Category: Estate Planning/Wills and Trusts

ABLE Accounts

Last month we told you about Special Needs Trusts, which are an important tool in planning for the support and care of a disabled person. Today, we will continue that conversation and tell you a little about how you can use both a Special Needs Trust and an ABLE Account to plan for the support and care of a disabled person.

ABLE Accounts have been talked about on our blog in the past, but here is a little refresher. ABLE Accounts are available in both Kentucky and Ohio, through the National Achieving a Better Life Experience (“ABLE’) Act. ABLE Accounts allow for a disabled person to save and invest money without losing eligibility for certain public benefits programs, like Medicaid, SSI, or SSDI. Additionally, earnings in your ABLE Account are not subject to federal income tax, so long as you spend them on “Qualified Disability Expenses.” Some examples of “Qualified Expenses” include education, housing, transportation, employment support, health prevention and wellness, assistive technology and personal support. However, ABLE Accounts have limited deposits of $15,000 a year, lifetime funding limits, and a medicaid payback provision. Additionally, the onset of the disability must have occurred prior to age 26. These restrictions on ABLE Accounts make planning all the more important.

So you might be asking, which planning tool do I need? A Special Needs Trust or an ABLE Account? The answer could be both. ABLE Accounts allow for more accessibility of funds, with a prepaid debt card feature. The card does not pull money directly out of your ABLE Account. Instead, you get to choose a specific amount of money to load onto your card. This way, you can better control budgets and plan for your Qualified Disability Expenses. They also allow the disabled person to easily receive and save funds from employment without affecting government benefits. If a disabled person is able to work, SSI limits benefits for that person if they have a balance in personal bank account exceeding $2,000. ABLE Accounts allow a person on SSI to work and retain income without diminishing their maximum SSI benefit. However, the money in an ABLE Account will be counted as a resource for SSI purposes if the balance increases over $100,000.

Unfortunately, the funds placed in a ABLE Account are not protected long term because of the medicaid payback provision upon the account holders death. If a family member, by gift or inheritance, plans to leave money for a disabled person the Special Needs Trust is the preferred planning tool. The Special Needs Trusts discussed last month can hold unlimited funds while also allowing for the disabled person to continue receiving SSI.

There are many considerations to look at when trying to protect government benefits for a disabled person and making sure to plan properly is so important. The rules for both Special Need Trust and ABLE Accounts are very complex and it is highly recommended that you work closely with your attorney, CPA, and financial advisor.

 

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning. He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Two Common Pitfalls for Traditional IRA Beneficiary Designations in Blended Familis

Baby Boomers Beware!

I have found over the years that many of my baby boomer estate planning clients share the same common facts: (1) their IRAs, 401(k)s, or other qualified retirement accounts are typically their largest asset; and (2) they increasingly have blended families – meaning, they are in their second or third marriage and have children from prior relationships.  Since most baby boomers’ largest assets are their IRAs, they need to be careful when designating their beneficiaries for these accounts.  This becomes especially important when the account owner has a blended family.  Failing to properly plan their IRA beneficiary designations can result in the accidental disinheritance of a child, create unnecessary legal fees, and trigger significant income tax consequences for their family. Unfortunately, most IRA account owners are unaware of the complicated rules surrounding beneficiary designations and so the estate plan they thought was in place does not become a reality.  This article will address common pitfalls for IRA beneficiary designations for blended families.

Pitfall 1: The Account Owner Names His or Her Spouse as Beneficiary

Most commonly, an IRA account owner will designate his or her spouse as beneficiary.  In some situations, this designation works just fine, but other times, and especially for those in blended families, naming the spouse as beneficiary will make their estate plan inconsistent with their overall estate planning goals.

