Beware the Oft Spoken Line to Seniors: “Transfer Ownership of Your House to Your Kids!”

Should parents transfer their home into their adult children’s names, deeding the house to their kids? This is one of the most common questions that comes up when discussing estate planning with families.

In fact, oftentimes families assume that this preferred and correct handling based on the “advice” you or your adult kids have received from well-meaning friends and family—even the internet. The intention of a transfer is always the same. You and your family want to preserve your family home from a required spend down of your assets should you need extensive medical care in a nursing home or acute care facility.

The fact is, no two families are alike. Don’t sign a deed transferring your house to your kids without taking these important first steps: Have conversations about appropriately protecting your assets with your family and then post haste make an appointment with your estate attorney. Recognizing the potential risks of arbitrarily transferring ownership of your home to your kids will give you a clearer picture of why a willy-nilly transfer is a really bad idea.

Timing is Everything

It may be too late to consider a transfer if a diagnosis of an illness or condition has just been made. Medicaid looks back five years for major financial transactions. If the goal is to reduce your assets so you can qualify for Medicaid, remember that Medicaid will review financial transactions over the last five years. The transfer of a home within this 5-year window constitutes a red flag and may disqualify you from Medicaid nursing home coverage unless there are sufficient other assets to cover the costs during the 5-year period.

Emotional Decision-Making Won’t Do

Having your adult children help you with your financial needs late in life can be challenging. Your emotions do not always help you make the best decisions. A desire to keep the long-time family home in the family or, perhaps less charitably a sense of entitlement on the part of some or all of your children who believe that it should be the family legacy, do not typically lead to sound actions. There are many laws and rules to navigate, and time may not be on your side. Plus, the decision cannot be one-sided. If you are capable of sound decision-making, your wishes combined with the guidance of your estate attorney, financial advisor, or CPA must agree on the best course of action for you and your family.  Allowing your kids to be privy to these conversations and have a voice is also a good strategy for family harmony.

Uncle Sam Comes Calling

Transferring your principal residence to a family member may disqualify you from part or all of the capital gains tax exclusion on the sale of the residence and cause unnecessary income tax liability when the residence is sold in the future. Consider the hefty tax bill for either a parent or their children from a capital gains tax on any gain (e.g., profit) on the house sale if you lose the exclusion and your family decides to sell the house during your lifetime.

Is a Life Estate Deed the Answer?

Individuals often think they achieve the best of all worlds if they establish a transfer of real property through a life estate deed. A life estate deed permits a property owner to have full use and occupancy of their property until their death, at which time your home will be transferred to your children. Because life happens, there are any number of potential pitfalls:

Appropriate Transfer of Home. Get Guidance First.

Indeed, there are situations in which a transfer will work. For example, Medicaid sometimes recognizes a caregiver child exception that allows you to transfer ownership of your house, provided the adult child has lived in your home for at least two years and provided a level of care that prevented you from required nursing home care. That said, the transfer of the home through a life estate deed would cancel the caregiver exception.

A Trust is another—if not the best way—to transfer home ownership from you to your children. When the house is transferred to the Trust, you establish directions for the administration of the Trust and appoint a Trustee who is required to protect your interests.

Still in either of these situations, the counsel of your estate attorney in collaboration with your financial advisor, and CPA are the professionals best equipped to assist you with these specific situations.

At Phelan, Frantz, Ohlig, & Wegbreit, LLC, we are available to answer your questions, inform you of your options, and guide you in both your decision-making and the transfer implementation if all parties determine that a transfer is in your best interests.

Call us at 908- 232-2244 and enjoy the peace of mind of knowing that you are backed by support and knowledge in making informed decisions.

Deaf, Proud, & Determined: Individuals in the Deaf Community Have Specific Estate Planning Needs

American Sign Language (ASL) is the primary language of the Deaf community and many other individuals who are hard of hearing. It is also used by some hearing people.

Among those is Phelan, Frantz, Ohlig & Wegbreit’s Gretchan Ohlig. Gretchan, a Partner at the firm, is the granddaughter of Deaf adults and her beloved grandparents were a huge presence in the years she was growing up.

“My mom’s parents were born deaf, and they had 3 hearing daughters,” says Gretchan. “ASL was my mom’s first language, and I grew up becoming a native user.”

Deaf, not Disabled

The Deaf Community is small and proud and does not perceive itself as “disabled.” Using the word disabled suggests the idea of “less than” and implies that the Deaf culture is lacking something. Removing that label eliminates any stigma that may be attached to it.

“In Deaf culture, Deafness is embraced. It is not considered an impairment,” says Gretchan. That sentiment echoes her philosophy. For people in the Deaf community, being Deaf is part of who they are. “They believe that there is nothing to be fixed,” Gretchan says.

Despite this pride and because of it, it is often necessary for hearing professionals who are fluent in ASL to serve members of the Deaf community by helping them fulfill their wishes in certain areas of life. Estate Planning is one of those areas.

“That is why it is such a privilege for me to help members of the Deaf community who turn to our firm for estate planning services,” Gretchan says.

Unique Legacy Requirements

She explains that within the Deaf community there is often fluidity in family connections. “Family lines are often blurred, and non-blood relatives are sometimes considered family.”

