Oconee Estate Planning Blog

Does a Prenup Make Sense?

Take the time to think about your financial plans before you get married to help set you on the right path. chase.com’s recent article entitled “How to prepare your finances for marriage” explains that a prenuptial agreement sets out each prospective spouse’s rights and responsibilities, if one spouse dies or the couple gets divorced.

This is a guide for dividing and distributing assets. A prenuptial agreement can also be a valuable tool for planning since it will take priority over presumptions about what’s deemed community property, separate property, and marital property. A prenup can also prevent one spouse from being responsible for premarital debts of the other in the event of death or divorce.

A prenup is used frequently when one spouse or one spouse’s family is significantly wealthier than the other; or when one family owns a business and wants to make sure only family members can own and manage it.

Negotiate a prenuptial agreement early. If you know that you want to have your fiancé to sign a prenuptial agreement, do it ASAP because some courts have found a prenup invalid because it was entered into under duress and signed and negotiated right before the wedding.

Examine employee benefits. Make certain that you understand know how marriage will impact your employee benefits, especially if you and your spouse are working. See what would be less expensive, and if one offers significantly better coverage. Marriage almost always is a life event that permits you to modify your benefits elections outside of annual open enrollment.

Review beneficiary designations and estate planning documents. It’s common for young people prior to marriage to name their parents or siblings as beneficiary of accounts, like IRAs, 401(k)s, life insurance and transfer on death (TOD) and payable on death (POD) accounts. Review these designations and accounts and, if needed, change your beneficiary to your new spouse after the wedding. You should also be sure you to update your estate planning documents, including wills, health care designations, powers of attorneys and others, to reflect your new situation.

Communication is critical. Start your marriage with strong communication to help you better face future challenges together.

Reference: chase.com (May 25, 2021) “How to prepare your finances for marriage”

Suggested Key Terms: Estate Planning Lawyer, Wills, Asset Protection, Power of Attorney, Healthcare Directive, Living Will, Probate Attorney, Pre-nuptial Agreement, Beneficiary Designations, Life Insurance, Financial Planning, IRA, 401(k), Pension, Community Property, TOD, Transfer on Death, POD, Payable on Death

Will Vets Get Relief for Toxic Exposure?

The Military Times’ recent article entitled “Millions of vets could get new benefits under toxic exposure legislation. But can it become law?” says that Congress could be headed to another round of legislative fighting and advocacy heartbreak in the attempt to gain full recognition of the danger of burn pit exposure and other military contaminant hazards.

“We know the path ahead still won’t be easy, but with the commitment we’re seeing today, the possibility of passing comprehensive toxic exposure legislation has never been greater,” said Joy Illem, national legislative director for Disabled American Veterans, during a Capitol Hill press conference on Wednesday. “This is long overdue.”

This legislation is thought to be the most ambitious legislation on the topic of military toxic exposure since the Agent Orange Act of 1991, which for the first time granted presumptive disability benefits status to all troops who served in Vietnam because of the widespread use there of the chemical defoliant Agent Orange.

“Toxic exposure is a cost of war,” said committee Chairman Mark Takano, D-Calif. “It’s time America makes good on our promise to care for all veterans exposed to toxic substances.”

The bill adds hypertension to the list of illnesses covered for Vietnam vets. This will potentially grant 150,000 elderly veterans, access to disability payouts. The legislation also includes presumptive status for radiation poisoning for thousands of additional veterans who served in areas where nuclear testing and weaponry was used. However, the most significant part of the bill would be recognition that all troops who served in Iraq and Afghanistan likely suffered some level of poisoning from burn pits used extensively throughout the country (despite the fact that the scientific specifics on the chemical vapors present is still incomplete). The legislation creates a list of 23 cancers and respiratory illnesses believed linked to the toxic smoke, allowing those who served in the countries and later contract the conditions to bypass eligibility and verification processes for VA benefits.

“If we can get those presumptions, that’s a major strategic victory,” said Rep. Raul Ruiz, D-Calif., a former emergency room doctor who has been pushing for burn pit legislation for several years. “This must be the year that we send a bill to the president and turn it into law, and the most important part is the extensive list of presumptions.”

