Here is the link to my Estate Planning presentation “How to Avoid the Six Most Common Estate Planning Mistakes” that was on the Financial Fitness Show After Hours program on May 13, 2014.
Estate Planning
Don’t Just Plan for Disability – Avoid It!
Chronic illness… it’s a major cause of disability for seniors, and can be a retirement dream-killer. Travel. Golf. A retirement home in the country. It sidelines daily passions. Walks. Painting. Knitting. Crossword puzzles. Playing on the floor with grandchildren.
One way you can help yourself live a “disability-free” or “disability-reduced” life in your senior years is exercise in midlife. A recent study reported in the Archives of Internal Medicine indicates that being physically fit in midlife (over 50) may do many important things for us not just now, but down the road. Being physically fit can:
- prevent some seniors from ever developing chronic conditions;
- let other seniors live longer while healthy before developing chronic illness.
The study also shows that midlife fitness may actually shrink the number of years seniors spend coping with chronic illness altogether. It may help us live better and longer, more healthy years and fewer sick ones.
So what can you do to help avoid disability? Start exercising. Of course, you should consult your physician before getting started, especially if you have any known medical issues. If you already have a regular exercise routine, the study suggests that increasing the intensity of your workout can help even more. If you usually go for a walk, try going for a jog instead. Stay on the treadmill a little longer. Put in a little more effort now and reap the benefits later on.
Can Someone Access to Your Google Account After Your Death?
One of the growing challenges with estate planning is how to handle digital assets (i.e. e-mail accounts, facebook® accounts, etc.) in your plan. This can be particularly troublesome in settling the estate if you have bank statements or financial account statements electronically sent to your e-mail address without a mailed paper copy. Without the ability to access your e-mail account, your Personal Representative or Trustee might not even know that you have the bank or financial accounts.
Unfortunately, Michigan’s probate code does not give your Personal Representative or Trustee authority to access your e-mail account after your death. And, historically, service providers such as Yahoo® refuse to give password information to someone other than you per their Terms of Service.
If you have a Google® account, however, you are in luck. You now have the ability to set up your Google® Inactive Account Manager. By setting up your Inactive Account Manager, you can designated someone to access to your Google® account if you have not logged in after a designated period of time.
To set up Inactive Account Manager, login to your Google® account, and then go to: https://www.google.com/settings/account, which will take you to your Google® account set-up page. Select Data Tools from the top menu, and then go to set-up Inactive Account Manager.
Through your Inactive Account Manager, you will be able to set the timeout period, after which your account will be treated as in active, and designate trusted contacts who are to be notified if your timeout period expires. You can, also, give them access to your Google® account. Optionally, you can instruct Google® to delete the account once the timeout period expires.
Hopefully, other online service providers will follow Google®’s lead in giving users the ability to provide others with access to their accounts in the event of their death. Meanwhile, if you have a Google® account, then be sure to set up your Inactive Account Manager. And, if you don’t have a Google® account, perhaps this would be a reason to consider setting one up.
Use a Qualified Personal Residence Trust to Avoid Federal Estate Tax
A qualified personal residence trust (“QPRT”) is a special type of trust that can be used to avoid or minimize Federal Estate Taxes. The QPRT is used to remove the value of your personal residence from your estate, thereby reducing the size of your estate that is subject to Federal Estate Tax.
With the QPRT, you create an irrevocable trust, and convey ownership of your personal residence to the Trust. However you, also, reserve the right to live in the residence for a specified period of time. When the time expires, the residence is transferred to the beneficiaries you have named in the Trust. Under the right circumstances, using the QPRT can result in significant Federal Estate Tax savings for your estate, while ultimately transferring your residence to your heirs.
When coupled with an appropriate long-term lease arrangement that kicks in when the residence transfers to your heirs, you can, even, keep the right to continue living in the residence even after the QPRT ends.
When Does Your Durable Power of Attorney Become Effective?
