Estate Planning

Day 2: Save $300 on a Will Based Estate Plan¹

The LegalJourney Law Firm is providing $300 off a customized “Will Based Estate Plan” for anyone who contacts the firm prior to close of business on January 11, 2013 and schedules an appointment for a consultation.

The LegalJourney Law Firm’s Will based Estate Plan includes: a Will, a Living Will, a Health Care Surrogate, HIPPA Authorization, a Declaration of Preneed Guardian and a Durable Power of Attorney.

To find out additional details, please contact the LegalJourney Law Firm PLLC.

¹This offer is available until close of business January 11th, 2013.

Day 1: Free Online Will¹

The LegalJourney Law Firm will provide a free “Online Will” for the first 4 individuals who sign up for a new online client account via the online legal services link on www.legaljourney.com.

To set up a free online account:

1.     Go to www.legaljourney.com;

2.     Select “Click Here For Online Legal Services”;

3.     Select “Register for a New Online Legal Services Account today!"

Create a user account and you will be notified within 24 hours if you will be a recipient of todays offer.

Everyone who connects with the LegalJourney Law Firm PLLC via the LegalJourney Blog, LinkedIn, Twitter, and/or Facebook during the month of January will receive 10% off any online legal service.

¹This offer is available until close of business January 2nd, 2013.

Thank you for making 2012 a successful year for the LegalJourney Law Firm PLLC. This new year, as a way of saying thank you for your continued support of the LegalJourney Law Firm PLLC and as part of the firm's anniversary celebration, the LegalJourney Law Firm PLLC will be offering free and/or reduced estate planning during the first two weeks of 2013.

Each day beginning on January 2^nd 2013 through January 11^th 2013, the LegalJourney Law Firm PLLC will post, via the LegalJourney Blog, LinkedIn profile, Twitter account and Facebook page, daily opportunities to receive either a reduced price or a completely free legal service.

Everyone who connects with the LegalJourney Law Firm PLLC via the LegalJourney Blog, LinkedIn, Twitter, and/or Facebook during the month of January will receive 10% off any online legal service.

Thank you for allowing me to serve you in the past and I look forward to continuing to provide you "Legal Guidance through Your Life's Journey."

So you have credit card debt, overdue mortgage payments, or suddenly need to buy a new car. We’ve all been there. You need money now, and your retirement accounts continue to climb. Fortunately, many employers allow you to take out loans on these accounts, but should you really begin spending that money before you retire?

On one hand, there are benefits to borrowing from your retirement accounts. You are essentially borrowing your own money, so the payments you make, plus interest, go back into your account. Since it’s your own money, these payments do not affect your credit score, and most 401(k) loans have relatively low interest rates.

However, there are many risks associated with taking money from accounts like your 401(k). It is recommended that you see a financial advisor before making this decision to address the cost and potential ramifications of the loan.

First consider the reason for taking out a loan, and the multiple options that you face. A dire emergency is the only recommended cause for borrowing from these accounts; some plans even require it. If you’re looking to spend the money on something more frivolous, like a family vacation or a new entertainment system, however, you should consider alternate financing options.

The downside to these loans comes in handling the repayment plan. Interest paid to your own account sounds easy enough, but these payments are subject to taxes. Furthermore, once money is borrowed from your retirement account, it is no longer eligible for tax-deferred growth. Payments you make on the loan come from after-tax assets, so the money you repay into your account can end up getting taxed for a second time once you withdraw after retirement.  

A standard 401(k) loan allows you to borrow up to half of your balance, with a maximum of $50,000. Normally, you have up to five years to repay the loan. Failure to do so within the five-year period means your loan will be deemed an early withdrawal, and will be subject to taxes as well as a 10% early withdrawal penalty.