When a surviving spouse inherits an IRA, they can choose how the IRA is paid out, including, but not limited to: (1) rolling it over into their own IRA; or (2) cashing it in, paying taxes, and spending the proceeds at their discretion.  To learn more about the different options surviving spouses have, please click here. Surviving spouses also have the opportunity to designate their own beneficiary on their inherited IRA.  Oftentimes, a surviving spouse will designate a beneficiary who is inconsistent with those who the account owner originally intended, such as the surviving spouse’s new spouse or to the surviving spouse’s own children.  The surviving spouse has no obligation to leave the IRA asset to any of the account owner’s children from a prior relationship.  Most baby boomers with blended families want to provide for their own children upon the death of their surviving spouse, but are unaware that simply naming their spouse as beneficiary of the IRA could compromise their estate planning goals if their surviving spouse leaves the IRA to someone other than their own children.  An IRA account owner can avoid this problem by setting up a trust and naming the trust as the IRA beneficiary instead of the surviving spouse.  This solution is discussed in further detail below.  IRA account owners are encouraged to consult with their attorney, CPA, and financial advisor to determine if naming their spouse as their IRA beneficiary is an appropriate option to meet their estate planning goals.

Pitfall 2: The Account Owner Names His or Her Trust as Beneficiary

Naming a trust as the IRA beneficiary instead of their spouse is a typical option for clients in blended families who want to ensure that their IRA will pass down their blood line.  A typical trust for a baby boomer client provides that upon the first spouse’s death, the trust provides for the surviving spouse, and upon the survivor’s death, the remaining assets are distributed to the designated children and stepchildren in equal shares.  As long as the IRA account owner’s children are beneficiaries under the trust, naming the trust as the IRA beneficiary will ensure that his or her children from a prior relationship will not be left out.  This prevents the spouse from inheriting the IRA outright and leaving it to someone other than the account owner’s children.  However, naming a trust as the beneficiary of an IRA comes with its own faults, as discussed below.

The biggest problem with naming a trust as IRA beneficiary is that if the trust is not drafted properly to optimize tax deferral for IRAs, there could be significant income tax consequences for the account owner’s family. There are certain requirements a trust must have to qualify as a designated beneficiary of an IRA to receive favorable tax treatment. If these specific requirements are not met, the trust will not receive a favorable “stretch” payout method option that individual beneficiaries otherwise enjoy.  The stretch IRA payout method “stretches out” the distributions from the IRA over the life expectancy of the oldest identifiable beneficiary of the trust, which in turn stretches out the annual income tax liability for each beneficiary.  When a trust is not drafted properly, the trust beneficiaries will be disqualified from receiving this favorable tax treatment. Instead, the beneficiaries are required to take either a lump sum distribution of the IRA or take distributions over a 5 year period.  For more discussion on payout options for trusts and other non-spouse beneficiaries, please click here.

Another issue that arises when an account owner names a trust as IRA beneficiary is that the account owner does not properly fill out the beneficiary designation form with the IRA custodian.  If proper language is not used on the beneficiary form, the account owner may encounter difficulty with the custodian accepting the designation.  Furthermore, depending on the language of the trust, if the trust is split into sub-trusts for the children and the sub-trusts are not specifically identified as the beneficiaries of the IRA, the children may not be able to use their own life expectancy for the tax-preferred stretch payout method.

It may seem simple in theory, but designating the right IRA beneficiary can be complicated. Baby boomers in blended families need to be aware of the consequences of naming the wrong beneficiary of their IRAs.  IRA account owners are encouraged to meet with their attorney, CPA, and financial advisor before naming their spouse or trust as their IRA beneficiary so that their IRA beneficiary designations will meet their overall estate planning goals.

 

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning.  He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Don’t Shoot Yourself in the Foot: Protect Your Firearms in Your Estate Plan

Kentuckians love their guns. According to CBS News, Kentucky ranks number 16 in the number of registered firearms among all 50 states with almost 60,000 federally registered firearms. Ohio, although much more populated than Kentucky, ranks in at number 23. Much like items of personal property like jewelry and antiques, firearms aren’t cheap and can also hold sentimental value among family members and friends. As such, firearms need to be accounted for in an estate plan. Failure to properly account for firearms in an estate plan could result in excessive fines or even jail time for the recipient.