A Durable Power of Attorney can be drafted to become effective upon signing, or only if you become incapacitated. If drafted to become effective upon signing, your named agent can immediately take charge of your assets. If, on the other-hand, you only want your Agent to be able to take charge of your assets upon your incapacity, then be sure to have your DPOA drafted to only become effective upon your incapacity.
Get Your Estate Plan Arranged Before You Get Remarried
I will often have a client call and tell me that he/she planning to get remarried and will see me afterwards to revise his/her estate plan. My advice to them…see me before you get remarried because your planning options might be very limited once you say “I do”.
The problem is that Michigan law provides a spouse with certain rights of inheritance from a deceased spouse’s estate. In the case where you want your entire estate to go to your children, you do not want your spouse to have any rights to inherit from you. If he/she does inherit anything from you, he/she does not have any obligation to give it to your children.
The good news is that these rights can be waived before you get married. While they can, also, be waived after marriage, it is too late if your new spouse is unwilling to waive them once you are married. Both of you have to agree to waive them. Obviously, if your spouse to be is unwilling to waive them before you get married, then you could decide not to get married.
Men who are about to get married have another matter to consider. When he gets married his spouse acquires a dower right in his Michigan real estate. This means that he cannot transfer his real estate without his spouse’s consent. If he transfers the real estate before he gets married, then his spouse does not have any dower rights to it.
Don’t Forget Your Safe Deposit Box!
Often, the reason clients will have a living trust is to avoid probate. And, we talk about the need be sure that assets are properly “funded” to the living trust, since assets not in the trust might still have to be probated.
If you hold a safe deposit box as an individual, separate from your living trust, what happens when you die? No one will have access to your safe deposit box until a probate estate is opened with the probate court, and a personal representative has been appointed. Thus, you will not have avoided probate.
On the other hand, if you hold the safe deposit box in the name of your trust, your successor trustee can access the box and its contents without probate. And, unlike a joint holder of a safe deposit box, your successor trustee is under a fiduciary duty to follow the terms of your trust in managing and distributing your assets, including those in the safe deposit box.
A Limited Liability Company (LLC) can be a good arrangement for keeping a cottage in the family
Do you have a family cottage that you want to keep in the family? If so, consider the befits of using an LLC. With the LLC you can restrict transfers to family only, (i.e. not to ex-spouses of children, etc.) and provide a process for managing the cottage (i.e. who gets to use it on 4th of July weekend, how will costs of repairs be handled, etc.).(/p>
To learn more, watch our video “Protecting the Family Cottage”
Be Sure to File Your Gift Tax Return…the IRS is Watching
If you give anyone more than $13,000 during the year, then you are required to file a gift tax return with your income tax return. Unfortunately, many do not know about this requirement, choose to ignore it, or do not realize that they have made a gift. Whenever you give someone something that they did not pay for, that is a gift.
Currently, the IRS is actively looking through registered deeds in various states to find deeds where parents have added children to their homes but have not filed a gift tax return. If you are caught, the consequences can be severe, and it will be too late to “fix it”.
If you have made gifts, but not filed gift tax returns, talk to your tax adviser to see what you need to do before the IRS comes calling.
Don’t trust your children to do what they say they will do
Of course, we all want to trust our children. For many, their estate plan is trusting a child to do what they know the parent would want them to do. It might be making a bank account joint with one child who “knows” it is to be split between all of the children. Or a house owned with a child who “agrees” that it is to be sold with proceeds divided between the children. But, what if they don’t? Or, what if they planned to, but died before they were able to?
I am reminded of a money magazine article from a couple of years ago. When asked if it would be OK not to do what they promised the parents they would do, 75% of the adult children said it would be OK not to keep their promise! Are your children part of the 25% who can truly be trusted? Do you want to bet your other children’s inheritance on it?
Finally, if your children do, in fact, do what they agreed to, have you considered the negative tax consequences that they might incur?