Middle-aged man working on his digital estate while sitting at table

What Will Happen to Your Digital Estate When You Pass Away?

Middle-aged man working on his digital estate while sitting at tableEven if you are not tech savvy, you likely have a digital estate comprised of assets with financial and sentimental value. You probably also have plenty of personal information floating around out there in the digital universe. To protect these assets, and to ensure you don’t leave behind a massive digital mess for your loved ones to clean up, you should organize your online accounts and make sure they can be accessed by your loved ones if you become incapacitated and after you pass away.

Most states now have laws granting a decedent’s executor or family members the right to access and manage some of his or her digital assets. However, certain digital platforms do not allow such access, and others have extremely tight security, with two-factor password authentication, confirmation codes, and more. This makes organizing your digital accounts and keeping a record of how they can be accessed extremely important.

Here are some examples of the assets you might have in your digital estate:

  • Email accounts, which may contain “conversation threads” revealing other digital accounts and assets
  • E-Commerce accounts and Apps like Amazon, PayPal, Etsy, and Venmo
  • Financial accounts and Apps like Scottrade, E*Trade, and Banks
  • Retail accounts with usernames and passwords
  • Social media accounts and Apps like Facebook, Pinterest, Twitter, YouTube, and TikTok
  • Photo sharing accounts such as Instagram, Flickr, Shutterfly, and Snapfish

While some of your digital accounts might have been inactive for years, others probably play an important role in your current personal and financial affairs. To begin the organization process, ask yourself this: what would happen if you deleted each of your accounts right now? If the answer is “nothing much,” you probably don’t have to make that particular account part of your digital estate plan. For the others, you’ll want to make sure your executor or loved ones can access and manage the accounts if you become incapacitated and after you pass away. To accomplish that, you need to compile a list of the passwords, authentication codes, and other information necessary to access important accounts… and make sure your executor and family know where to find them. The one place you don’t want to provide this information is your last will and testament. Remember, a will is a public document, and anyone can see it if your estate is probated.

To learn more about protecting your digital estate, contact us for a personal meeting to discuss your particular needs and goals. 

Senior Woman Sitting On Sofa At Home thinking about Social Security

What Women Need to Know about Social Security

Senior Woman Sitting On Sofa At Home thinking about Social Security While Social Security is a crucial component of many Americans’ retirement income, it is particularly important to women. According to the National Committee to Preserve Social Security and Medicare, 48 percent of elderly unmarried women relied on Social Security for 90 percent or more of their total income in 2017.

The Social Security Administration (SSA) has written a booklet detailing what women should know about Social Security. Here are the highlights:

NOTHING KEEPS WOMEN FROM GETTING THEIR OWN SOCIAL SECURITY BENEFITS

  • If you’ve worked and paid taxes into the Social Security system for at least 10 years, and have earned a minimum of 40 work credits, you can collect your own benefits as early as age 62
  • Social Security benefits are based on your lifetime earnings. SSA adjusts (or “indexes”) your actual earnings to account for changes in average wages since the year the earnings were received. Then, SSA calculates your average indexed monthly earnings during the 35 years in which you earned the most. SSA applies a formula to these earnings and arrives at your basic benefit, which is called your “primary insurance amount”
  • If you become disabled before your full retirement age, you might qualify for Social Security disability benefits if you’ve worked and paid Social Security taxes in five of the last ten years
  • If you receive a pension from a job where you didn’t pay Social Security taxes, such as a civil service or teacher’s pension, your Social Security benefit might be reduced

THERE IS NO “MARRIAGE PENALTY”

  • If you are married and both you and your spouse have worked and earned enough credits individually, you can each receive your own Social Security benefit. For example, if you are due a Social Security benefit of $1,200 per month and your spouse is due a Social Security benefit of $1,400 per month, you can receive $2,600 per month in retirement benefits.