Laws Relating to Transfers of Firearms

Federal law addresses the issue relating to receipt of firearms, stating that “it shall be unlawful for any person to receive or possess a firearm which is not registered to him in the National Firearms Registration and Transfer Record; or to transport, deliver, or receive any firearm in interstate commerce which has not been registered as required by this chapter.” These laws are regulated strictly and are enforced with a zero tolerance policy. Violations can create potential criminal liability of up to ten years in prison and a $250,000 fine.

Kentucky state law has few restrictions on the transfer of firearms, although it does prohibit transferring firearms when the person transferring the firearms knows the recipient is prohibited from possessing firearms under Kentucky law.

Applying These Laws to Estate Planning

In light of the current state and federal laws relating to the transfer of firearms, there are several estate planning and probate considerations gun owners need to think about. The owner should list alternate recipients of the weapons in case the primary recipient is not legally allowed to receive firearms at the time of the owner’s death. Another solution for gun owners is setting up a gun trust for their firearms. Gun trusts are considered “individuals” in the eyes of the law, so the trust can legally own the firearms and provide instructions for the Trustees and beneficiaries. Gun trusts also streamline the distribution of the firearms upon the owner’s death and avoid the probate process.

Upon a gun owner’s death, the Executor of the Estate or Trustee of the Trust should take possession of firearms immediately. A new 2016 federal law says that Executors of Estates can take possession of a decedent’s firearms without triggering a transfer. This can protect the Executor from liability for possessing unregistered firearms under federal law. However, the Executor should forfeit all previously-unregistered firearms to law enforcement to avoid potential criminal liability for its recipient.

If you are one of the many people who own firearms, you need to be aware of the laws and regulations relating to the distribution of your guns upon your death. Contact your estate planning attorney to discuss your estate planning goals for your firearms. Your attorney can give you peace of mind that your loved ones won’t run into problems upon your death.

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning. He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Is Your Old A-B Trust a Tax Burden for your Family?

Save Taxes by Updating your Estate Plan

If you have an old A-B Trust in place, you may be unaware that recent tax law changes have transformed your A-B Trust from an estate tax shelter into an income tax burden for your loved ones.  An A-B Trust, also known as a Credit Shelter Trust or Bypass Trust, typically provides that on the death of the first spouse, a particular share of the married couple’s assets are transferred into an irrevocable sub-trust (the “B” trust), rather than to the surviving spouse directly.  Traditionally, using an A-B Trust was an estate planning strategy to preserve the deceased spouse’s estate tax exemption to be used upon the death of the surviving spouse.  Without sheltering the first spouse’s unused exemption in the “B” trust, any assets in excess of the survivor’s exemption amount would be exposed to very high federal estate taxes.

However, tax law changes in 2013 made permanent an individual federal estate lifetime tax exemption of $5 million (adjusted annually for inflation – 2017 is $5.49 million).  If you and your spouse won’t surpass the combined $11 million threshold, your A-B Trust may need to be changed from an estate tax planning perspective.  Married couples whose combined assets including life insurance proceeds are less than $5.49 million clearly need to review whether their A-B Trust structure needs to be changed.  BEWARE – if you keep your old A-B Trust in place, you might actually be creating a negative income tax consequence because of a specific tax basis rule.

The Internal Revenue Code provides that the tax basis in inherited property gets “stepped up” to its date-of-death fair market value when it is included in a decedent’s estate.  When the first spouse dies and the couple has an A-B Trust in place, the assets passing to the “B” Trust get this “stepped up” tax basis.  However, when the surviving spouse dies and there are assets remaining in the “B” trust, those assets will not receive the same basis adjustment since those assets are not included in the surviving spouse’s estate.  As a result, when the surviving spouse dies and the beneficiaries of the A-B Trust sell the “B” trust assets, the beneficiaries will be responsible for paying any capital gains taxes associated with those assets.  If a long amount of time has passed between the spouses’ deaths and the “B” trust assets are valuable, the income tax liability for the beneficiaries could be significant.