It is often important that an individual’s property stays within the community. That is why precise communication between Deaf individuals and their estate attorneys is imperative so that an estate plan that completely fulfills their needs is put in place.

“There can be no gray areas left to the attorney’s interpretation,” says Gretchan.

That help includes explaining complicated legal ideas to them in their language so they will feel confident in the plan we develop with and for them.

Understanding the perspective of Deaf adults is often difficult for hearing individuals because so much of their communication with one another depends upon their ability to hear. Still, some advocates speak about Deaf gain as a communication advantage afforded to those who must use means other than verbal language. The belief behind Deaf gain is that Deaf people have more meaningful and intentional connection because they cannot hear.

It is a wonderful way of looking at the world—one which Gretchan understands and respects because of the deep relationships she had with her grandparents.

With Gratitude to Pay It Forward

“They did so much for me when I was growing up,” she says. “Today I have an opportunity to give back and pay it forward through my work.”

That sense of service to our clients is what inspires our work at Phelan, Frantz, Ohlig & Wegbreit, LLC, and we are proud to be able to effectively assist individuals within the Deaf community who come to us for estate planning services.

Call us at 908-232- 2244 and experience the peace of mind of knowing we can help you create an estate plan customized to your specific wishes and unique needs.

When There’s More Than 1 Sibling, What Happens to the Inherited Family Home?

My estate shall be divided equally among my 3 children. That’s probably the most common final directive in a last Will and Testament. But what happens when most, if not all, of an estate’s assets are real property. Think: the family home.  The most common property siblings jointly inherit is a house. How do you divide that very tangible asset among 3 people?

In a best-case scenario, the siblings would agree unanimously on a fair and equitable settlement: Sell the home and split the proceeds equally. Distribute other assets so one heir retains the property or negotiates buyouts for those wanting cash.

Flaws of Nature

But human nature isn’t always so rational…or even kind…especially when there’s a decent amount of money at stake. What happens when siblings are counting on an inheritance, or their financial needs are different? What if one sibling has devoted her life to caring for their parents? What happens if there’s already acrimony among the siblings in the first place?

Unfortunately, as is often the case, specific instructions regarding the disposal of the property are not provided in the decedent’s estate planning documents. Consider these situations which pour fuel on the fire: One sibling has lived in the home taking care of the parent and wants to stay but can’t qualify for a mortgage to buy the others out. Or the caregiver may have a financial windfall from the deceased outside of the will—perhaps in jointly held property, bank certificates, or as the life insurance beneficiary. This may seem fair, and probably is, but that added benefit bestowed upon the caregiver adult child causes dissension among siblings, who then resent having to give the caregiving sibling an equal portion of the estate. And sometimes a sibling with greater wealth will have an unfair advantage to acquire the home.

Those Essential Family Conversations

There’s no better example of the need for important family conversations when parents are still healthy and fully in command of their cognitive capabilities—no better example for the requirement for estate plans with Wills or trusts in which everything is stipulated in black and white.

Even more important is this admonition: “Parents should never divide an indivisible asset in hopes that it will bring their heirs together,” says Lee Hausner, a Los Angeles-based psychologist and author of Children of Paradise: Successful Parenting for Prosperous Families, an instructional book about handling family assets. She’s seen contentious situations—even fights between siblings that turn physical.

Ideally, in these situations, the siblings must amiably turn to a Plan B. Here are the most common options for splitting an inherited home with siblings when the estate planning documents do not provide for this contingency:

Sometimes There’s No Sibling Resolution

Still, sometimes none or some of the siblings are not ready to compromise. The real nail in the coffin is when one of the siblings thinks they’re getting the short end of the stick—or their own spouse who is not a bloodline family member starts sharing poisonous ideas—and this sibling begins to make waves.

If all else fails and an agreement cannot be reached, the siblings may have to involve the court in order to force the sale of the property and terminate their co-ownership. In this case, heirs who want to sell the home file suit to force its sale against the wishes of those who want to keep it. An impasse like this is called a partition action and can be devastating to a family.

Some Prudent Counsel

There’s no denying the fact that estate planning in which parents and adult children speak openly about their plans, finances, and other important issues that could become factors is essential. Rules of thumb surrounding these talks include:

At Phelan, Frantz, Ohlig & Wegbreit, we can help you facilitate these important conversations and provide you with the thoughtful guidance on sensitive issues. This will help your heirs avoid acrimonious situations when you are gone.

Call us at 908.232.2344 to get your estate planning underway or to review it. Planning today will ensure a brighter future for your loved ones tomorrow.

 

 

Is a Trust for You? It Depends on Your Specific Need.

If you’re looking to avoid probate, limit possible estate taxes, or assume greater control over how your estate is distributed after you pass, a trust may be for you. But making an appointment with your estate attorney and saying you want to establish a trust is like going into a bakery and saying you want to purchase a cake. The baker is likely to ask a number of questions: What’s the occasion? How many people are we feeding? Which flavors would you like?

Similarly, an estate planning attorney should ask a series of questions when clients request a trust because a trust is a uniquely drafted document that’s created to reflect the circumstances of your particular situation. As your legal advisors our first question must be “Why do you think you need one?” This allows us to determine whether a trust is an appropriate planning tool.