IF YOU’RE DUE TWO BENEFITS, YOU GENERALLY RECEIVE THE HIGHER RATE, NOT BOTH

  • As a spouse, if you are eligible for benefits based on both your own work record and that of your spouse, you may be required to file for both benefits. If so, you generally receive the higher benefit amount
  • A wife with no work record or a low benefit entitlement on her own work record is eligible for between one-third and one-half of her spouse’s Social Security benefit
  • Most working women who reach retirement age receive their own Social Security benefit because it’s more than one-third to one-half of the husband’s rate
    If your spouse dies before you do, you can apply for the higher widow’s rate. (You’ll find more information about that below)

IF YOU ARE DIVORCED BUT WERE MARRIED FOR AT LEAST 10 YEARS, YOU MAY BE ELIGIBLE FOR SOME OF YOUR EX’S SOCIAL SECURITY

  • Divorced women who were married for at least 10 years may be eligible for Social Security based on their ex-spouse’s record. This applies only if you are unmarried and not entitled to a higher benefit on your own record when you become eligible for Social Security
  • Some women sign divorce decrees relinquishing their rights to Social Security on their ex-spouse’s record. However, clauses like these in divorce decrees are rarely enforced
  • Benefits paid to a divorced spouse DO NOT reduce payments made to the ex or any payments due the ex’s current spouse
  • Generally, the payment rules that apply to divorced wives and widows are the same as the rules that apply to current wives and widows. This means most divorced women collect their own Social Security while the ex is alive, but they can then apply for higher widow’s rates when the ex dies

WHEN YOUR EX DIES, YOU MAY BE DUE A WIDOW’S BENEFIT

  • Widows are eligible for between 71 percent (at age 60) and 100 percent (at full retirement age) of what their spouse was getting before the spouse passed away
  • SSA must pay your own retirement benefit first, then supplement it with whatever extra benefits you are due as a widow to take your Social Security benefit up to the widow’s rate
  • SSA also can pay you a $255 one-time death benefit if you were living with your spouse when your spouse died
  • If you made more money than your spouse (or ex-spouse), then your spouse might be due a survivor’s benefit if you die before your spouse does

You can learn more by reading the SSA publication What Every Woman Should Know, which is available for free.

Happy mother and son outdoors. Nature background.

If Your Children Have Turned 18, They Need Their Own Legal Documents

Happy mother and son outdoors. Nature background.When your children turn 18 they are legal adults. They might not act like adults all of the time, and you may still be supporting them financially, but in the eyes of the law they are indeed adults. This means that you can no longer make certain decisions for them, including health care decisions. Furthermore, you can no longer obtain medical information about your adult children without their authorization—even in an emergency.

Consider the following scenario. Your son is away at college and gets severely injured in a car accident. When you become aware of what has happened you immediately call the hospital for information about his condition, but nobody will tell you anything. This is because the law—specifically, a statute enacted in 1996 called the Health Insurance Portability and Accountability Act (HIPAA)—prevents the disclosure of a patient’s health information without the patient’s consent. The hospital in question could be prosecuted for violating HIPAA guidelines.

This is why your adult children need a legal document called a HIPAA Release. It allows your adult children to list the people who are permitted to receive medical information about them.

Another crucial legal document your adult children need is a Power of Attorney for Health Care, which is also called a Health Care Proxy. It allows them to name a person they trust to make health care decisions on their behalf if they cannot do so themselves. Medical decisions covered by a Power of Attorney for Health Care can include the types of treatments allowed in an end-of-life situation, such as the use of a feeding tube, as well as do not resuscitate orders.

Similarly, a Power of Attorney for Finances allows your adult children to designate a trusted individual to make financial decisions if they cannot make them on their own.

If your adult children have their own Powers of Attorney for Health Care and Finances, and they name you as their agent in the documents, you will be able to make medical and financial decisions on their behalf if they become incapacitated. If you are named in your adult children’s HIPAA release, you can get medical information about their condition in an emergency.

To learn more about obtaining legal documents for your adult children, contact us for a personal meeting to discuss your particular needs and goals. 

Couple looking over the medicaid look-back period on their laptop

What is the Medicaid Look-Back Period?

Couple looking over the medicaid look-back period on their laptopMedicaid can pay for the long-term institutional care of individuals who meet certain income and asset requirements. However, if the applicant’s assets and income exceed these limits, he or she may not qualify for Medicaid assistance until the limits are met. Given the high cost of long-term care, people sometimes try to give away their assets before applying for Medicaid in order to become eligible. Of course, state Medicaid agencies want to prevent this, so they require the applicant to disclose all financial transactions made in the last five years. (California is an exception and only requires disclosure of financial transactions made in the last 30 months.)