More than 3.5 million veterans could see some benefit change under the scope of the House bill.

Reference: Military Times (May 26, 2021) “Millions of vets could get new benefits under toxic exposure legislation. But can it become law?”

Suggested Key Terms: VA Benefits, Veterans, Military, Legislation

What Financial Actions Can Be Taken if Mom Has Alzheimer’s?

Because of the debilitating impact of Alzheimer’s and related forms of dementia on a senior’s ability to make sound financial decisions, the sooner you can get financial matters in order the better, says The (Florence, AL) Courier Journal’s recent article entitled “4 Financial Steps When Dealing with Alzheimer’s.”

Here are four important steps to take:

1. Watch for signs of unusual financial activity. Discrepancies with money can frequently be a signal of cognitive challenges. Red flags may include difficulty paying a proper amount for an item, leaving bills unpaid, or making odd purchases.
2. Name a power of attorney. Many people are hesitant to give control of their personal finances to another. However, it’s important to have an honest discussion with your family member and discuss looking out for their interests. Identify a person who can be trusted to manage day-to-day money matters, if necessary. This person should be designated as financial power-of-attorney, with the authority to sign checks, pay bills and monitor the senior’s finances.
3. Prepare proper documentation. A senior must be deemed competent to complete or update estate planning documents. It is important to be certain that the named beneficiaries are up-to-date.
4. Examine care expense and how it will be covered. Create a strategy for how the senior will be cared for, if their cognitive abilities deteriorate over time. Make decisions about whether specialized care will be needed (either in the home or in a nursing or assisted living facility). Long-term care insurance should also be considered to help with costs. Speak to an elder law attorney about trusts that can be established to provide for care for the disabled individual, while still protecting the family’s assets.

Delaying for too long to address financial issues after an Alzheimer’s diagnosis can make an already stressful and emotional time even worse.

Take action to address the situation, as soon as you are aware that it could be a problem. Even creating a plan for addressing these issues before a form of dementia is firmly diagnosed makes sense.

See an experienced elder law attorney for guidance on how to manage these challenging times.

Reference: The (Florence, AL) Courier Journal (June 8, 2021) “4 Financial Steps When Dealing with Alzheimer’s”

Suggested Key Terms: Elder Law Attorney, Disability, Elder Care, Power of Attorney, Caregiving, Dementia, Alzheimer’s Disease

Reviewing Estate Plans Matters

If your estate plan or your parent’s estate plan hasn’t been reviewed in the last four years—or the last forty years—it’s time for an estate plan check-up—sooner, not later. Besides the potential for costing a lot to correct, says a recent article in Forbes entitled “5 Reasons To Have Your Parents’ Estate Plan Reviewed,” the documents may no longer work to achieve your parent’s wishes.

Rather than fix a messy situation after death, have an experienced estate planning attorney review the documents now. Here’s why.

Stale documents are anathema to financial institutions. If a power of attorney is more than twenty years old, don’t expect it to be received well by a bank or brokerage house. The financial institution will probably want to get an affidavit from the attorney who originally created the document to attest to its validity. Start with a hunt to find said attorney, and then hope that nothing occurs between the time that you request the affidavit and the time it arrives. For one client, the unexpected death of a parent during this process created all kinds of headaches. A regular review and refresh of estate documents would have prevented this issue.

State laws change. Changes to state laws change how estates are handled. They may be positive changes that could benefit your parents and your family. Let’s say your mother’s will leaves all of the contents of her home to numerous people. Locating all of these people becomes costly, especially if the will needs to be probated. Many states now allow for a separate document that lets personal items be disposed of, without being part of the probated estate. However, if the will has not been reviewed in ten or twenty years, you won’t know about this option.

Languages in estate planning documents change. In addition to changes in the law, there are changes to language that may have a big impact on the estate. Many attorneys have changed the language they use for trusts based on the SECURE Act. If your parent has a retirement account payable to a trust, it is critical that this language be modified, so that it complies with the new law. Lacking these updates, your parent’s estate may be subject to an increase in taxes, fees, or penalties.