One of your biggest challenges is knowing how each type of trust differs and the goals a particular trust can help you accomplish. Even more, do you even need a trust in the first place?

To appropriately determine need, it is helpful to understand the 3 primary classes of trusts: revocable, irrevocable, or testamentary.

A Revocable Trust

A revocable trust, also known as a living trust, is beneficial because provisions of the trust may be changed during the creator’s lifetime. Assets may be placed in trust and removed, the creator (also called the grantor) is entitled to all the benefits and income of the assets that are owned by the trust, and, if they desire, they are empowered to terminate the trust as well.

Only after death do the terms of the trust become unchangeable and the property held in the trust transfers to your beneficiaries. At that time, your heirs benefit because a revocable trust allows them to avoid probate, the lengthy, often expensive, legal process that takes place when it’s time to distribute your estate.

A revocable trust can also be effective if you own property in multiple states and would therefore be subject to probate in several states. However, if those two properties are owned inside of a revocable trust, you’ll likely be able to avoid probate entirely, thus making the process of administering your estate quicker and less costly.

A revocable trust also should designate a successor trustee who is empowered to manage the assets held in the trust should you become incapacitated in any way. This is particularly useful as individuals age and require the assistance of adult children to help manage their finances and pay bills. Because the adult child may be named as the successor trustee of the trust, they are automatically empowered to take over if necessary, without the need for access through a power of attorney or guardian appointment.

Finally, a revocable trust offers families a degree of privacy in their estate planning. Because a Will becomes a publicly available document once probated, many individuals may choose to have the dispositive provisions of their estate plan contained within a trust, which is only available to the named beneficiaries after someone dies.

A revocable trust can be funded or unfunded. Funded means the assets are typically placed into the trust when you establish it. An unfunded trust, by contrast, is actually nothing more than the trust document itself. That said, it is not void but rather inoperative until it is funded.

Sometimes, for whatever reason, the originators of the trust neglect to fund it. This is essentially sub-optimal handling as indefinitely not funding or not having a plan to fund a trust essentially negates what the trust is intended to accomplish. In other circumstances, however, a trust can remain unfunded until you die at which time your Will provides that any assets in the estate be placed into the trust.

An Irrevocable Trust

In contrast to a revocable trust, assets in an irrevocable trust can’t be removed or amended after they’ve been placed in the trust. Essentially this means that you relinquish control of the assets you place in an irrevocable trust, and they are removed from your estate, protecting you from possible estate taxes. Because the IRS and some states tax estates that are above a certain value, you can use the trust to reduce the value of your estate.

By placing assets into the trust and naming your heirs as beneficiaries, you can try to reduce your estate to a level below the tax exemption amount. Keep in mind that this amount fluctuates each year. In 2021, the exemption is $11.7 for an individual or $23.4 for a married couple. For people who pass away in 2022, the exemption amount will be $12.06 million. For a married couple, that comes to a combined exemption of $24.12 million.

Many people also choose to create irrevocable trusts and gift assets into them during their lifetime to preserve those assets from being depleted by long term health care costs that may arise as they age.  There are a number of complex issues involved in gifting assets, however, which should be thoroughly evaluated with an experienced estate planning attorney.

A Testamentary Trust

A testamentary trust is established after you pass away and is created through a Will, in which case the terms of the trust are spelled out in the Will. Testamentary trusts are often used as a tool to help you create a trust for minor children. In addition, you can leave assets in trust for your adult children if you want to ensure that their inheritance ultimately passes to your grandchildren as opposed to your son or daughter’s spouse. A testamentary trust may in some cases shield your assets from your beneficiaries’ creditors or a divorce proceeding as well.

From the Grave

Despite the different types of trusts, 2 universal themes are huge motivators for establishing a trust: flexibility and control. You will have the flexibility to avoid probate and minimize estate taxes. Plus, you will have the control to ensure that your assets become a true financial legacy for your family. The terms you set up at the establishment of the trust or that you designate to go into effect upon your death will enable you to control—even from the grave—and dictate that your grandchildren and future generations of your family will benefit from the wealth you have accumulated during your lifetime.

That after all is the peace of mind that you derive from establishing and reassessing your estate plan early and periodically during your lifetime. At Phelan, Frantz, Ohlig & Wegbreit, we become your partners in providing the thoughtful guidance that will help you safeguard your legacy.

Call us at 908.232.2344 to develop a plan and determine the best wealth transfer vehicles personalized to your unique needs so that you can best provide for and protect your loved ones.

 

 

How Much Can You Control Your Kids’ Lives from the Grave?

You want the best for your children, and you want them to inherit your assets when you die. But what happens when you don’t like your son- or-daughter-in-law? How can you prevent your kids’ inheritance money from being commingled with the couple’s marital assets? Can you still exert control from the grave?  Should you?

In short, you can, by establishing a trust that prevents assets from passing directly to your child, which prevents the commingling of assets. And in the event one of your kids gets divorced, this trust may preserve these assets from being considered available for alimony obligations. Such a trust is designed to keep money in the family, protecting the inheritance of your children and their descendants. Specifically, assets in the trust can only be used for your children’s or grandchildren’s health, education, maintenance, or support.