This five-year period is known as the “look-back period.” In essence, state Medicaid agencies are “looking back” for assets transferred at less than fair market value. If the state Medicaid agency determines that such a transfer was made, it will impose a “penalty period.” And what is the penalty? It is a period of time during which the applicant will be deemed ineligible for Medicaid. The penalty period is calculated by dividing the amount the applicant has transferred by the state’s average cost for private pay institutional care.

Any asset transfer can be scrutinized, regardless of size. Exceptions are not made for gifts to children or grandchildren, charitable donations, or other transfers that seem like “no big deal.” Similarly, informal payments to caregivers or loans to family members can raise red flags. In short, the applicant is considered guilty until proven innocent. The burden of proof lies with the applicant.

It is worth noting that transferring assets to certain recipients will not trigger a penalty period. These recipients include a spouse (or a transfer to someone else if it is for the benefit of the spouse); a trust for the sole benefit of a disabled or blind child; and a trust for the sole benefit of a disabled individual under age 65. The applicant’s home can also be transferred to these recipients without penalty, as well as to all of the following individuals:

  • A child under the age of 21
  • A blind or disabled child
  • A “caretaker child” who resided in the home for two years or more before the applicant required institutional care, and whose care permitted the applicant to delay his or her move to a long-term care facility
  • A sibling who lived in the home during the year preceding the applicant’s move to the institution and who has equity in the property

With proper planning it is possible to protect your assets against the transfer penalty. Even if you have already made asset transfers in the last five years and will be applying for Medicaid soon, we may still be able to protect a portion of your life savings.

three generation asian family taking selfie outdoors

What’s Not to Like About an I Love You Will? Plenty.

three generation asian family taking selfie outdoorsAn “I Love You Will” is a last will and testament in which the testator—the person who makes the will—leaves everything to his or her spouse. If you have thought about making a will in the past, you likely considered this approach. Perhaps you have already created such a will.

While an I Love You Will may be appropriate for certain situations, there are several potential problems you should take into account. First, it could unintentionally disinherit your children. How? Think about what would happen if you passed away and your spouse, who has inherited your assets through the I Love You Will, remarries and creates the same type of will. If your spouse passes away before his or her new spouse, the new spouse would inherit these assets. That is, your children might receive nothing.

Of course, an I Love You Will shares the limitations of basic wills in general. For example, if the surviving spouse develops Alzheimer’s disease or another form of dementia, and no advance directives were created, estate assets may fall under the jurisdiction of a guardianship or conservatorship court. In that case, your wishes and those of your surviving spouse may be thwarted.

An I Love You Will also ensures your estate will have to go through probate. The probate process can take several months (or considerably longer) to complete. During the probate process, your spouse may be unable to access estate assets, which could make it difficult to pay expenses such as a mortgage, homeowner’s insurance, property taxes, automobile loans, credit card bills, and more. In addition, probate is a public process, meaning anyone can discover information about your assets and debts that you would have wanted to remain private. Finally, the costs associated with probating an estate can be significant.

An I Love You Will may sound like a good idea, but to ensure your wishes are carried out and your assets are distributed efficiently to your loved ones, you may want to consider a trust-based estate plan. We invite you to contact us at your earliest convenience to discuss your options.

Estate planning handwriting sign on the sheet.

Why Your Estate Plan Must Include More than a Will

Estate planning handwriting sign on the sheet.A Last Will and Testament is an essential legal document that allows you to accomplish a number of important goals. You can name your beneficiaries and specify the assets you want them to receive; name a guardian for your minor children; and choose the person you want to settle your estate (known as the Executor).

In short, a Will helps ensure your wishes are carried out after you pass away. However, it does not ensure that your wishes regarding your finances and medical care will be followed if you become incapacitated. For that you will need other essential documents.

Power of Attorney for Health Care

A Power of Attorney for Health Care, also known as a Health Care Proxy, allows you to name a person you trust to make health care decisions on your behalf if you are no longer able to make them on your own. Medical decisions covered by your Power of Attorney for Health Care can include choice of doctors and other health care providers; types of treatments; long-term care facilities; end-of-life decisions, such as the use of feeding tubes; and do not resuscitate orders.