Estate laws change over time. Recent years have seen major changes to estate law, from the aforementioned SECURE Act to changes in federal exclusions and gift taxes. Is your parent’s estate plan (or yours) in compliance with the new laws? If assets have changed since the last estate plan was done, there may be tax law changes to be incorporated. Are there enough assets available to pay the taxes from the estate or the trusts? If many accounts pass by beneficiary designation, getting beneficiaries to come up with the cash to pay the tax bill may be problematic.

The decedent’s wishes may not be followed, if documents are not updated. Here’s an example. A man came to an estate planning attorney’s office with his father’s will, which had not been updated. His father died, having been predeceased by the father’s sister. The man was the only living child. He and his father had a mutual understanding that the son would inherit the entire estate on the death of his father. However, his father’s sister had also died, and the will stated that her children would receive the sister’s share. The man had to share his inheritance with estranged nieces and nephews. Had the will been reviewed with an attorney, this mishap could have been prevented very easily.

Reference: Forbes (May 25, 2021) “5 Reasons To Have Your Parents’ Estate Plan Reviewed”

Suggested Key Terms: Decedent, Tax Laws, Estranged, SECURE Act, Fees, Penalties, Beneficiary Designation, Estate Planning Attorney, Probate, Power of Attorney, Personal Items, Affidavit, Will

Fraudsters Continue to Target Elderly

The National Council on Aging reports that seniors lose an estimated $3 billion to financial scams, which is the worst possible time in life to lose money. There’s simply no time to replace the money. Why scammers target the elderly is easy to understand, as reported in the article “Scam Alert: 4 Types of Fraud That Target the Elderly (and How to Beat Them)” from Kiplinger. People who are 50 years and older hold 83% of the wealth in America, and households headed by people 70 years and up have the highest median net worth. That is where the money is.

The other factor: seniors were raised to mind their manners. An older American may feel it’s rude to hang up on a fast-talking scammer, who will take advantage of their hesitation. Lonely seniors are also happy to talk with someone. Scammers also target widows or divorced older women, thinking they are more vulnerable.

Here are the most common types of scams today:

Imposter scams. The thief pretends to be someone you can trust to trick you into giving them your personal information like a password, access to a bank account or Social Security number. This category includes phone calls pretending to be from the Social Security Administration or the IRS. They often threaten arrest or legal action. Neither the IRS nor the SSA ever call people to ask for personal information. Hang up!

Medicare representative. A person calls claiming to be a representative from Medicare to get older people to provide personal information. Medicare won’t call to ask for your Social Security number or to obtain bank information to give you new benefits. Phone scammers are able to “spoof” their phone numbers—what may appear on your caller ID as a legitimate office is not actually a call coming from the agency. Before you give any information, hang up. If you have questions, call Medicare yourself.

Lottery and sweepstakes scams. These prey on the fear of running out of money during retirement. These scams happen by phone, email and snail mail, congratulating the recipient with news that they have won a huge lottery or sweepstakes, but the only way to access the prize is by paying a fee. The scammers might even send a paper check to cover the cost of the fee, but that check will bounce. Once you’ve sent the fee money, they’ll pocket it and be gone.

What can you do to protect yourself and your loved ones? Conversations between generations about money become even more important as we age. If an elderly parent talks up a new friend who is going to help them, a red flag should go up. If they are convinced that they are getting a great deal, or a windfall of money from a contest, talk with them about how realistic they are being. Make sure they know that the IRS, Medicare and Social Security does not call to ask for personal information.

For those who have not been able to see elderly parents because of the pandemic, this summer may reveal a lot of what has occurred in the last year. If you are concerned that they have been the victims of a scam, start by filing a report with their state’s attorney general office.

Reference: Kiplinger (June 10, 2021) “Scam Alert: 4 Types of Fraud That Target the Elderly (and How to Beat Them)”

Suggested Key Terms: Financial Scams, Imposters, Thieves, Windfalls, IRS, Medicare, Social Security, Pandemic, Elder Financial Abuse, Lottery, Sweepstakes

What Taxes are Due When Children Inherit Home?