Evaluate Your Motives

You may actually be surprised at the number of people who sit in our conference room and want to block their in-laws from touching the family inheritance. The first thing we do is encourage them to evaluate their motives. Is your distrust of a son-or-daughter-in-law based on your knowledge that your son or daughter’s spouse is a spendthrift, gambles, has difficulty holding a job, or treats your child and their children abusively, or similar scenarios? In this case, a trust like this can work to safeguard your assets for your children.

But if your motives are based solely on your dislike, or a fear that your kids’ marriages will end in divorce like 50 percent of all marriages in the U.S. do, you may want to think twice. The logistics governing the administration of the trust can get thorny. For starters, best practice encourages appointing an independent Trustee to administer this trust. The result is that your children’s withdrawal rights may also be limited.

In the Name of Love

If there’s income your kids are entitled to get every year or a draw on principal, the trust requires that they must ask the Trustee’s permission for the money to be distributed. Bottom line, while you’ve created a buffer that prevents your in-law from getting to the money, you’re also making it difficult for your son or daughter to access their inheritance. Even though you’re doing this in the name of love, your kids have to penetrate this barrier you created by going to the Trustee to get monies.

And aside from the inconvenience, what does that mean for your kids? How are they going to feel about that? How will they ultimately feel about you? You may not like your son or daughter in law, but your son or daughter may adore them. And despite what you think, they might have a very good marriage. Your feelings could actually throw a monkey wrench or certainly elements of mistrust into a good marriage. Additionally, even if your kids have to ask permission to get the money, distributions made by the Trustee may well be commingled anyway. So, you can never fully control the way your inheritance money is used. You can only make it harder.

Discuss Inheritance Decisions With Your Attorney

At the end of the day, you may not be the best one to decide whether or not inheritance money should be commingled with your kids’ marital moneys. Every situation is different. When you work with one of our attorneys at Phelan, Frantz, Ohlig, and Wegbreit, LLC, you can rest assured we will make sure you evaluate all the ramifications of your decision-making before you finalize your estate plan. We will also make sure you review your plan every 5 years or so, to make sure that it’s consistent with your perspective and the inevitable changes in your family situation.

Calls us at 908-232-2244 to ensure that the decisions you make today will work well for your loved ones tomorrow.

Finding Out What Family Really Means… Adult Adoption May Just Be the Answer

We thought it was time to write a feel-good story about estate planning which admittedly can be a mixed bag activity. On the one hand, creating a plan gives you comfort knowing that your loved ones will be taken care of when you’re gone. On the flip side, however, it requires that you contemplate your demise, which can make even the most matter of fact of us squirm.

An upcoming adoption hearing brought to mind some of the most heartwarming cases we’ve handled. These are not stories of orphans or babies being given a new home and a family by loving adults.  Rather, these are adult adoptions. According to Chuck Johnson, president and CEO of the National Council for Adoption, adult adoption seems to be on the rise in the United States. Admittedly, these most unique adoptions are those that legally unite adults who may have never shared a home or appear as babies together with their parents in the family photo album. These are later in life relationships that enable adoptees to unite with new parents and formalize a chosen familial relationship.

Why Would An Adult Want to Be Adopted?

Why would any adult want to be adopted? According to Johnson, the most common situations are stepparent and foster parent adoptions of adult children who have lost or are estranged from their biological parents. These new parents typically have played such meaningful roles in their adult children’s lives. Now the “kids” want to make the relationship legal so that together they can participate in milestone events like being walked down the aisle to the altar, sharing firsthand in the achievement of receiving an advanced degree, or being part of the family gathering welcoming a precious new grandchild into the world.

Therapists who specialize in adoption say that emotion seems to be at the heart of these new parent-child relationships. Adoption can provide stability, a feeling of permanence and belonging, and the gratitude of at last or again being able to experience unconditional parental love.

Many states allow adult adoptions, that is adoptions of people over the age of 18. Although state-to-state the requirements vary, generally the laws surrounding adult adoptions are much less restrictive than those governing the adoption of minor children. In New Jersey, for example, the law covering adult adoption says that the court shall allow a person or couple of full age to adopt an adult person if the court is satisfied that the adopting parent or parents are of “good moral character and of reputable standing in the community.” Also in New Jersey, the adopting parent or parents must be at least ten years older than the person being adopted. The law also states that the adoption must be to the “advantage and benefit” of the person being adopted.

Advantage and Benefit

It’s that last reference about advantage and benefit that may speak to the reason why adult adoptions in New Jersey may be even more prevalent than they are in other states: New Jersey is one of only a handful of states that have an inheritance tax, which imposes a tax on assets that pass to anyone other than a spouse or a child. Believe it or not, a story related to the New Jersey inheritance tax is one of our firm’s most touching adoption cases.

At the center of the story are an elderly couple who were both deaf. Our Partner Gretchan Ohlig handled the couple’s estate planning because she can communicate in American Sign Language and could effectively communicate with them. The husband and wife ultimately sought to adopt their neighbor, a woman with whom they had developed an incredibly close relationship over 25 years…so close that the woman was like a daughter to them and her daughter like a granddaughter.

They celebrated all holidays together and, when it came to their estate planning, they asked if she would be their Power of Attorney and Executor. She agreed and subsequently the couple decided to leave the neighbor all of their assets when they passed. We drafted the estate planning documents accordingly.

Adult Adoption. Why Not?

