of my minor children in the event of my severe illness? What decisions are they authorized to make? How will they absorb the financial burden?
4. If the unthinkable happens – what arrangements have I made for the care of my minor children, any family members with special needs, my pets or other vulnerable loved ones?
5. How will my business continue if I were to become seriously ill and unable to work, even remotely … or in the event of my death?

These are the most personal decisions to make right now to protect yourself and your loved ones during this emergency. Now is also a good time to ask yourself if you have plans in place for the smooth transfer of your assets and preservation of your legacy.

We are ready to help walk you through these decisions, understand the ramifications of your choices, and memorialize your plans in binding legal documents. We are currently offering no-contact initial conferences remotely if you prefer. Book a call now and let us help you make the right choices for yourself and your loved ones.

Should You Move Your 401(k) to A Roth?

“Research shows that moving 401(k)s to after-tax contributions would boost tax returns in the short term, but leave retirees worse off.”

Overhauling the retirement savings system is the subject of considerable talk in Washington these days, with the focus on how to give an immediate boost to government tax revenues. With retirement fund accounts being measured in the trillions, it’s no surprise that they are being eyed.

One of the ideas being discussed, according to the article “What ‘Rothifying’ 401(k)s Would Mean for Retirees” from The Wall Street Journal, is to repeal the current structure of pretax contributions to retirement accounts and adopt a system where contributions would come only from after-tax contributions, just as Roth IRAs do now. It also has a name, “Rothification.” It could become very popular in the not too distant future.

However, behind this need to plug the gaps in the national budget could be a dismal scenario for workers saving for retirement.

Those U.S. savers who do save money for retirement now contribute to their IRA, SEP, and other tax-deferred accounts with money that is deducted from their taxable income. They only pay taxes on this money when they take Required Minimum Distributions (RMDs) during retirement, or after age 72. The tax deferral provides a powerful incentive to save. The Investment Company Institute reports that defined contribution plans and IRAs were valued at $18.3 trillion as of the third quarter of 2019.

With a federal deficit now at more than $1 trillion and the federal debt at $23 trillion (according to the U.S. Treasury), the money has to come from somewhere. The Treasury also estimates that it will forgo $2.4 trillion in tax revenue from the nation’s tax-deferred retirement savings over the next ten years.

With Social Security having an additional $43 trillion in underfunding, according to the 2019 report of the Social Security and Medicare trustees, government funds are going to have to come from somewhere.

Under “Rothification,” savers would make their retirement fund contributions with after-tax income, and the Treasury would get its money now, rather than waiting for current workers to retire or die.

The challenge is that people don’t save as much as they need to for retirement. Many of them are depending upon Social Security to cover the lion’s share of their retirement income. Removing the tax incentive for retirement saving will discourage retirement saving.

What will that mean for estate planning? Adjusting to the changes from the SECURE Act already has estate planning lawyers reviewing estate plans for the new ten-year withdrawal requirements for IRA beneficiaries. Once the “Rothification” discussions move from talk to legislation, expect large push-back from the financial services industry, which runs these accounts, now worth $18.3 trillion.

Reference: The Wall Street Journal (February 17, 2020) “What ‘Rothifying’ 401(k)s Would Mean for Retirees”

How Bad Can a Do-It-Yourself Estate Plan Be? Very!

“One Justice from the Florida Supreme Court commented that the expensive litigation far outweighed any savings resulting from the pre-printed form.”

Here’s a real world example of why what seems like a good idea backfires, as reported in The National Law Review’s article “Unintended Consequences of a Do-It-Yourself Estate Plan.”

Mrs. Ann Aldrich wrote her own will, using a preprinted legal form. She listed her property, including account numbers for her financial accounts. She left each item of property to her sister, Mary Jane Eaton. If Mary Jane Eaton did not survive, then Mr. James Aldrich, Ann’s brother, was the designated beneficiary.

