Estate plans are comprehensive plans that also allow you to continue to prosper and live comfortably while alive and transfer assets to your beneficiaries with the least amount of fuss and expense after you pass.  They allow you to convey your wishes when you can no longer do so. 

Six documents that every estate plan should have are:

1.  A will:  Even for smaller estates, a will helps ensure the smooth transfer of property, names an Executor to handle your estate and establishes a Guardian for minor children. 

2.  A durable financial power of attorney :  A durable power of attorney is a legal document that gives someone authority to manage your financial affairs if you become incapacitated and can no longer do so.

3.  A living will:  A living will expresses your wishes with regard to being allowed to die instead of being kept alive by artificial means in the event of being terminally ill or in a permanent unconscious condition.

4:  A durable medical power of attorney: A durable medical power of attorney designates a “principal”–another person– that you trust to make health care decisions on your behalf if you are unable to make these decisions.

5:  A Declaration of Disposition of  Remains:   Since wills are not normally located until after a funeral, it’s best to leave a letter expressing burial wishes, service wishes and the like in an easy-to-find location. This document also apppoints the person to be in charge of ensuring that your wishes are carried out. Make sure to advise loved ones where to locate this document.

6:  A HIPAA Authorization:  If you are hospitalized and do not have this document, your friends and loved ones may never be able to determine your condition…or even that you are in a hospital!  This authorization enumates the list of persons who may obtain such information about you.

In addition to the above, you may wish to consider trust documents.  Trusts are valuable tools in estate planning.  Too often those seeking inexpensive alternatives to estate planning could have benefitted substantially from establishing a trust, since assets in trust do not pass to heirs under the terms of your Will, thereby avoiding the expensive and time-consuming process of probate; rather, they are transferred according to the instructions in the Trust document. 

As you can see, estate planning is much more than simply creating a will;  it is an evolving process that should be updated as life changes dictate.  An estate planning attorney can help you address these documents and tasks.

But when a Trustor dies, steps must be taken to not only comply with the state and tax law, but to change the title of the property held within the trust.  These tasks make up the basics of Trust Administration, but the complexity varies based on the type of assets, value of assets and number of assets within the trust.  Specific trust administration duties include:

• Contacting beneficiaries;
• Keeping beneficiaries informed;
• Gathering, reporting and investing assets;
• Paying debts;
• Notifying creditors;
• Filing tax returns; and
• Distributing assets.

Normally, during the estate planning process, a person creates a Living Trust and becomes their own trustee until they can no longer do so either due to incapacity or death.  The trust designates a successor trustee to then take over the duties of Trust Administration.

A successor trustee is then responsible for administering the trust on the behalf of the beneficiaries.  If a family member or trusted friend is named as the successor trustee, they may lack the time, resources or knowledge to administer the trust.  An attorney whose practice is devoted to trusts and estates is able to assist the Trustee and take on the considerable duties of Trust Administration.  They have the knowledge and expertise needed to help administer the trust during the time of high activity, which unfortunately, is also a grieving period for loved ones.  It is important to remember that the trustee has a fiduciary duty during trust administration, meaning they owe the highest obligation to protect the assets in the trust and the interests of the beneficiaries.  Therefore, getting the right advice is very important.

• Qualified Terminable Interest Property Trust:  With this type of trust, assets are held in trust for the use of a spouse, who is entitled to receive income from the trust and make use of any trust assets, including the primary residence. The spouse is also allowed to spend trust principal to the extent that is allowed by the language of the trust. The grantor (the person who established the trust) names beneficiaries who will inherit the trust assets when the surviving spouse dies. For instance, his or her children, who may not be the children of the surviving spouse and would otherwise have no claim to the assets, could be named to receive the assets when both spouses are deceased.
• A two-part estate plan:  An estate plan that accounts not only for benefit of the surviving spouse, but also gives a portion to the children of the deceased spouse, either outright or in a trust that takes advantage of federal estate tax exemptions.
• Lifetime gifts:  Gifts are allowable and tax-free to a certain extent, and you have the added benefit of seeing the beneficiary enjoy the gift while you are alive.   Each year you are able to give away money or property in the form of a gift that is nontaxable as long as it is below the gift tax exclusion amount.  This amount is currently $13,000 if the gift giver is an individual, but for a couple who make gifts, the exclusion amount is $26,000.