The husband and wife had no children or grandchildren and were in their late 80’s and 90’s respectively when they transitioned to an assisted living-skilled nursing home in the area. A couple of months before the husband passed away, we were talking about their estate plan. They were worried that when they were both gone, and everything went to the neighbor, she would have to pay 15%-16% to the State of New Jersey because she wasn’t related to them.

If we consider her to be our daughter, can we adopt her? they asked.

Yes, and why not! was Gretchan’s answer. If the biological parents are gone, which they were, and in the case of a married adult the spouse consents, which the spouse did, then the adoption can continue.

A Humane Reaction to a Tough Law

When we went to court, we were very upfront with the judge that the primary purpose was to avoid inheritance tax obligations. Still, we emphasized that this was especially important because the couple and the woman shared a parent-child relationship. The judge not only ruled in our favor but said she was “happy” to do it.

On an equally personal level, this long-ago adoption was the first adult adoption for Gretchan. Since then, Gretchan has overseen other adult adoptions that share a similar story.

“It was so obvious that my clients cared so much about this person and were so happy and relieved that that they could solidify this relationship,” says Gretchan.

At Phelan, Frantz, Ohlig & Wegbreit, we always listen intently to your unique situation and then work diligently to develop an estate plan that fulfills your wishes and your needs.

Call us at 908-232-2244 and we will work with you to take care of your heirs in ways that will make your heart sing.

BUYER BEWARE: DO-IT-YOURSELF ESTATE PLANNING IS RISKY

LegalZoom is a do-it-yourself (DIY) online platform that provides a cheaper alternative to legal tasks than heading to a law firm. Lured by saving money and the thought that forms governing any legal process are all the same, many clients turn to these automated legal services and relinquish all contact with an attorney.

Seems easy enough, right? But if you’re a layperson filling out these forms, it’s also equally easy to miss a step. That omission could interfere with the proper legal process that’s required at the time a form is called into play. What’s more, in the end, you may have to pony up more money than you originally saved when you were preparing the document.

It’s Personal

When you work with one of our Phelan, Frantz, Ohlig, & Wegbreit attorneys, it’s never just about the service or form you need. We create your plan based upon your unique requirements. Estate planning issues are never cookie cutter. For example, the Power of Attorney for a collegebound youngster serves a far different purpose than the language of a 70-year-old who requires a POA.

In the case of the young adult about to go off to college, the primary concern is that their parents have a HIPAA release. This is the ability to get and share medical information with the health care professionals who are caring for their youngster. Without the proper wording of a POA, protections from the Family Educational Rights and Privacy Act (FERPA) could prevent these important conversations from taking place.

Similarly, a younger client who may have digital assets that run the gamut from social media accounts to financial Bitcoin holdings require specific language put into their POA. That language isn’t going to exist on LegalZoom, but it’s language we’ve crafted because we’ve served clients with situations like this.

Beyond the failure to fully address unique situations, downloaded POA forms often neglect to name a successor to serve as POA. They’ll name one person. And if that appointee is not available to act, the form becomes completely useless. When you retain the services of an estate attorney, you’re not just retaining an attorney to create a document and have you sign it. You’re retaining an estate attorney who has experience in these matters and is able to listen to your needs and story and craft a document most appropriate for you.

Variances State to State

Requirements for documents also differ state-to-state, even in bordering states. In New York, for example, the agent must sign the document. In New Jersey, that is not a requirement. New York requires 2 witnesses; New Jersey only 1. Downloading something from LegalZoom does not necessarily take these variances into account. This issue can become even more complicated if you have more than 1 home in different states.

To make matters even more difficult, laws are not static. They constantly change because of new laws and new statutes. To best advise their clients, lawyers keep up with these changes.

It’s Not Better Late Than Never

It’s not uncommon for clients to seek out an attorney to unravel situations that have arisen when an online document is put to the test…and flunks. One family whose dad was sick was rightly focused on getting their dad the palliative care he needed. Understandably, the entire family was emotionally spent both from worry and from developing a care plan. One of the adult children headed to LegalZoom and downloaded a basic Will. The Will dictated that everything would go to the decedent’s wife. If she died first, everything would go to the couple’s four children. The document also appointed the oldest child as Executor.

As it turned out, the dad lived a lot longer than anybody anticipated. The mom actually ended up dying beforehand which meant that everything was passed on to the four children as the LegalZoom Will dictated. Problem was, there were a couple of important things missing:

  1. The family didn’t have the important “What if” conversation about what would happen if one of the children predeceased the father. One of them—the oldest one, no less—did. This brought up the further question about who would be the new Executor and whether the remaining siblings wanted any assets to go to the deceased sibling’s children. There was considerable disagreement among the siblings.
  2. While the Will did appoint the oldest child to be the Executor, it didn’t include a provision to appoint a secondary Executor if the first was not available to serve. It also did not waive the surety bond requirement. In the case of estate administration, the surety bond protects the beneficiaries and creditors of the estate against improper distribution of assets by the Executor. The bond guarantees that the Executor will distribute the estate’s assets according to the Will or a court judgment. In this particular case, the court required the family to get a bond. The new Executor had creditor issues, so the premium for the surety bond ended up being $6000 a year.