While the non-tax reasons for having a trust in place may ultimately drive your estate plan, saving income taxes should now be an important consideration. There are several strategies your estate planning attorney can use to help you maximize income tax savings, and each strategy has its own advantages and disadvantages.  Your estate planning lawyer can give you peace of mind by identifying and implementing strategies to help your family save income taxes when you pass away.  If you have an old A-B Trust in place, contact your estate planning lawyer today to review your estate plan.

 

Bill Hesch is a CPA, PFS (Personal Financial Specialist), and attorney licensed in Ohio and Kentucky who helps clients with their financial and estate planning.  He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

New POA Law Highlights the Need for Estate Planning Review

Financial elder abuse, although often overlooked, is a serious problem in our world today.  As baby boomers age and the average life expectancy rises, the number of elder abuse cases will continue to increase.  More often than not, the abuser in these types of cases is someone in a trusted role – a caretaker, a child, or even an agent appointed in a financial Power of Attorney.  While most agents acting under a Power of Attorney are honest, some have abused their power.  To prevent and punish this kind of misconduct, the Ohio legislature passed the Uniform Power of Attorney Act (UPOAA) in 2012.

The UPOAA says that unless certain “hot powers” are specifically granted in a Power of Attorney document, an agent cannot do the following: (1) create a trust or make changes to an existing trust; (2) make gifts; (3) create or change rights of survivorship for certain assets; (4) change beneficiary designations; (5) allow others to serve as the agent; or (6) waive rights to be a beneficiary under certain annuities and retirement plans.

If these “hot powers” identified above are blindly granted to the agent in a Power of Attorney, he or she has almost unlimited power to deplete assets or change an estate plan.  One could argue that everyone should just leave these “hot powers” out of their Power of Attorney to prevent that from happening.

However, there are certain situations where it might be necessary for someone to grant these powers to his or her agent, and he or she may not realize it unless they consult with an estate planning attorney. For example, effective August 2016, Ohio Medicaid law now requires that a Medicaid recipient living in a nursing home set up a trust if the recipient’s monthly income exceeds a certain limit.  Let’s say a Medicaid recipient has dementia and is she determined to be incapacitated.  In the recipient’s Power of Attorney, the agent is not granted the specific power to set up trusts on the recipient’s behalf.  Since the recipient herself lacks the capacity to set up trusts, she could become ineligible for Medicaid assistance and even evicted from the nursing home!

Furthermore, if an elderly person or couple wants to protect their nest egg from the nursing home, they may want to grant their agent the “hot power” to make gifts to family members in their Power of Attorney documents.  That way, their agent can implement advanced Medicaid planning strategies on their behalf if the elderly person or couple becomes incapacitated. Advanced Medicaid planning typically requires making gifts to an irrevocable trust or to loved ones directly to protect assets from being depleted.  These gifts must be made at least five years before applying for Medicaid or the applicant will be ruled ineligible for benefits for an extended period of time.  Last minute Medicaid planning may require the agent to make gifts and purchase an annuity to pay for nursing home expenses during a period of Medicaid ineligibility.

If you already have a financial Power of Attorney in place, contact your estate planning attorney to find out what updates, if any, need to be made to your estate plan as a result of these recent law changes. If you don’t already have a financial Power of Attorney in place, contact an estate planning attorney right away.  He or she can review your unique situation and determine which “hot powers” should be included in your Power of Attorney document. Your estate planning attorney can also counsel you through the important decision of selecting your trusted agent or co-agents.

 

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning matters.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online or print contact.)