A few things that you don’t find on forms: wills and trusts need to contain a residuary, and other clauses so that assets are properly distributed. Ms. Aldrich, not being an experienced estate planning attorney, did not include such clauses. This one omission became a costly problem for her heir that led to litigation.

Mary Jane Eaton predeceased Ms. Aldrich. As Mary Jane Eaton had named Ms. Aldrich as her beneficiary, Ms. Aldrich then created a new account to receive her inheritance from Ms. Eaton. She also, as was appropriate, took title to Ms. Eaton’s real estate.

However, Ms. Aldrich never updated her will to include the new account and the new real estate property.

After Ms. Aldrich’s death, James Aldrich became enmeshed in litigation with two of Ms. Aldrich’s nieces over the assets that were not included in Ms. Aldrich’s will. The case went to court.

The Florida Supreme Court ruled that Ms. Aldrich’s will only addressed the property specifically listed to be distributed to Mr. James Aldrich. Those assets passed to Ms. Aldrich’s nieces.

Ms. Aldrich did not name those nieces anywhere in her will, and likely had no intention for them to receive any property. However, the intent could not be inferred by the court, which could only follow the will.

This is a real example of two basic problems that can result from do-it-yourself estate planning: unintended heirs and costly litigation.

More complex problems can arise when there are blended family or other family structure issues, incomplete tax planning or wills that are not prepared properly and that are deemed invalid by the court.

Even ‘simple’ estate plans that are not prepared by an estate planning lawyer can lead to unintended consequences. Not only was the cost of litigation far more than the cost of having an estate plan prepared, but the relationship between Ms. Aldrich’s brother and her nieces was likely damaged beyond repair.

Reference: The National Law Review (Feb. 10, 2020) “Unintended Consequences of a Do-It-Yourself Estate Plan”

Financial Elder Abuse Is Growing

Financial Elder Abuse Is Growing

“A suspicious email, a strange phone call from an unknown number, an overzealous financial adviser, a close family member: what’s the connection between all these people and things? It's financial elder abuse.”

Financial elder abuse is defined as the “fraudulent or otherwise illegal, unauthorized or improper act or process of an individual, including a caregiver or fiduciary, that uses the resources of an older individual for monetary or personal benefit, profit or gain, that results in depriving an older individual of rightful access to, or use of, benefits, resources, belongings or assets.” That’s from The Older Americans Act of 2006.

Consumers Digest estimates that there are at least five million cases of financial elder abuse in America every year. An article titled “Population ages, financial abuse rises” from the Reading Eagle wisely notes that seniors are not just being targeted, they are the bull’s eye.

One of the reasons is because many older Americans live in isolation. A person who spends most of their time alone will welcome any simple human interaction, including talking to anyone who calls on the phone, unknown neighbors introducing themselves, marketing mail or interactions on the internet. This desire for company makes seniors more likely to ignore warning signs and to hand over money and control of their assets.

Do you wonder what kind of person would hand over their power of attorney to a stranger? The plain truth is that most financial elder abuse is committed by people who are closest to the senior. Family members are far more likely to prey on seniors than a stranger.

One financial advisor notes an instance where a scammer forged a check for $25,000 in a senior’s name, then kept doing it until she had stolen up to $75,000. She did it repeatedly, because she knew that she could get away with it.

The key to prevention is planning. First, seniors should simplify their financial and legal matters. Surrounding yourself with trusted advisors and family members who serve as checks and balances for each other is a good idea. It’s sometimes hard to know who to trust sometimes, especially family members. An estate planning attorney should be part of your team, and everyone should work together.

If you become suspicious that financial fraud is happening to you or a loved one, you may want to reach out to the Adult Protective Services office in your community. They will be able to advocate on behalf of the senior.

Treat everything and everyone with a degree of suspicion. If someone knocks on the front door and says they can offer you a discount on tree removal or roof repair because they are in the neighborhood, don’t believe them. You should also have an estate plan in place that protects your assets, so they are less vulnerable to a scammer.