Had this family sought legal counsel when they prepared a Will, they would have spent far less money and encountered less, if any, problem resolving the above issues. If they’d come to our firm, we would have had the conversation with them about the possibility of a child predeceasing the father. We would also have included language waiving the bond requirement. We would waive the bond because our clients are typically appointing their children as executors and these are appointees they trust. They’re not concerned that any nefarious action will take place.

If you do decide to use LegalZoom, know the risks you’re taking. Don’t be lulled into a false sense of security. And remember. Your mistakes will not come to light until you become incapacitated or die. The people who are left to deal with these mistakes are your loved ones, the individuals you set out to protect in the first place.

At Phelan, Frantz, Ohlig, & Wegbreit, LLC, you can be assured we will cover all the bases in helping you develop your estate plan. We use the knowledge we’ve acquired in our years of schooling and practice to counsel you on the best ways to protect and take care of your family.

Call us at 908-232-2244 to make sure you craft an estate plan that will fully preserve and distribute your assets in accordance with your wishes and in the manner your loved ones deserve.

 

What to Do With Your Cherished Home When You Die: It’s Not as Easy as You Think

The reality is that leaving your house to your kids when you die is not always what your heirs want you to do with it. Trust us. All you have to do is ask your kids.

If you’re like most clients, you come to our firm to talk estate planning, and your focus is typically your Will or Trust, your retirement plan beneficiaries, and the tax strategies that will allow your kids to get the most out of their inheritance. All too often a discussion about what will happen to your house—even your vacation house at the Jersey shore—gets left by the wayside. There’s a good chance your emotions run deep and that you have an intense attachment to your family home. Your assumption, therefore, is that your kids have the same connection to the house that you do.

Please think again. The two operative words here are emotions and assumption. Your home surely holds wonderful, rich memories. It is likely also your single largest holding and in today’s housing market, that may very well constitute a good amount of money and a substantial investment. Word to the wise. Emotion doesn’t work with decisions that are innately investments.

As for your assumptions…you’re first assumption is that everyone gets along. But if your kids argue now about who ate the frosted flakes, how are they going to get along when the stakes are higher? Suddenly they’ll be faced with decisions about upkeep and maintenance or renting the shore house. Decisions like that can fracture families.

As importantly, your assumptions don’t take into account the natural progression of family events. You’ve cut the apron strings and enabled your kids to chart their own course and flourish. A house may be an encumbrance that undercuts your children’s vision of their future. Keeping the family home, then, may end up being a curse rather than a blessing.

Examine your feelings

There’s no question that the emotional attachment you have to your house is understandable. You’ve created memories there. Your vision is to make it part of your legacy. You want your kids to have the opportunity to live there…to have their kids go to their school. Or, if it’s your shore house, you want them to enjoy memorable summer days together and then pass the house on to your grands, so that it will stay in the family forever.

As warming as that idea is, it has the potential of becoming an at all costs proposition: It doesn’t really account for life changes that your children or grandchildren may have one day. What if work takes them all over the country even around the globe? Plus, as they create their own families, the circle widens. It can even and likely will include in-laws. Before you know it, you have 15 people who can’t get along managing a house together. There are added risks such as divorce or, even worse, death. In in lieu of family harmony you may end up with in-fighting and discord.

It’s important to understand that emotion and assumption can take you down a rocky road when you’re making decisions today that will impact your children long-term. Even though it may be difficult, try to step out of the emotion and think more pragmatically. Discuss the idea of leaving a house to your kids with your estate planning attorney. She can illustrate some worst-case scenarios that, guaranteed, are far different than the vision of the ongoing family unity you see in your mind’s eye. You may not want to hear what your attorney has to say, but the dose of reality can help you give up emotion for more pragmatic thinking.

Have those important family conversations

Estate planning isn’t, after all, one sided. This is especially true when leaving a house to your kids and all the responsibility that comes with it. Just as you discuss financial matters such as who in the family will be your Power of Attorney or Healthcare Proxy, have a frank discussion about whether they can envision themselves living or vacationing in that house. Make them understand that you want and need them to be forthright. Steel yourself against potential disappointment and be willing to let go of the motivation to have them inherit the house. Without some outside-the-box thinking on your part, it could end up as an inheritance at any and all costs. Their honesty now about the vision they have for their lives going forward may initially sting, but it’s a good preventive for problems in the future.

Create happiness. Prevent messes

Sometimes we are unable to convince clients that leaving a house to their kids may not be prudent. In these instances, creating a Will or Trust that provides a degree of flexibility for a potential sale or buyout is a viable second option. On the one hand, the parent’s hopes and intentions are honored. On the other, their kids, grandkids, even nieces or nephews who may be beneficiaries can take comfort in knowing they have an out—have the ability to make decisions that will work for them—if sharing the family home or even managing it alone does not come together smoothly.

Flexible documents include language that delineates how to get somebody out of the property if the situation doesn’t work and how to unwind the inheritance by selling the property. The language of these documents:

A dollar versus fair market value

So, is the buyout for a dollar or is it to real market value? That’s a question that can and does come up. The answer to that question is unequivocally always fair market value. Anything different or less, and it’s a gift that could subsequently interfere with their estate planning and how they distribute their assets to their loved ones. It comes down to the fact is that if they have an ownership interest in the house anything drastically short of fair market value is gifting. That’s a massive issue, especially right now with the proposals in Congress that could significantly bring about estate tax reform.