Online Estate Planning Docs. Can Devastate-Money Can Be A Curse

Reason 2: Ignorance Is Bliss! Don’t be a fool and do your own Generic Online Estate Planning Documents

The second reason in our series on how online estate planning documents can devastate your family and leave them in financial ruin is because online documents are generic and will oftentimes make your plan more complicated and confusing for your family.  If you have ever been in a position where a family member was sick or passed away, you know how much stress the situation can cause your family.  Unfortunately, some people have good intentions of making things easier for their family by using online estate planning documents, but oftentimes that decision just makes matters worse for everyone.  Online document users find it unnecessary to meet with a lawyer because they think that their situation isn’t complicated and that their online Will, Power of Attorney, and health care documents will suffice.  However, online documents are overly generic and usually do not serve the needs of even the most basic family situations.  In Reason 2 of this blog series, I will analyze how generic online documents can make matters worse for your family. More specifically, Part I of Reason 2 will address how customization issues can cause confusion and chaos for your loved ones.

Part I. Online documents don’t allow customization for your family’s unique situation – causing confusion and chaos for your loved ones

In estate planning, one size does not fit all. Over the years, I have found that no two families are alike.  Each family has unique issues and online documents typically cannot address those issues.  If your issues are overlooked or ignored, your estate plan will probably not work the way you intended.  Most online documents lack the proper customization you need to address these overlooked or ignored issues.

  • For example, when you begin the online document process, the software will ask you for basic information such as who you want to serve as your children’s guardian under your Will. After careful consideration, you determine that you want your sister and her husband (your brother-in-law) to serve as co-guardians of your children under your online Will.  After completing and signing your Will, you think your children will be properly cared for if something happens to you.  However, do you want your brother-in-law raising your children if he and your sister get divorced or if your sister passes away?  As a named co-guardian, your brother-in-law can present a strong case to the court that he should raise your children pursuant to the Will.  Although it was your intention for him to raise your children with your sister, the Will does not address what happens upon death or divorce.  An estate planning attorney should be able to recognize this co-guardian issue and could implement the appropriate contingency in your Will that would remove him as guardian upon your sister’s death or divorce.  If you use online documents to name your children’s guardian, you might be unaware of this issue or unable to customize your documents to address that concern.
  • Furthermore, a lack of customization with online documents might cause the inclusion of wrong provisions in your documents. One essential estate planning document is the financial power of attorney (POA).  This document allows your designated agent to make financial decisions for you on your behalf.  A POA usually contains large amounts of standard boilerplate provisions that can be confusing to some people and may not be applicable to your situation.  For example, buried in your online POA might be a provision that allows your agent to make unlimited gifts to anyone.  For some, unlimited gifting might be necessary.  For others, unlimited gifting simply gives your agent a wonderful opportunity to deplete all of your assets.  Unfortunately, elder abuse is very common and it’s usually done by those who are appointed as POA.

Online document providers are not attorneys and do not counsel and recommend what provisions you should have in your documents.  Online providers do provide an option for you to consult with an attorney.  Will that attorney practice near you and be available to meet with you face to face?  Will you be able to select an attorney that has the experience in estate planning that you need?

In conclusion, those who use online estate planning documents might think that estate planning is as simple as filling names into blanks.  In reality, estate planning is complicated and needs to be customized to your specific needs even in the simplest of situations.  Simply filling in blanks can cause chaos for your loved ones down the road.  Online estate planning websites want you to believe that you have peace of mind that your affairs will be in order because ignorance is bliss! It has been often said that every attorney who represent himself or herself is a fool.