These are just a few of the basic strategies for estate planning for blended families.  As you can see, it can become a challenge to plan for potential conflicts, human nature and future needs when blended families are involved, particularly when there are children from previous marriages.  Make sure you consult with an estate planning lawyer with experience in Ohio law and blended families if you are facing this challenge.

The traditional IRA allows contributions that are initially tax deductible from your gross income.  Both the contributions and their earnings grow tax-deferred, meaning taxes are not levied until the funds are accessed.  Normally the funds aren’t accessed until after retirement, and the tax savings are recognized under the assumption that a worker’s retirement income will be lower than that of the ‘working’ years.

For example, if you contribute $2,000 to an IRA and you are in the 28% tax bracket, you will save $560 on taxes that year.  When you begin taking distributions, if you are in the 15% tax bracket, you will be taxed $300 on that same $2,000 – meaning your tax savings are ultimately $260.   

While anyone under the age of 70-1/2 may contribute to an IRA, you must have earned wages, self-employment income, social security income or tips to participate.  Income from a partnership business, pension, rental income or interest income is not eligible for traditional IRA contributions.  The limits for annual contributions are relatively low when compared to an employee sponsored plan such as a 401K, only $5,000 annually, with an additional $1,000 allowed for people who are 50 or older, known as a ‘catch up’ contribution. 

The deductibility for a traditional IRA is also somewhat limited and depends on both annual income and whether you or your spouse participates in an employee sponsored plan.  When you reach the age of 70 ½, you are required to begin drawing distributions from your IRA account, but there are methods to spread the distributions to your advantage. 

An IRA, or any retirement plan for that matter, should be addressed within an estate plan.  Discuss options with a knowledgeable estate planning professional to not only maximize the savings in your IRA account, but to minimize any potential tax liability.

Family business owners face the challenge of coordinating both the business and family estate plans while ensuring family harmony, the ongoing health of the business and creating the proper strategy to keep the wealth intact while reducing the burden on beneficiaries.  Creating a business succession strategy and inheritance plan is going to involve asking and answering some tough questions for all parties.  These questions include:

• Will the beneficiaries want to run the family business?
• What is the current financial condition of the company and what is its anticipated financial condition should ownership change?
• Is there enough liquidity in the business to run it during the time of transition?
• Is the ownership and management structure set up to facilitate the transfer of ownership?
• Do the beneficiaries have the work ethic and experience to run the business?
• Will there be any ‘sibling rivalry’ that will adversely affect the business?

It is important to plan properly to protect inheritance assets, particularly in the case of family businesses, from the factors that can reduce the asset, such as capital gains taxes, income taxes, probate costs and fees.  An “inheritance plan” should be a major part of a family’s estate plan, when there’s a family business involved, make sure this plan involves business succession strategy.

What determines how much social security I’ll receive when I retire?

There are two main factors that determine the monthly benefit that you will receive:  you’re earnings throughout your working career and the age you begin receiving your benefits.  You are eligible to receive benefits at the age of 62, but they will be reduced according to your retirement age, which is based on your birth year, the earlier you begin to take retirement, the lower your benefit will be.

What is the best age to begin receiving social security benefits?

This is a decision that should be based on your personal situation.  It should be weighed carefully whether it would be better to receive benefits early with a smaller monthly amount or wait for the larger monthly benefit payment at a later date.  Some of the factors to consider in this decision are:

Other retirement income sources;

• Whether or not you plan to work part time or full time during your retirement.
• Your health;
• Your financial needs; and
• The amount of your benefits.

What is the difference between the monthly benefit at 62 and the monthly benefit at full retirement age?

The earliest you may begin collecting benefits is age 62.  If your estimated full benefit amount is $1,000, you would receive approximately $750 at age 62, $1,000 at your full retirement age (which differs based on the year of your birth) and approximately $1,300 at age 70.  These benefit amounts would not normally change throughout your retirement years, unless you are working during retirement.  In that case, after you reach full retirement age, social security reevaluates your benefit amount to give you credit for any months in which you did not receive your full benefit because of your earnings.

How can I find out how much my monthly benefits would be from social security when I retire?