If you are looking to borrow money from your retirement accounts, carefully consider your repayment plan in advance. It’s especially important to make certainthat you are secure in your employment; if you leave or lose your job, your loan payments will be due within 90 days. Consider borrowing only if interest on a loan from your retirement plan would be less than that of another loan alternative. A final tip: Continue contributing to your 401(k) while you pay off the loan to lessen the impact on your savings.

If you have a child who is addicted to drugs or alcohol, or who is financially irresponsible, you already know the heartbreak associated with trying to help that child make healthy decisions.  Perhaps your other adult children are living independent lives, but this child still turns to you to bail him out – either figuratively or literally – of trouble.

If these are your circumstances, you are probably already worrying about how to continue to help your child once you are gone.  You predict that your child will misuse any lump sum of money left to him or her via your will.  You don’t want to completely cut this child out of your estate plan, but at the same time, you don’t want to enable destructive behavior or throw good money after bad.

Trusts are an estate planning tool you can use to provide an inheritance to a worrisome heir while maintaining control over how, when, where, and why the heir accesses the funds.  This type of trust is sometimes called a spendthrift trust.  

As with all trusts, you designate a trustee who controls the funds that will be left to the heir.  This trustee can be an independent third party (there are companies that specialize in this type of work) or a member of the family.  It is often wise to opt for a third party as a trustee, to prevent accusations among family members about favoritism.

The trust can specify the exact circumstances under which money will be disbursed to the heir.  Or, more simply, the trust can specify that the trustee has complete and sole discretion to disburse funds when the heir applies for money.  Most parents in these circumstances discover that they wish to impose their own incentives and restrictions, rather than rely on the judgment of an unknown third party.

The types of conditions or incentives that can be used with a trust include:

• Drug or alcohol testing before funds are released
• Payments directly to landlords, colleges, etc., rather than payment to the heir
• Disbursement of a specified lump sum if the heir graduates from university or keeps the same job for a certain time period
• Payment only to a drug or alcohol rehab center if the child is in an active period of addiction
• Disbursement of a lump sum if the child remains drug free
• Payments that match the child’s earned income

If you are considering writing this type of complex trust, it is advisable to seek assistance from a qualified and experienced estate planning attorney who can help you devise a plan that best accomplishes your wishes with respect to your child.
 

A thorough and complete estate plan must take into account a significant amount of information about your assets, your family, your property, and your wishes during and after your life.  When you make your first appointment with an estate planning attorney, ask the attorney or the paralegal if they can provide a written list of important information and documents that you should bring to the meeting.  

Generally speaking, you should gather the following information before your first appointment with your estate planning lawyer.

Family Information
List the names, birth dates, death dates, and ages of all immediate family members, specifically current and former spouses, all children and stepchildren, and all grandchildren.

If you have any young or adult children with special needs, gather all information you have about their lifetime financial needs.

Property Information
For all real property you own or can reasonably expect to acquire, gather the property description, your ownership interest information, the address, market value, any outstanding mortgage balance, and the most recent tax assessment.

For any personal property of value (such as vehicles, jewelry, coins, antiques, stamps, and art), compile a list that includes a description, the physical location of each item, your ownership interest information, the market value, and any liens against the property.

Business Information
If you have an ownership interest in a business, make sure you have documents showing your ownership interest in the business, the business location, the names and contact information of other owners, and 2-3 years of past profit and loss statements.

Financial Information
Compile a list of all your financial accounts, including: checking accounts, savings accounts, investment accounts, stocks and bonds, and U.S. Treasury notes.  If any of these accounts currently have designated beneficiaries, bring that information as well.

Gather all retirement savings information, including 401(k) plans, 403(b) plans, IRAs, life insurance policies, Social Security statements, and pension information.  Make sure you have the account names, account numbers, current balances, outstanding loan balances, and currently named beneficiaries.

If any family members owe you debts, compile that information.

Questions to Think About
The following are some of the first questions your estate planning attorney will ask.  You are not required to have answers ready for all these questions, but because some of them are complex, it is a good idea to think through these issues before your appointment.