Power of Attorney for Finances

Similar in concept to the Power of Attorney for Health Care, a Power of Attorney for Finances allows you to designate another person to make decisions about your finances, such as income, assets, and investments, when you can longer make them yourself.

By choosing your decision-makers in advance through powers of attorney, you and your loved ones can avoid the expense, stress, delays, and potential for family infighting associated with a court-ordered guardianship proceeding.

Living Will

A Living Will allows you to express your wishes regarding what medical treatments you want, or do not want, in an end of life situation. A Living Will differs from a Power of Attorney for Health Care in that it details your specific wishes, whereas a Power of Attorney for Health Care allows someone else to make health care decisions for you. Another benefit of a Living Will is that it spares your loved ones from having to make difficult decisions about your care without knowing what you would have wanted.

HIPAA Release

A HIPPA Release lets you choose who can receive information about your medical condition. Hospitals and medical providers can be prosecuted for violating the Health Insurance Portability and Accountability Act (HIPAA) if they reveal your medical information to people not named in your HIPPA Release.

To ensure your wishes are carried out while you are alive and after you pass away, your estate plan should include all of the legal documents mentioned above.

Of course, estate planning can help you accomplish many other goals as well. For example, with a Revocable Living Trust your estate won’t have to go through probate. This will expedite the distribution of estate assets to loved ones and keep your financial information private. A Revocable Living Trust also allows you to stipulate when and under what conditions your heirs will receive their assets, which is useful if you think your children are not yet mature enough to handle an inheritance. Other tools, such as an Irrevocable Trust, can protect your assets against threats like long-term care costs, divorce, creditors, lawsuits, and more.

We invite you to contact us at your earliest convenience to discuss your unique planning needs and goals.

Family portrait of small business owners

Tips for a Successful Family Business Succession

Family portrait of small business ownersFewer than one-third of family businesses survive into the second generation, while only 13 percent make it to the third generation. Here are some tips to beat the odds and help your business live on for generations to come.

The sooner you start the planning process the better

The sooner you start planning for succession, the smoother the transition is likely to be. Beginning the process five years in advance is good and 10 years is even better. In fact, many experts recommend having a succession plan built into the original business plan.

Try to include family members in all discussions about succession

Creating your succession plan on your own and then simply announcing it to the rest of the family is a recipe for disaster. By discussing your thoughts with other members of the family, you’ll get an idea of who wants to be part of future operations and who might be interested in pursuing other options.

Don’t let your feelings or preconceived expectations cloud your judgement

Many business owners consider their first-born child to be the natural choice for successor. However, you have to ask yourself if this is honestly the wisest option. Maybe your oldest son or daughter isn’t committed to the business. Maybe one of your other children is not only extremely interested in running the business but also has the right skill set. Or maybe none of your children possess the drive or the necessary skills, in which case it may be best to sell the business to existing employees or an outside party.

Similarly, you can’t lose sight of what is best for the business itself. While giving everyone in the family an equal share of the business might seem like the simplest and fairest approach, it could lead to a host of problems down the road. It may actually be fairer, and smarter, to give the largest share of the business to your successor and find other ways to compensate family members who are not involved in running the business.

Train your successor well

No matter how extensively you plan, you can’t expect your successor—or your business—to flourish without adequate training. You should involve your successor in decision-making and share your knowledge of what it takes to run the business effectively at least two years before stepping aside.

To learn more about family business succession, contact us for a personal meeting to discuss your particular needs and goals. 

Woman preparing home budget, using laptop and calculator. Woman going through bills, looking worried. Shot of a senior woman using a laptop and calculator while working from home

Should You Be Concerned About Changes to the Step-up in Basis?

Woman preparing home budget, using laptop and calculator. Woman going through bills, looking worried. Shot of a senior woman using a laptop and calculator while working from homeWhenever a new president takes office, “discussions” about taxes are sure to follow. During his campaign, President Biden proposed a number of changes to the tax code that would affect wealthy Americans. One proposal, however, could impact people of more modest means: modifications to, or the elimination of, the basis step-up rule.

What do we mean by step-up in basis? Basis, in this case, refers to the value of an inherited asset for tax purposes. One could use the value of the asset when it was originally purchased, or one could use the value of the asset when the original owner passed away and the asset was bequeathed to a beneficiary. The latter value could be considerably higher than the original purchase price.