One last salve

There are plenty of situations in which the moment the Will is read, one of the kids says they clearly have no interest in the property. In this situation, as long as all the beneficiaries agree, the law will allow for there to be a distribution in lieu of the house. This means that the sibling who doesn’t want the property gets other assets from the estate and the other two siblings get the house. In other words, a clause can be written into the document that gives flexibility to the final distribution. And again, that distribution must be made in alignment with fair market value of the property at the time of distribution.

Rational decisions are key at any juncture 

The image of your children having a “What was my dad thinking?!” reaction to your Will is far from pleasant. Being well-thought out from the get-go is one way to avoid it.

Discuss these matters with your family and your estate attorney as you develop your estate plan. Make certain reason trumps pure emotion. Work with your estate attorney to include flexible language. These actions are among the ways to steer clear of the mess of family discord.

At Phelan, Frantz, Ohlig, & Wegbreit, LLC, we know how much your loved ones matter to you. They matter to us, too.

Call us at 908-232-2244 and cover all the bases to ensure your legacy will bond your family, not divide it.

If Capital Gains & Proposed Tax Law Change Could Boost Your Tax Bill a Charitable Trust Could Help

While it’s great to see significant growth in your stock portfolio and the appreciation of your investments is gratifying, the capital gains can cause you problems at tax time. Couple that with proposed estate tax changes coming out of the Biden administration and your heirs could be handed a hefty bill when they inherit your estate.

Proposed Tax Law Changes Amounts You Can Pass Tax Free to Heirs

At Phelan, Frantz, Ohlig & Wegbreit, LLC, we can provide you with tools to reduce your estate’s tax burden and gifting strategies that can help minimize your tax bill. The Biden administration, however, has proposed estate tax reform which includes removal of the stepped-up basis. These proposed reforms could potentially increase the tax burden to your estate. That’s why in the current political climate it’s more important than ever to put your head together with your financial advisor, your accountant, and your estate attorney to do some strategic estate planning. Creating an estate plan is your opportunity to provide for your loved ones. The thoughtful time you spend will not only benefit your heirs but also benefit you during your lifetime especially when it comes to estate taxes.

Reduce Your Taxable Estate With an Income Stream to Someone You Love

The good news is that a charitable remainder trust (CRT) may be an option to circumvent changes that may be ahead to significantly reduce the amount of money an individual can gift tax-free during their lifetime and at death.  In fact, the primary benefit of a CRT, allows you to reduce your taxable estate while providing an income stream to someone you love.

A CRT is a trust that is funded by an individual during their life. In addition to donating funds to a charitable organization, the CRT makes distribution to a noncharitable beneficiary, which can include the donor or another beneficiary, such as a spouse or child, for a prescribed number of years. A CRT can also offer an opportunity to move assets with a low basis (and corresponding high capital gain).

This is a particularly palatable option if you are charitably inclined and understand that your estate plan serves as a testament to who you are, the values you hold, and the legacy you want. Plus, it addresses the federal estate tax exclusion change currently on the table by limiting or eliminating the amount that will be subject to estate tax upon your death. As attractive, it also can eliminate capital gains on appreciated property, reducing income tax liability during the years of your life when you likely need it most.

Income Stream a Real Plus

Here’s how it works. The CRT makes a distribution to a noncharitable beneficiary for a fixed number of years or for the rest of their life. This means that you can give yourself or another individual an income stream of either a fixed dollar amount per year or a fixed percentage based on the value of the assets transferred to the trust. At the conclusion of the designated term, the assets that remain in the trust will be paid to the charity you have selected. In the year you create the trust and initiate the asset transfer and for the predetermined period thereafter, you will receive a charitable deduction on your income tax return. The deduction will be based on the value of the transfer, the number of years of the trust, the payout rate, and the number of beneficiaries.

Although there has been no proposal put forth to eliminate the tax benefits of utilizing a properly structured CRT, Biden’s proposed plan would impose a 28 percent limit on charitable deductions for taxpayers making over $400,0000 per year in income.  This compares to the current environment in which a high-income earner can make a $100,000 charitable gift and write off $37,000 (the highest marginal tax rate). But under Biden’s plan, the same charitable gift would be limited to a $28,000 income tax write-off, with 28 percent being the proposed limit for deductions for charitable giving for those in a higher income tax bracket. Despite this reduction in the write-off limit, however, there is still substantial savings on your income tax. Your accountant and attorney will work together to maximize the amount of charitable deduction you will be able to take on your income tax return.

Heart Centered and Money Wise

At the end of the day, by making this transfer, you have simultaneously maximized the philanthropic benefit of a charitable gift while avoiding the payment of capital gains tax on your highly appreciated assets. You have also subsequently reduced the value of your estate for your heirs which is an important consideration in light of the potential tax changes on the horizon. As importantly, you have not given up the benefit you received from the underlying asset, as you have converted it into an income stream for a period of time.