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

 

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

10 Reasons to Use a Trust in Your Estate Plan

While trusts may seem necessary only for the wealthy, there are actually many benefits for creating them, even if you’re a member of the middle class.  Here are the top 10 reasons why you might consider using a trust in your estate plan:

  1. Wasteful spending. Some experts estimate that heirs spend 80% of their inherited money in the first 18 months of receiving their inheritance.  Without a trust in place, your heirs will receive their inheritance outright.  A trust can protect your heirs from quickly depleting their inheritance by spacing out distributions over a certain number of years or for their lifetimes.
  2. Wrong heirs. A trust can keep your estate assets in your blood line and not to your heir’s in-laws or your surviving spouse’s new partner. A trust can delay distributions so that your grandchildren inherit your estate after the death of your children instead of your children’s spouses.
  3. Worthless investments. A trust can protect your loved ones from investing their inheritance in worthless investments that will quickly deplete their inheritance or provide little to no return.
  4. A trust can ensure that assets and IRA/pension plans are used to provide for the surviving spouse for life, rather than being liquidated and spent on a new partner.
  5. A trust can control how assets are allocated among children and step-children upon the death of the surviving spouse. If you have a blended family and have children from a prior marriage, a trust can ensure that all of your children will be taken care of after your surviving spouse passes away.
  6. A trust can maximize federal estate tax savings, if necessary.
  7. A trust can control/hold assets in trust and limit distributions if heirs have alcohol/drug issues. Failure to leave your estate in trust to these individuals means they might stop working or going to school and use their inheritance to fund their lifestyle of drugs and alcohol.
  8. A trust can create asset protection for heirs from their creditors. Failure to leave your estate to your heirs in a trust means that family members own the assets outright and if they are subject to a lawsuit or the claims of their creditors, their inheritance may be lost to their creditors. Inherited IRAs also can get asset protection with a trust.
  9. A trust can avoid probate delays, costs, and burdens for your loved ones. Probate is costly, stressful, and time-consuming.  The only people who benefit from probate are the attorneys.
  10. Lastly, a trust can keep your estate private from the public. Simply implementing a Last Will and Testament will not keep your estate private.

The purpose of establishing a trust is to ultimately help you determine and implement who gets what and when.  When you meet with your estate planning attorney, make your intentions known so that your trust can be tailored to your specific needs.  It becomes extremely important that your trust be properly drafted and funded, so that you can maximize all the benefits a trust has to offer.

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) licensed in Ohio and Kentucky who helps clients with their financial and estate planning.  He also practices elder law, corporate law, Medicaid planning, tax law, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

 

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Top 3. Estate Planning Docs. Can Devastate-Pt. 4

The Top 3 Reasons How Online Estate Planning Documents Can Devastate Your Family and Leave Them In Financial Ruin – Money Can Be A Curse!!

Reason 1: The Pitfalls of Not Getting Legal Advice from an Attorney Can Cause Your Estate Plan to be Defective Because of Wrong Heirs, Wasteful Spending, and Worthless Investments

Arguably one of the biggest reasons why online estate planning documents can devastate your family’s estate plan and leave them in financial ruin is because you don’t get legal advice with do-it-yourself documents.  What most people don’t realize is that the value of an estate plan isn’t just in the documents – it’s in the advice and counsel you get from your estate planning lawyer.  An estate planning lawyer can identify issues that are unique to your financial and personal life that will affect your estate plan.  Some of those issues might include: blended families, predeceased beneficiaries, family drug/alcohol problems, problems with the in-laws, careless spending, worthless investments, and Medicaid planning opportunities. Part I, Part II, and Part III of this series addressed the concerns you might have if the wrong heirs inherited your estate, concerns you might have with wasteful spending and worthless investments, and concerns with outliving your money.  This blog, which addresses the last part of Reason 1, will present an unfortunate, but all too common case study on how do-it-yourself documents can ruin your estate plan.

Part IV.  Don’t get false peace of mind! A case study on how do-it-yourself documents can ruin your estate plan!

Kim’s Financial Situation

Kim is a resident of Ohio.  She is 72 years old, widowed, retired, and has two independent adult children.  Her estate consists of two main assets: a large retirement account and a $75,000 checking account.  When Kim set up her retirement account many years ago, she listed her husband as the beneficiary but never updated it when he passed away.  She also added her son as a joint owner on her checking account to help pay her bills.