• Who will be beneficiaries of your property?
• Do you want to bequeath any specific items of property to specific individuals?
• Is there anyone you do not want to be a beneficiary of any of your property?
• Do you plan to make any bequests to any nonprofit organizations – university, church, charity, or other organization?
• Do you know who you want to act as executor of your will?
• Do you know who you want to act as trustee of any trusts you establish?
• If you have minor children, who do you want to appoint as guardian?
• Do you want to make arrangements for your health and financial well-being in the event you become unable to make decisions for yourself?
• Do you have specific wishes for your funeral?
• Are you a registered organ donor?

During your initial consultation, your estate planning attorney will review your family and financial situation, discuss your wishes, answer your questions and suggest strategies to protect your family, wealth and legacy.
 

It’s called your “golden years” but for many seniors and baby boomers, there is no gold and retirement savings are too often insufficient to maintain even basic living standards of retirees. In fact, a recent study by the University of Michigan found that baby boomers are the fastest growing age group filing for bankruptcy. And even for those who have not yet filed for bankruptcy, a lack of retirement savings greatly troubles many who face their final years with fear and uncertainty.

Another study, conducted by Financial Engines revealed that nearly half of all baby boomers fear they will be in the poor house after retirement. Adding insult to injury, this anxiety also discourages many from taking the necessary steps to establish and implement a clear, workable financial plan. So instead, they find themselves with mounting credit card debt, and a shortfall when it comes time to pay the bills.

In fact, one in every four baby boomers have depleted their savings during the recession and nearly half face the prospect of running out of money after they retire. With the depletion of their savings, many seniors are resorting to the use of credit cards to maintain their standard of living.  This is further exacerbated by skyrocketing medical costs, and the desire to lend a helping hand to adult children, many of whom are also under financial distress.  These circumstances have led to a dramatic increase in the number of senior citizens finding themselves in financial trouble and turning to the bankruptcy courts for relief.

In 2010, seven percent of all bankruptcy filers were over the age of 65. That’s up from just two percent a decade ago. For the 55-and-up age bracket, that number balloons to 22 percent of all bankruptcy filings nationwide.

Whether filing for bankruptcy relief under a Chapter 7 liquidation, or a Chapter 13 reorganization, senior citizens face their own hurdles. Unlike many younger filers, senior citizens tend to have more equity in their homes, and less opportunity to increase their incomes. The lack of well-paying job prospects severely limits older Americans’ ability to re-establish themselves financially following a bankruptcy, especially since their income sources are typically fixed while their expenses continue to increase.
 

In the unsettled time after a loved one’s death, imagine the added stress on the family if the loved one died without a will or any instructions on distributing his or her assets.  Now, imagine the even greater stress to grieving survivors if they know a will exists but they cannot find it!  It is not enough to prepare a will and other estate planning documents like trusts, health care directives and powers of attorney.  To ensure that your family clearly understands your wishes after death, you must also take good care to preserve and protect all of your estate planning documents.

Did you know that the original, signed version of your will is the only valid version?  If your original signed will cannot be found, the probate court may assume that you intended to revoke your will.  If the probate court makes that decision, then your assets will be distributed as if you never had a will in the first place.

Where should you keep your original signed will?  There are several safe options – the best choice for you depends on your personal circumstances.

You can keep your will at home, in a fireproof safe.  This is the lowest-cost option, since all you need to do is purchase a well-constructed fireproof document safe.  Also, keeping your will at home gives you easy access in case you want to make changes to the document.  There are two main disadvantages to keeping your will at home:

• You may neglect to return your will to the safe after reviewing it at home, which increases the risk it will be destroyed by fire, flood, or someone’s intentional or accidental actions.
• Your will could be difficult to find in the event of your death, unless you give clear instructions to several people on how to find it, which then creates a risk of privacy invasion.