A step-up in basis uses the higher value, the “stepped-up” value. Assessing the value of an inherited asset in this way translates into lower capital gains tax liability. Let’s look at a hypothetical example.

Say an investor purchased 1000 shares of stock at five dollars a share, meaning the investment was originally worth $5,000. Over time, the value of the stock increased to 25 dollars per share and the original investment was now worth $25,000, a gain of $20,000. When the investor passed away, she left that stock to her son. Without a step-up in basis, the son could be responsible for paying capital gains tax on that $20,000 increase in value. However, with a step-up in basis, any capital gains tax would be based on the stepped-up value of $25,000. If the son sold the stock at the same price he inherited it, he would not have to pay capital gains tax on the $20,000 increase in the value.

The step-up in basis also applies to other appreciated assets, such as a house. Let’s say a property that originally cost $200,000 was worth $400,000 when the original purchaser passed away. If the house was left to the purchaser’s daughter, the step-up in basis would mean the daughter doesn’t have to pay capital gains tax on the $200,000 increase in value (from $200,000 to $400,000). Instead, the value of the property would be “stepped up” to $400,000 for tax purposes.

You can see how the step-up in basis can dramatically lower one’s capital gains tax liability. Eliminating it could have serious financial consequences for the beneficiaries of appreciated assets.

It is important to note that the elimination of the step-up in basis, or even a modification of it, is by no means a certainty. According to the Tax Policy Center, efforts to eliminate the step-up in basis were made in 1976, 2001, and 2015. And while several senators have announced a bill designed to put an end to the step-up in basis, the passage of such a bill could prove difficult in an evenly divided senate. President Biden’s latest proposal would eliminate the step-up in basis to gains over $1 million, with protections for farms and family-owned businesses given to heirs.

For now, it’s all talk. Fortunately, with proper planning, it is possible to protect your assets, inherited or otherwise, against changes to the tax code.

We invite you to contact us at your earliest convenience to discuss your unique planning needs and goals.

Portrait Of Loving Senior Couple Relaxing On Sofa At Home

Estate Planning for Second Marriages

Portrait Of Loving Senior Couple Relaxing On Sofa At HomeSecond marriages can present unique challenges when it comes to estate planning, particularly if you or your new spouse have children from previous marriages. Let’s take a look at some of the factors, tools, and strategies to consider when planning for a second marriage.

Prenuptial Agreements

You’ve been married before, so you’re a little bit older and a whole lot wiser the second (or third) time around. However, this doesn’t mean you should throw caution to the wind. While it is hardly the most romantic aspect of planning a life together, many couples should at least discuss a prenuptial agreement. This is especially true if any of the following scenarios apply:

  • One of you is giving up a lucrative career to get married
  • You or your future spouse owns a business
  • Either of you has significant assets and wants to keep them separate from marital assets
  • One of you carries significant debt
  • There are children from a previous marriage

If you think a prenuptial agreement makes sense in your situation, the next question is when the documents should be prepared. The sooner the better is a good rule of thumb. This will avoid the appearance of coercion, which can render some prenuptial agreements null and void. Your documents should be signed at least one month before the wedding, preferably before the invitations are sent out. In addition, you and your future spouse should each have an attorney involved in the design and review of the prenuptial agreement.

Review and Update Beneficiary Designations

Did you know that the people you have named as beneficiaries in various retirement and other accounts will generally inherit account assets even if other beneficiaries were named in your will? Consider the following situation. You got divorced, remarried, and changed your will to make your new wife your primary beneficiary.

However, if your ex-wife is still named as beneficiary in your retirement and investment accounts, she will inherit the funds, not your new wife. Beneficiary designations typically trump wills.

Fortunately, it is relatively easy to make and update beneficiary designations. When you open a retirement account, such as an IRA, the provider generally offers a beneficiary designation form within the account itself. You can name your beneficiaries when you create the account and change your beneficiaries whenever you wish (with one possible exception). As for investment and bank accounts, making beneficiary designations will likely require you to request a transfer on death form. This, too, is easily accomplished.