Kim’s Plan

Like most people from Kim’s generation, Kim does not like talking about end of life planning with her children and thinks lawyers are a waste of money.  She decides to use a popular do-it-yourself legal website to set up her estate plan.  Kim recently heard a statistic that 80% of lottery winners go broke within 18 months.  She wants to limit the amount her two children inherit to annual payments over ten years to avoid wasteful spending and bad investments.  She also knows that she wants her children to inherit everything equally and she wants to avoid probate to save money and keep her finances private.

Kim’s Online Documents

Kim decides to implement a Trust in her estate plan because a Trust will satisfy all of those concerns.  Her Trust ultimately provides that her two children shall receive equal distributions of her Trust assets in annual installments for ten years.  The website also suggests that Kim needs to implement a Last Will and Testament.  She executes a Will and Trust which simply lists her two children as equal beneficiaries.  Kim feels confident that her “basic” website documents were done properly and can’t understand why anyone would spend the money to consult with a lawyer.  She puts her executed documents in a desk drawer and never thinks about them again.

What Happened When Kim Died

A few years later, Kim passes away.  Her deceased husband is still listed as the primary beneficiary of her retirement account and no contingent beneficiary is listed.  Her son is also still a joint owner on her checking account.  While cleaning out Kim’s house, her children discover Kim’s Will and Trust.  They consult with an estate planning attorney to find out how they need to proceed.  The attorney tells the two children that the Will and Trust are valid.  He further explains that any assets titled in the name of the Trust would have passed equally to the two children over ten years pursuant to the terms of the Trust.

The attorney indicates that Kim’s Will governs all probate assets which are owned in Kim’s name individually.  Such assets will have to pass through probate and will be distributed to the two children outright, pursuant to the terms in the Will.

After reviewing Kim’s assets, the attorney determines that the retirement account will pass to the children outright under the Will through probate because the account has no living designated beneficiary.  He also concludes that the checking account will not pass under Kim’s Will through probate at all, but will rather pass to the joint-owner child individually.  The attorney confirms that the Trust does not hold or will not hold any of her assets and it will not govern how her estate is to be administered.

Kim’s Estate Plan Flaws

In this example, Kim tried to accomplish her estate planning goals to make things easier for her family, but she ultimately failed to properly memorialize her wishes in several different ways:

  • She does not avoid probate. By failing to remove her deceased husband and failing to add her Trust as beneficiary of her retirement account, her estate becomes the beneficiary of the account, resulting in probate. When an estate is probated, it becomes public record.
  • Failing to review and update her retirement account beneficiaries resulted in her children inheriting her retirement account outright rather than in Trust over ten years. If Kim had named the Trust as the beneficiary of her retirement account (no probate) or named the Trust as the sole heir under her Will, her retirement account would have been owned by her Trust rather than by her children outright.
  • Her children will not inherit her estate equally. Kim added her son to her checking account for convenience purposes but failed to provide that the account would be payable on death to her children equally.  What seemed like a simple means of convenience for Kim ended up with a $37,500 inequality for her one child who inherited none of the checking account.
  • Kim wasted money using online documents. She tried to save money using online documents, but she ultimately paid for a Trust that was never used and her estate plan failed because none of her goals were accomplished.

In conclusion, Kim got a false sense of peace of mind by preparing her own documents.  If she had met with an estate planning attorney, she would have received invaluable advice on how to avoid probate and make sure that her estate plan was set up properly.  Her attorney would have also identified the estate flaws detailed above.  Unfortunately, Kim’s example is all too common in the estate planning world.  What should have been a fairly simple estate plan turned out to be something completely different than what she wanted.

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Top 3-Estate Planning Docs. Can Devastate-Pt. 3

The Top 3 Reasons How Online Estate Planning Documents Can Devastate Your Family and Leave Them In Financial Ruin – Money Can Be A Curse!!