There is a long road between proposed revisions to the tax law and their enactment. But even in the current environment, capital gains on low basis assets may still be an issue that can cause you significant taxation. At Phelan, Frantz, Ohlig & Wegbreit, LLC, we have always been available to guide you on approaches that can enable you to make investment decisions that will minimize taxation for you during your lifetime as well as for your loved ones when they inherit your estate. In light of the current political environment, there is no better time to work with your accountant, your financial advisor, and your estate attorney to review your estate plan as well as gifting strategies.

Call us at (908) 232-2244 to understand the benefits of charitable giving. Learn how it can be incorporated into a well-designed estate plan that will benefit not only your heirs upon your death but also put your assets to work for you during your lifetime.

 

 

 

 

 

Pride Month: A Great Time for Same-Sex Couples to Seal Their Wishes With Estate Planning

Proper estate planning is daunting but necessary for anyone who wants to ensure that their wishes for end-of-life care and the disposition of their assets are carried out. It could be even more critical for LGBTQIA+ families. While laws and attitudes continue to evolve, limitations still exist in some areas. Estate planning is one of them. With June being LGBTQIA+ Pride Month, it’s a perfect time for you to turn your attention to estate planning and prevent the creation of important estate planning documents from slipping through the cracks.

Unless you are married or have an estate plan, your assets and any decision-making regarding end-of- life care will likely revert to your family of origin. Love them or not, that is almost certainly not what you want to happen. If you have no estate plan, every state provides default rules about who might be responsible for your care if you are incapacitated or to determine who would receive your assets when you die.

Marriage Key to Health Care Decision-Making

Many things have changed since the 2015 Obergefell v. Hodges Supreme Court decision that legalized same-sex marriage. Even so, many same-sex couples choose not to marry or to legally formalize their relationships. It also is unlikely these couples have taken the time to create a Will, a Durable Financial Power of Attorney, and an Advanced Health Care Directive or Health Care Proxy. This can have negative consequences, both in decision-making for end-of-life care and asset transfer and inheritance tax issues. These omissions can cause a lot of problems for a surviving partner.

An Advanced Health Care Directive is an important component to every individual’s estate planning. It enables you to appoint an individual of your choosing to make important health care decisions if you are ill or incapacitated and cannot advocate for yourself. If a married couple does not have a Health Care Proxy, your physician will likely defer to your spouse to make decisions about your care. That is not always the case with unmarried same-sex couples. While this is not solely a same-sex issue, it tends to come up more with same-sex partners.

Marriage Influences Survivor Asset Transfer

There’s also a secondary monetary issue. You can title a house deed for joint tenancy with rights of survivorship, and you can name anyone to be your beneficiary on a life insurance policy and in both cases facilitate a seamless transition. But that is not the case with other holdings. Laws vary from state-to-state, and New Jersey, for example, has an inheritance tax. While the inheritance tax does not apply to assets that go to a spouse, it does apply to anyone who’s not your spouse. You could be with someone for 50 years and never be legally married or set up a civil union. This means that everything that your partner would inherit from you will be taxed as much as 16 percent. That can end up being a lot of money.

If you’re not married or have legally formalized your relationship as a civil union, there’s no getting around the inheritance tax. Imagine what happens when your surviving partner takes monies out of your 401(k). Getting taxed on your 401(k) withdrawals is standard. But if you and your partner are not married, an extra 15 percent or 16 percent in tax will be tacked onto the withdrawal. Even having a Will won’t circumvent the issue.

The good news is that same-sex couples who marry can enjoy the unlimited marital deduction for federal estate and gift taxes – a privilege many heterosexual married couples have enjoyed for decades. Gay and lesbian spouses who consummate their relationship through marriage can now generally leave an unlimited amount of assets to their surviving spouse without triggering a federal estate tax, providing both are U.S. citizens. A same-sex spouse can also now rollover assets from a deceased spouse’s retirement accounts to their account without a mandatory minimum distribution or lump-sum distribution. By revisiting their financial and estate plan, married same-sex couples can take take advantage of the marital deduction, rollover assets, and free up considerable liquidity.

Some Other Issues for Same-Sex Couples

Same-sex couples also have unique concerns when it comes to children, especially when only one partner is the biological parent – a common occurrence in same-sex marriages. Typically, when parents die, their assets are passed on to their children. If this is an estate planning goal for same-sex couples, it’s important to reach out to a family law attorney to discuss adoption.

One last item that occasionally arises in families. There’s sometimes a stigma attached to same-sex marriages that can also create problems even when Wills and other estate planning documents have been prepared. At the time of death, people start haggling over who’s in charge or who has rights – the same kind of thing that often happens with second marriages. Because such scenarios may find more fertile ground with same-sex or second marriages, it’s wise to have those important conversations about your end-of-life issues before and while you are preparing and/or reviewing your estate plan. Firmly stating your wishes during the planning stage, not when the family is in crisis mode, is the optimal time to raise your family’s awareness and encourage their understanding.

Get Your Ducks in a Row With Essential Estate Documents

Having a comprehensive plan in place can help you circumvent the complexities of estate planning. Review this list to become familiar with the estate planning documents you need:

At Phelan, Frantz, Ohlig & Wegbreit, LLC, we are always prepared to provide you with the estate planning guidance that is most appropriate for your specific situation. We are confident in our knowledge and ability to successfully navigate through any of the complexities involved.

Call us at (908) 232-2244 and be proactive in creating an estate plan that has your family’s best interests at heart.

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