The first issue to address is whether the will addresses how inheritance taxes will be paid, says nj.com recent article entitled “My adult kids inherited a home. What taxes are due?” The mortgage may say the estate itself will pay it before anything is paid out to beneficiaries, or it may not mention anything.

Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania are the only states that impose an inheritance tax, which is a tax on what you receive as the beneficiary of an estate.

Maryland is the one state that has both an inheritance tax and an estate tax. Its inheritance tax is up to 10%. As to the others, Nebraska’s inheritance tax can be as high as 18%. Kentucky and New Jersey both taxes inheritances at up to 16%. Iowa’s inheritance tax is up to 15%, as is Pennsylvania’s.

Spouses and certain other heirs are usually excluded by the state from paying inheritance taxes.

A child may have an issue if there’s not enough liquidity in the estate, separate from the house to pay the taxes. If the beneficiaries plan to keep the home, they’d need to take an additional mortgage.  They’d also need to find enough cash to pay the inheritance taxes due.

In the example above, if the deed is transferred to a niece and nephew, the executor should hire a licensed real estate appraiser and pay for a date of death appraisal on the property. That appraisal will determine how much capital gains was exempted at the sister’s passing. It will also establish a new basis for capital gains purposes for the niece and nephew.

If the heirs simply do nothing and move into the house, the inheritance tax will come due. In New Jersey, it’s due eight months from the date of death.

If the inheritance tax isn’t paid, liability for the unpaid tax will attach to the executor personally, often in the form of a certificate of debt attached to some asset belonging to the executor, like his or her house.

To make sure this is handled correctly, consider speaking to an experienced estate planning attorney, who can walk you through the process.

Reference: nj.com (June 14, 2021) “My adult kids inherited a home. What taxes are due?”

Suggested Key Terms: Estate Planning Lawyer, Wills, Inheritance, Asset Protection, Probate Attorney, Estate Tax, Inheritance Tax, Tax Planning, Financial Planning, Capital Gains Tax, Step-up Basis, Executor

Will My Children Pay Taxes, If I Give Them My Home?

In a general warranty deed, a seller states that the transfer amount is one dollar and notarizes it. It is then sent to the county clerk. However, in this New Jersey example, the deed was sent back because a Seller’s Residency Certification form was required.

There is often confusion about the right method of transferring a deed and the potential consequences. When a home is transferred as a gift, property taxes may not be imposed, depending on state law. This is known as a homestead tax exemption for property taxes. The homestead exemption is generally a dollar amount or percentage of the property value that’s excluded, when calculating property taxes.

The amount or percentage depends on the state. Every state also has specific eligibility requirements for the exemption. In some states, every homeowner gets the tax exemption, while in other states, eligibility depends on income level, property value, age or if you’re disabled or a veteran.

Nj.com’s recent article entitled “Will changing this home’s deed cost us any money?” explains that in New Jersey, the Seller’s Residency Certificate addresses whether there should be income tax withheld, or whether an estimated tax payment should be made, in connection with the transfer.

In Georgia, to be granted a homestead exemption, an individual must occupy the home, and the home is considered their legal residence for all purposes. However, those away from their home because of health reasons will not be denied homestead exemption in the state.

When the transfer appears to be a gift in the New Jersey example, no withholding or estimated taxes should be required.

However, it’s important to understand that transfers of real property for consideration of less than $100 also shouldn’t trigger a realty transfer fee. If there’s a mortgage encumbering the property, and if you will assume that mortgage obligation, the amount of the outstanding mortgage balance would be treated as consideration.

However, if there is no mortgage encumbering the property and presuming that the transfer in the example above is from the mother-in-law to her daughter and her husband is a gift, there should be no realty transfer fee charged on the transfer.

Note in New Jersey, when the deed is re-record, it should include, in addition to the Seller’s Residency Certificate, an Affidavit of Consideration.

Reference: nj.com (April 24, 2021) “Will changing this home’s deed cost us any money?”