The Social Security Administration mails this information annually.  In your Social Security statement is the estimated monthly benefit amounts you and your family may qualify for now and in the future.  This information is based on your earnings and years worked, and changes during your lifetime.

Medicare Part A pay for hospital stays, skilled nursing care in a nursing facility and hospice. Part B pay doctor’s bills, outpatient care and physical and occupational therapy.  Part C deals with HMOs and preferred provider plans that offer health insurance plans. The plans have to offer similar coverage as Parts A and B.  Part C providers can offer vision and dental coverage as well, and to minimize costs, they can also limit the doctors and hospitals to in-network providers. Medicare Part D offers prescription drug discounts through private insurance companies, and extra premiums are assessed for Part B and D.

Under the original Medicare plan, seniors still have to pay for some health care costs, or a deductible, every year. Each January 1, the amount of deductible, as well as the premiums for Part B and D changes.  In order to cover the gap between what Medicare pay for and the deductible, seniors can purchase Medigap insurance. If seniors meet certain income requirements or have a Part C plan, they may not have to pay for a supplemental Medicare insurance policy through coverage under Medicaid.

Consider the following benefits of a life insurance policy before you decide against one:

The immediate cash benefit. Instead of cashing in retirement benefits or trying to sell slow-moving assets such as real property or belongings, your heirs receive instant money to pay bills now.

Tax-free money. Your beneficiary won’t be liable for income taxes when your life insurance policy pays out.

Income replacement. If you die and are married with children, your spouse can pay for childcare expenses should they have to return to work. If the payout is large enough, they may not have to work and can continue to care for your children. In the case of the elderly surviving spouse, life insurance proceeds can ensure they continue to live in the style to which they’ve become accustomed .

Probate avoidance. If you don’t name your estate as the beneficiary of your policy, the insurance proceeds don’t go through probate.

Provisions for special needs children. You can name a special needs trust as the beneficiary of your life insurance policy and provide money for the long-term care of a handicapped or disabled child.

Estate tax reduction. If you transfer ownership of your life insurance policy to a special kind of trust, the trust beneficiaries will receive the policy payout without having to pay estate taxes.

A qualified estate planning attorney can help you decide whether or not a life insurance policy is a good estate planning tool for you. Give us a call today and set up an appointment to discuss your estate planning options.

The Video Will

A Video Will can be made simply by sitting in front of a video camera and stating your wishes for your estate. Typically, Video Wills are used in conjunction with a written Will if a contest to the Will is expected. Currently, Video Wills alone are not recognized by state probate courts. A Video Will can demonstrate competency and clear intent in bequests to your heirs.

Oral Wills

This Will is created by merely telling someone your wishes in the presence of witnesses. These types of Wills are not readily recognized by many states, and those that do recognize them, do so in special circumstances defined by strict rules. A deathbed declaration would be considered an Oral Will. Additionally, the state probate court may limit the total amount of assets you can bequeath in an Oral Will.

Handwritten Will

Provided that a Handwritten Will is signed and dated, many states recognize Handwritten Wills, even without witnesses. Handwritten Wills can be misinterpreted if your hand writing isn’t legible or your handwriting may be altered.

Electronic Wills

You may have heard some buzz about the Electronic Will,  but this is currently only recognized in Nevada and there are some issues as to how the Will can be validated in the event of a challenge. An Electronic Will can be stored online, but this is a dangerous practice due to the risk of computer hacking.

Most estate planning attorneys recommend that you execute a typed Will and if you wish, to include a video recording also stating your intentions. If you have a Handwritten or Oral Will, you may wish to consider a typed Will in order to protect your estate for your beneficiaries.

But what about providing for a disabled dependent? Can a trust do that too?

The answer is yes.

A Special Needs Trust is designed specifically to help you provide for a disabled dependent without disqualifying him or her from important government assistance programs.

These government programs – such as Social Security and Medicaid – are based on need, so the applicant’s financial status is a big factor in qualifying for benefits. If you leave a large inheritance to this dependent, their financial status is affected and they could be disqualified from the program.

But with a Special Needs Trust, the assets are held within the trust, not individually by the dependent. And while the government assistance programs continue to provide for basic necessities, your Special Needs Trust can provide for just about everything else, including clothing, entertainment, travel, medical expenses and education.

To learn more about setting up a Special Needs Trust for your dependent, give us a call today.