You can keep your will in a safety deposit box.  Most banks have safety deposit boxes of various sizes available to rent for a monthly fee.  Banks, of course, tend to be more secure than private homes, which is one primary advantage.  Also, if you keep your will in a safety deposit box, then after your death, only the Executor of your estate may access the original will.  Thus, the will is strongly protected against alteration or destruction, because family members may have access to a copy but only the Executor will have access to the all-important original.

If you do keep your will and other estate planning documents in a safety deposit box, try to do so at the same bank where you keep your accounts and inform your executor of its location.  This will streamline the financial accounting process.

You can also keep your original will and other estate planning documents at your lawyer’s office.    Law firms often have systems for long-term document storage.  However, keep in mind that the law firm may dissolve before the willmaker’s death, which can make it difficult to track down your will.  

You may also be able to store your will and other documents online.  Many large financial institutions have begun offering long-term digital storage of important documents.  However, any electronic version of your original will is – by definition – a copy, not the original.  So, you still must find a safe place to store the original, signed and witnessed will.  Online storage “safes” may be an excellent back-up, but you must still find a secure place to store the paper originals.

Your family-owned business is not just one of your most significant assets, it is also your legacy. Both must be protected by implementing a transition plan to arrange for transfer to your children or other loved ones upon your retirement or death.

More than 70 percent of family businesses do not survive the transition to the next generation. Ensuring your family does not fall victim to the same fate requires a unique combination of proper estate and tax planning, business acumen and common-sense communication with those closest to you. Below are some steps you can take today to make sure your family business continues from generation to generation.

• Meet with an estate planning attorney to develop a comprehensive plan that includes a will and/or living trust. Your estate plan should account for issues related to both the transfer of your assets, including the family business and estate taxes.
• Communicate with all family members about their wishes concerning the business. Enlist their involvement in establishing a business succession plan to transfer ownership and control to the younger generation. Include in-laws or other non-blood relatives in these discussions. They offer a fresh perspective and may have talents and skills that will help the company.
• Make sure your succession plan includes:  preserving and enhancing “institutional memory”, who will own the company, advisors who can aid the transition team and ensure continuity, who will oversee day-to-day operations, provisions for heirs who are not directly involved in the business, tax saving strategies, education and training of family members who will take over the company and key employees.
• Discuss your estate plan and business succession plan with your family members and key employees. Make sure everyone shares the same basic understanding.
• Plan for liquidity. Establish measures to ensure the business has enough cash flow to pay taxes or buy out a deceased owner’s share of the company. Estate taxes are based on the full value of your estate. If your estate is asset-rich and cash-poor, your heirs may be forced to liquidate assets in order to cover the taxes, thus removing your “family” from the business.
• Implement a family employment plan to establish policies and procedures regarding when and how family members will be hired, who will supervise them, and how compensation will be determined.
• Have a buy-sell agreement in place to govern the future sale or transfer of shares of stock held by employees or family members.
• Add independent professionals to your board of directors.

You’ve worked very hard over your lifetime to build your family-owned enterprise. However, you should resist the temptation to retain total control of your business well into your golden years. There comes a time to retire and focus your priorities on ensuring a smooth transition that preserves your legacy – and your investment – for generations to come.

For many Americans, retirement accounts comprise a substantial portion of their wealth. When planning your estate, it is important to consider the ramifications of tax-deferred retirement accounts, such as 401(k) and 403(b) accounts and traditional IRAs. (Roth IRAs are not tax-deferred accounts and are therefore treated differently). One of the primary goals of any estate plan is to pass your assets to your beneficiaries in a way that enables them to pay the lowest possible tax.

Generally, receiving inherited property is not a transaction that is subject to income tax. However, that is not the case with tax-deferred retirement accounts, which represent income for which the government has not previously collected income tax. Money cannot be kept in an IRA indefinitely; it must be distributed according to federal regulations. The amount that must be distributed annually is known as the required minimum distribution (RMD). If the distributions do not equal the RMD, beneficiaries may be forced to pay a 50% excise tax on the amount that was not distributed as required.