Suggested Key Terms: Elder Law Attorney, Disability, Financial Planning, Estate Tax, Gift Tax, Living Will, Advance Directive, Inheritance, Veterans’ Benefits, Homestead Tax Exemption, Seller’s Residency Certificate, Affidavit of Consideration

What Happens to My Mortgage When I Die?

State and federal laws determine what happens to a home and the mortgage when the owner dies, explains Forbes’ recent article entitled “What Happens To Your Mortgage Debt When You Die?” The owner also has a say, provided they do some basic estate planning—like creating a will or trust, designating beneficiaries and perhaps purchasing life insurance.

When you pass away, all of your liabilities and assets—including your house—become part of your estate, which then must be settled. If you have a will, you’ve named an executor to handle this. Part of this responsibility is to take inventory of everything you own and determine who gets what among heirs and creditors. However, if you die without a will or trust, state probate court will direct the court to appoint someone to settle your estate. It’s typically a spouse, an adult child, or closest relative. Whoever this person is, he or she must determine who is named on the deed, who holds the title to your home and whether you have created a living trust or transfer-on-death deed to keep your home out of probate. This can save your heirs money and can expedite the property’s transfer.

If you’re the sole owner and don’t have a living trust or transfer-on-death deed, but you made a will and want to transfer your home to an heir, here’s what would happen next.

If your will names an heir to your home, that person will not have to take over your mortgage, provided they aren’t co-borrowers or co-signers on your loan. However, federal law does allow your heirs to take over the mortgage. If you leave your mortgaged home to your son, for example, the mortgage servicer must honor his request to become the new mortgagee (the borrower). He doesn’t have to qualify and demonstrate an ability to repay the loan. This rule covering the assumption of a mortgage also applies after the death of a spouse, although many spouses are often co-borrowers on a mortgage and co-owners of a home already. Despite the fact that most mortgages have a due-on-sale clause that normally requires the mortgage to be repaid in full when the property’s ownership changes, it doesn’t apply when an heir takes over.

However, the lender still can foreclose, if the assumed heir stops making payments. You can provide funds, by leaving your heir other assets or by naming them as a beneficiary on a life insurance policy.

If you die with other debts that can’t be repaid from your estate, state law may require the executor to sell your house to help repay those debts. If the proceeds from selling the home are more than the debts owed, the individual(s) who inherits your house will get the excess. Life insurance can help repay your debts at death, so your heir can inherit your home.

Note that your estate doesn’t have to pay off your mortgage. Since your mortgage is secured by your home, the mortgage servicer can foreclose and sell the home to get back the money owed.

If you’re an heir or an executor of an estate (or both), you’ll need to deal with the house and the mortgage when the homeowner dies. You can do any of the following:

• Keep making mortgage payments
• Pay off the mortgage
• Refinance the mortgage
• Sell the home; or
• Let the lender foreclose.

Reference: Forbes (April 20, 2021) “What Happens To Your Mortgage Debt When You Die?”

Suggested Key Terms: Elder Law Attorney, Estate Planning, Probate Court, Financial Planning, Inheritance, Transfer-On-Death Deed (TOD), Life Insurance

Do QTIP Trusts Help avoid Estate Taxes?

Using a QTIP trust allows one spouse to create a trust to benefit the surviving spouse, while providing the surviving spouse with up to nine months to decide how to treat the gift for tax purposes, explains a recent article “How Certain Trusts Soften The Blow Of Estate Tax Increases” from Financial Advisor. This flexibility is just one reason for this trust’s popularity. However, while the QTIP election can be made on the 2021 gift tax return, which is filed in 2022, the choice as to how much of the transfer will be subject to tax can be made in 2022.

The current estate and gift tax exemption of $11.7 per individual is slated to sunset in 2025, but the current legislative mood may curtail that legislation sooner. Right now, flexibility is paramount.

The surviving spouse is named as the primary beneficiary of the trust and must be the only beneficiary of the trust during the lifetime of the surviving spouse, in terms of both receiving income or principal from the trust.