Reference: Reading Eagle (Feb. 9, 2020) “Population ages, financial abuse rises”

Gray Divorces Changing the Future for Many Senior Americans

“Rising divorce rates among Americans over the age of 50 are causing more conflict in estate planning, new data shows.”

Add “gray divorce” to the factors leading to strife in estate planning. Minimizing discord among beneficiaries is one of the top three reasons people decide to have estate plans created, but with more gray divorces, things become complicated.

A survey at the 54^th Annual Heckerling Institute on Estate Planning conducted by TD Bank asked elder law attorneys, insurance advisors, wealth managers and other professionals on the biggest challenge to estate planning. An article in the Clare County Review titled “Rising Gray Divorce Rates Are Making Estate Planning Problems More Complicated” explains the problem, and presents some solutions.

Gray divorce, blended families, naming heirs and changing family structures are making it more complicated—and more necessary—to create an estate plan and review it with an estate planning attorney on a regular basis.

More than a third of the 112 professionals participating in the survey said that gray divorce has the biggest impact on retirement planning and funding. It also impacts naming who becomes a person’s power of attorney and how Social Security benefits are determined.

The biggest way to help avoid family conflict in a gray divorce is the same as in any other divorce: regular communication. The family members need to know what is being planned, including who will be the designated beneficiaries and who will be named as executor.

The divorce process is complicated at any age, but after 50, there are usually more assets involved. The spouse is usually listed as the beneficiary on most, if not all, assets. Each asset document must be changed to reflect the new beneficiaries. Dividing pension plans, IRAs, and other retirement funds entails more work than simply changing names on bank accounts (although that also has to happen).

Wills, trusts, life insurance, and titles on real estate must also be changed. Institutions and companies that have accounts must be contacted, with information updated and verified.

Trusts are growing in popularity as a means of leaving assets to heirs, since they can minimize costs and delays when property is transferred. Trusts make it easier to pass assets, if family conflict is expected.

Even when beneficiaries aren’t expecting any cash assets to be left to them, controversies can still erupt over other assets. Adult children may not care about IRAs or trusts, but often the family home has great sentimental value. Deciding what to do with it can lead to fighting among siblings.

For those considering a gray divorce, talking with an estate planning attorney, in addition to a matrimonial attorney, could make this large life change less stressful. The estate planning attorney will be able to work with the matrimonial attorney, to ensure that estate issues are handled properly.

Reference: Clare County Review (February 10, 2020) “Rising Gray Divorce Rates Are Making Estate Planning Problems More Complicated”

Can Your Will Be Securely Stored in the ‘Cloud?’

“The typical explanation given for retaining original wills at the lawyer’s office is that clients might lose them, or executors may be unable to find them at the appropriate time.”

An estate planning attorney has 500 wills with no owners. Most came into his office through several law firm acquisitions. Some of the wills are more than 70 years old. However, the New York State Bar Association’s ethics opinion was that he must continue to store the wills.

Clients frequently ask estate planning attorneys the same question posed by an article “Could your future will be in the cloud?” from the Daily Local News. Should the attorney keep the original will? How would the attorney know if they had a second will done, or if they died and no longer need the will?

While it’s almost always better to return to your original estate planning attorney when revising a will, clients are not required to tell attorneys if they are updating a will with another lawyer. Some estate planning attorneys do keep their clients’ wills, as a service to their clients. It may also be a wise thing if the clients are worried about losing the wills or if they are concerned that their executors won’t be able to find them when the time comes.

However, some attorneys do not keep client wills in their offices. They believe that the best place for an original will is in a fire and water-proof secure safe or box in the client’s home. They also count on their good relationship with clients and their families, who they believe will return to their offices when estate plans need to be updated or estates need to be administered.

The issue of a lost will could be averted, if people are diligent about telling their executors where their wills can be found, and if documents are updated from time to time, as their personal situations and laws change.