After death, the beneficiaries typically will owe income tax on the amount withdrawn from the decedent’s retirement account. Beneficiaries must take distributions from the account based on the IRS’s life expectancy tables, and these distributions are taxed as ordinary income. If there is more than one beneficiary, the one with the shortest life expectancy is the designated beneficiary for distribution purposes. Proper estate planning techniques should afford the beneficiaries a way to defer this income tax for as long as possible by delaying withdrawals from the tax-deferred retirement account.

The most tax-favorable situation occurs when the decedent’s spouse is the named beneficiary of the account. The spouse is the only person who has the option to roll over the account into his or her own IRA. In doing so, the surviving spouse can defer withdrawals until he or she turns 70 ½; whereas any other beneficiary must start withdrawing money the year after the decedent’s death.

Generally, a revocable trust should not be the beneficiary of a tax-deferred retirement account, as this situation limits the potential for income tax deferral. A trust may be the preferred option if a life expectancy payout option or spousal rollover are unimportant or unavailable, but this should be discussed in detail with an experienced estate planning attorney. Additionally, there are situations where income tax deferral is not a consideration, such as when an IRA or 401(k) requires a lump-sum distribution upon death, when a beneficiary will liquidate the account upon the decedent’s death for an immediate need, or if the amount is so small that it will not result in a substantial amount of additional income tax.

The bottom line is that trusts typically should be avoided as beneficiaries of tax-deferred retirement accounts, unless there is a compelling non-tax-related reason that outweighs the lost income tax deferral of using a trust. This is a complex area of law involving inheritance and tax implications that should be fully considered with the aid of an experienced estate planning lawyer.

In planning your estate, you most likely have concerned yourself with “big picture” issues. Who inherits what? Do I need a living trust? However, there are numerous details that are often overlooked, and which can drastically impact the distribution of your estate to your intended beneficiaries. Listed below are some of the most common overlooked estate planning issues.

Liquid Cash: Is there enough available cash to cover the estate’s operating expenses until it is settled? The estate may have to pay attorneys’ fees, court costs, probate expenses, debts of the decedent, or living expenses for a surviving spouse or other dependents. Your estate plan should estimate the cash needs and ensure there are adequate cash resources to cover these expenses.

Tax Planning: Even if your estate is exempt from federal estate tax, there are other possible taxes that should be anticipated by your estate plan. There may be estate or death taxes at the state level. The estate may have to pay income taxes on investment income earned before the estate is settled. Income taxes can be paid out of the liquid assets held in the estate. Death taxes may be paid by the estate from the amount inherited by each beneficiary. 

Executor’s Access to Documents: The executor or estate administrator must be able to access the decedent’s important papers in order to locate assets and close up the decedent’s affairs. Also, creditors must be identified and paid before an estate can be settled. It is important to leave a notebook or other instructions listing significant assets, where they are located, identifying information such as serial numbers, account numbers or passwords. If the executor is not left with this information, it may require unnecessary expenditures of time and money to locate all of the assets. This notebook should also include a comprehensive list of creditors, to help the executor verify or refute any creditor claims.

Beneficiary Designations: Many assets can be transferred outside of a will or trust, by simply designating a beneficiary to receive the asset upon your death. Life insurance policies, annuities, retirement accounts, and motor vehicles are some of the assets that can be transferred directly to a beneficiary. To make these arrangements, submit a beneficiary designation form to the financial institution, retirement plan or motor vehicle department. Be sure to keep the beneficiary designations current, and provide instructions to the executor listing which assets are to be transferred in this manner.

Fund the Living Trust: Unfortunately, many people establish living trusts, but fail to fully implement them, thereby reducing or eliminating the trust’s potential benefits. To be subject to the trust, as opposed to the probate court, an asset’s ownership must be legally transferred into the trust. If legal title to homes, vehicles or financial accounts is not transferred into the trust, the trust is of no effect and the assets must be probated.