If the decision is made to treat the trust as a QTIP trust, a gift to the trust is eligible for the marital deduction and is not taxable. It does not use up any of the donor’s gift tax exclusion. That flexibility to make a transfer today and decide later whether it uses any lifetime exemption is something most people don’t know about. A QTIP can also protect the recipient spouse and the principal from any creditors.

There are conditions and limitations to this strategy. If the QTIP election is not made, all net trust income must be distributed to the beneficiary spouse. There’s also no flexibility for the trust income to be accumulated or distributed directly to descendants.

The property over which the QTIP election is made is included in the estate of the surviving spouse.

The election can be made over the entire asset or only a portion of the asset transferred to the trust. The option to apply only a portion of the transfer makes it more tax efficient. For generation skipping-trust purposes, an election can be made to use the transferor spouse’s GST exemption when the decision about the QTIP election is made.

QTIPs are not the solution for everyone, but they may be the best option for many people while the people in Washington, D.C. determine the immediate future of the estate tax.

There are many Americans who are moving forward with making gifts using the current gift tax exclusion, using spousal lifetime access trusts (SLATs). However, the QTIP elections remain a way to hedge against the risk of being on the hook for a substantial gift tax, if there is a reduction in the federal estate tax exemptions.

Speak with an estate planning attorney to learn if a QTIP or another type of trust is appropriate for you. Note that these are complex planning strategies, and they must work in tandem with the rest of your estate plan.

Reference: Financial Advisor (May 24, 2021) “How Certain Trusts Soften The Blow Of Estate Tax Increases”

Suggested Key Terms: QTIP, Qualified Terminable Interest Property, Trust, Spousal Lifetime Access Trusts, SLATS, Federal Exclusion, Estate Planning Attorney, Assets, Transfers, Spousal Donor, Marital Deduction

Why Is Estate Planning So Important?

“Estate planning” will be your family’s guidebook once you have passed away. The Big Easy Magazine’s recent article entitled “Estate Planning Is Essential and Here’s Why” explains that estate planning is similar to writing a last will. HOwever, writing one is not limited to what happens to your house, car, possessions, or other assets after you pass away. It also entails the question of who will take care of your minor children, if they are left without a parent, as well as your instructions for burial and other items.

If you fail to leave specific instructions, the state’s intestacy laws will apply at your death, meaning that the court will decide who gets what. There is no guarantee this will be in your best interest. Let’s look at the consequences of not writing your will:

• If you prefer cremation or a traditional burial, your family may not know and decide based on their preferences or convenience.
• Your properties will be managed by someone you do not necessarily trust, if you do not name an executor to your will.
• Some of your loved ones may not get an inheritance if there is no will. State law may not carry out your intentions, and some people may be left out.
• Your favorite charity may not receive donations. For those committed to leaving a legacy, your organization of choice should be listed in the will.
• The court will assign guardians for your minor children, and social services will appoint a guardian. You can avoid this, by naming a trusted person in your will.

Aside from avoiding these consequences, estate planning can also save your family a lot of headaches and expense. A detailed will with your instructions will alleviate the stress and provide them with comfort, while they recover emotionally from their loss. Here are the top reasons why you need to plan these things:

• You can avoid inheritance taxes and federal estate taxes with proper estate planning.
• You can name who will care for you, if you are unable to make your own decisions because of illnesses, infirmity, or old age. With a power of attorney, you can name someone you trust to manage your finances.
• If your minor children are orphaned, you can name someone you trust to be their guardian in your will.
• Some family members are greedy, so you can exclude them from your will. With an estate plan created by an experienced estate planning attorney, you can ensure that the people you love will receive what you intend.

Estate planning is essential to securing a comfortable life for your loved ones. Work with an experienced estate planning attorney to set things up correctly.

Reference: The Big Easy Magazine (May 17, 2021) “Estate Planning Is Essential and Here’s Why”

Suggested Key Terms: Estate Planning Lawyer, Wills, Intestacy, Probate Court, Inheritance, Asset Protection, Capacity, Guardianship, Executor, Personal Representative, Power of Attorney, Healthcare Directive, Living Will, Probate Attorney, Estate Tax, Charitable Donation, Funeral Arrangements, Burial