The exception noted above refers to certain laws governing the passing of retirement accounts to spouses. Your spouse will typically inherit your 401(k), for example, unless he or she signs a consent form waiving his or her right to it. If your ultimate goal is to leave your 401(k) to your children, your spouse will have to agree to this in writing. Designating your children as beneficiaries of your 401(k) will generally not be enough.

Protecting Children from a Previous Marriage

If all of your estate’s assets are left to your new spouse, your children from a previous marriage may not be provided for in the manner you would have wanted after you pass away. Your new spouse could, upon his or her death, leave all of the assets to his or her children from a previous marriage, thereby excluding your children. Conversely, if the majority of your estate is left to your children from an earlier marriage, there may not be enough assets remaining to provide for your new spouse or any children you have together. It can be a balancing act, one that requires proper planning to ensure your wishes, and those of your new spouse, are carried out. At the very least, each spouse should have a will. Without one, intestacy laws will likely result in assets being distributed in a manner neither of you would have wanted.

A trust, or combination of trusts, is generally a better approach than a will for second marriages and blended families. One such trust, which provides an excellent form of asset protection, is called a Qualified Terminable Interest Property Trust (QTIP). A QTIP Trust can generate income for the benefit of the surviving spouse during his or her lifetime. When the surviving spouse passes away, the QTIP’s assets can be distributed between mutual and prior children according to the wishes of the previously deceased spouse. In addition, if the children are young, assets from the QTIP Trust can be held in another trust, under the control of an independent trustee. This approach can prevent estate assets from falling under an ex-spouse’s control. It can also protect your children’s inheritances from threats like creditors, lawsuits, and even your heirs’ poor decisions if they are not yet ready to manage an inheritance on their own.

To learn more about planning for second marriages and blended families, contact us for a personal meeting to discuss your particular needs and goals. 

Mature woman helping elderly mother with paperwork

Myths and Misconceptions about Probate

Mature woman helping elderly mother with paperworkSimply put, probate is a legal process for settling debts and distributing assets after a person passes away. There are many myths and misconceptions about the probate process, the most common of which we will dispel here.

If the Decedent Had a Will, His or Her Estate Won’t Have to Go Through Probate

While a will allows you to choose the executor of your estate, name a guardian for your minor children, and convey your wishes about who receives your assets after you pass away, it does not allow your estate to avoid probate. As a matter of fact, part of the probate process involves determining the validity of a will.

The Only Way to Avoid Probate Is to Create a Trust

Trusts are powerful estate planning tools capable of helping you accomplish a wide range of planning goals, including probate avoidance. However, having a trust is not the only way your estate can avoid probate. Assets held in joint tenancy with rights of survivorship, payable on death accounts, and multiple party accounts with financial institutions can also avoid probate.

It Takes Years to Complete the Probate Process

We’ve all heard stories about celebrities and wealthy families fighting over estate assets for years on end. And if you are expecting an inheritance, it can seem like years before probate is completed and you actually receive your inheritance. The truth is that while probate can be frustrating, time-consuming, and fraught with delays, the vast majority of estates are settled within a year and oftentimes require considerably less time than that. Most states also allow for what is known as a summary probate when an estate is small and other conditions are met. Summary probates can be completed in a few months. Factors that influence the amount of time required to probate an estate include the number of beneficiaries, the size and complexity of the estate, disagreements between beneficiaries, will contests, the lack of a will, and situations where the decedent had a large number of creditors or debts.

It’s Best to Name the Oldest Child as Executor of the Estate

An executor is the individual who administers an estate during probate. You can name your executor in your will. (If there is no will, the court has the authority to select a “personal representative” to administer the estate.) Although many people want their oldest child to serve as executor, doing so is not a requirement. In fact, it may not even be the wisest choice. Given the importance of the executor’s role and the numerous responsibilities involved in the probate process, you should put a great deal of thought into choosing your executor.

The Cost of Probate Is So High That There Will Be Little Left in the Estate for Beneficiaries

While probate can be expensive, it typically costs less you might think. The cost varies greatly based on where the estate is probated, but it generally falls within a range of three to seven percent of the estate’s value. Many of the factors that influence how long probate takes also impact its cost, particularly the size and complexity of the estate and whether disputes arise between beneficiaries.

We can create a plan to help ensure your estate will not have to go through probate. If you are responsible for probating an estate, or think you will be soon, we can guide you through every stage of the process. Contact us today to get started.