Reason 1: The Pitfalls of Not Getting Legal Advice from an Attorney Can Cause Your Estate Plan to be Defective Because of Wrong Heirs, Wasteful Spending, and Worthless Investments

Arguably one of the biggest reasons why online estate planning documents can devastate your family’s estate plan and leave them in financial ruin is because you don’t get legal advice with do-it-yourself documents.  What most people don’t realize is that the value of an estate plan isn’t just in the documents – it’s in the advice and counsel you get from your estate planning lawyer.  An estate planning lawyer can identify issues that are unique to your financial and personal life that will affect your estate plan.  Some of those issues might include: blended families, predeceased beneficiaries, family drug/alcohol problems, problems with the in-laws, careless spending, worthless investments, and Medicaid planning opportunities. Part I and Part II of this series addressed the concerns you might have if the wrong heirs inherited your estate, as well as with concerns you might have with wasteful spending and worthless investments.  This blog addresses how online documents miss planning opportunities for unforeseen circumstances in your life, such as nursing home care.

Part III.  Does your Estate Plan Address Unforeseen Circumstances? Don’t outlive your money!

If you’re a baby boomer, Social Security suggests that you will likely live between ages 83 and 90.  If you do live that long, you should be concerned that you might outlive your money.  The number one fear of baby boomers is outliving their money during retirement due to unforeseen circumstances.  Such unforeseen circumstances include rising medical costs and the costs of long-term care.  If you ultimately need nursing home care, be prepared to deplete your hard-earned assets before Medicaid will help pay for your care. If you are married and you need to enter the nursing home, the most you and your spouse can keep is between approximately $23,000 and $120,000 (excluding your home) depending on the size of your estate before you will qualify for Medicaid.  That figure drops to $1,500 if you’re single.  Medicaid also only lets you keep $50/month from your monthly income.  Do you think you can live comfortably off of $50 a month?

Unfortunately there is no crystal ball to predict if you or your spouse will need nursing home care.  All you can do is plan for the worst and expect the best.  Depending on your age, health, and wealth, it might be appropriate to consider advanced planning for Medicaid.  A good estate planning attorney can assess your situation and determine if Medicaid planning is appropriate for you.  Most people incorrectly assume that their assets are protected from Medicaid and the nursing home when their assets are placed in a simple revocable trust.  Such revocable trusts are typically the ones that online document providers provide.  Although these types of trusts may be sufficient for some estate plans, it may not work for yours.  Online estate planning documents cannot provide you with a customized plan that will properly carry out your wishes as well as safeguard your assets from rising nursing home costs.

In estate planning, one size does not fit all. Over the years, I have found that no two families are alike.  Each family has unique issues and online documents typically cannot address those issues.  If your issues are overlooked or ignored, your estate plan will probably not work the way you intended.  If you have concerns about outliving your money and unforeseen circumstances, an estate planning attorney can help you budget your retirement and mold your estate plan to fit your specific needs.

 

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning.  He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning, and probate in the Greater Cincinnati and Northern Kentucky areas.  His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky.

(Legal Disclaimer:  Bill Hesch submits this blog to provide general information about the firm and its services.  Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel.  While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog.  Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)

Reason 1 to Avoid Online Estate Planning Documents

The Top 3 Reasons How Online Estate Planning Documents Can Devastate Your Family and Leave Them In Financial Ruin

Reason 1: The Pitfalls of Not Getting Legal Advice from an Attorney Can Cause Your Estate Plan to be Defective Because of Wrong Heirs, Wasteful Spending, and Worthless Investments

In my last blog, I broadly identified the top 3 reasons how online estate planning documents can devastate your family and leave them in financial ruin. Over the next several blogs, I will discuss the first reason: the pitfalls of not getting legal advice from an attorney can cause your estate plan to be defective because of wrong heirs, wasteful spending, and worthless investments.

Continue reading “Reason 1 to Avoid Online Estate Planning Documents”