However, what about storing documents in a world where so much of our private important information is stored in the “cloud,” that is, on a secure platform that is offered to us by a professional or through an online service?

There are several new laws in a number of states that are looking into electronic wills, with new laws, including the Uniform Electronic Wills Act and State Electronic Will statutes. Electronic wills under the Uniform Act must be stored in a tangible or electronic medium that is “retrievable in perceivable form.” In other words, you have to be able to read it. Attesting witnesses must be in the physical presence of the testator or the electronic presence.

For most of us, the brave new world is still developing, and storage of our wills in the cloud may be a few years in the future. Speak with your estate planning attorney about their practices and recommendations for storage of your will and other important estate planning documents. Inquire about whether they provide a secure online portal for document storage, and if it is acceptable by law in your state.

Reference: Daily Local News (Feb. 5, 2020) “Could your future will be in the cloud?”

Common Myths about Your Estate When You Die

“Regardless of whether the law makes sense to us, we are all required to abide by it.”

There are many misconceptions about the law in general and about estate planning in particular. There are also many opportunities to use the law to protect those we love, when it comes to helping families navigate life and the legal processes that happen after the death or disability of a loved one. The best option is to plan ahead, reports the article “I’m dead, now what? Myths about deaths in Georgia” from the Cherokee Tribune & Ledger-News. Here are the top four myths about what happens when someone dies.

A Will. If there’s no will, my spouse gets everything. Well, no. While you are a team, and you may want your spouse to get everything, if there’s no will, the laws of your state will determine who gets what. Your spouse in some states will split your possessions with your children. Your spouse in some states will get no less than a third of your assets. If you want your spouse to inherit everything, you need a will.

You also need a will if you want your spouse to receive everything so they can take care of your children, if something unexpected happens to you. Without it, your spouse will have to create a budget for your children’s needs and present that to the court before they can spend any of the children’s money. That’s how it works in Georgia. Check with a local estate planning attorney to make sure that’s what you’re prepared to leave for your spouse to do, or what your state’s laws say.

Having a will allows you to determine who you want to inherit what.

A will means there’s no need for probate court. Wrong again! Having a will does not mean you avoid probate court and the legal process known as probate. A will is not legally effective, until the nominated executor presents your will to the probate court and the court accepts the will and declares it to be valid. This is a longer process in some jurisdictions. However, there are potential problems. If there’s a disgruntled family member or a need for privacy, the probate process creates a public record and information can and often is obtained by family members. To avoid making your life a public matter, you need an estate plan that includes trusts, which do not go through the probate process and do not become public records.

If I don’t have a will, the state will take it all. It’s very rare that any state will take everything, even if there is no will. The state only does that if absolutely no family members can be found, or if the state’s Medicaid program has an aggressive claw back policy that seeks to recover the cost of nursing home care provided to the decedent. If the person who died did not need Medicaid services, then it’s unlikely that the state will take the assets. More likely? A family member, determined by degree of kinship, will be entitled to inherit. Again, the law varies by state, so check with an experienced estate planning lawyer in your state.

The family gets stuck with the debts. That’s a yes and no answer. The debts of family members do not have to be paid by the family. However, they are paid by the deceased’s estate, which will be decreased by the amount of debt owed. Therefore, the family members will inherit less, but it’s not coming out of their own pockets. The debts of the deceased are to be paid by whatever assets he or she owned at the time of death. If there’s not enough in the estate, the family is not obligated to pay the debt. The exception is if the spouse was a joint borrower or otherwise legally obligated to pay the debt.

What you know and don’t know about estate planning can hurt you and your family. An easy way to address this: meet with an experienced estate planning attorney and make a plan that will distribute your assets according to your wishes.

Reference: Cherokee Tribune & Ledger-News (Feb. 1, 2020) “I’m dead, now what? Myths about deaths in Georgia”