Estate Planning

Lessons Learned

I recently worked with a man whose situation illustrates how important it is to have an estate plan in place. "Bill" passed away in October and had an estate worth over 4 million dollars. He was single with no kids and had one one brother with whom he had little contact. 

The first time I met Bill was in the hospital, a day after he left the ICU.  His assistant contacted me because Bill didn't have an estate plan in place.  Luckily,  I was able to finish Bill's plan weeks before he passed away.  If he hadn't created a plan a few things would have happened:

  1. If Bill had died without a Will or a Trust, his entire estate would have gone to his brother. That was exactly the outcome Bill didn't want. He ended up distributing his estate to 40 different friends and charities. When someone dies without a Will or a Trust, state law determines where one's estate goes. A Will or a Trust allows a person to decide exactly how they want their assets distributed
  2. I always prepare a Living Will when I create an estate plan. A Living Will contains a person's instructions in the event they're in a vegetative state or have a terminal condition. Before Bill died, he fell into a vegetative state.  His healthcare agent relied on Bill's Living Will to make end-of-life decisions. I later spoke with Bill's healthcare agent and he expressed how grateful he was that Bill had a Living Will. He simply followed Bill's wishes and wasn't left with the difficulty of deciding when to end another person's life.

I've learned that estate planning is really meant to benefit the people we love. When we plan, we provide set of instructions wherein we describe what we want to happen during our incapacity and at our death. These instructions are invaluable when it comes time to make decisions. Taking care of our estate planning is a great gift to give our loved ones this holiday season.

Tax Reform Framework

Today, the Trump Administration, the House Committee on Ways and Means, and the Senate Committee on Finance released a long-awaited tax proposal, titled the Unified Framework for Fixing Our Broken Tax Code. The United Framework proposes to:

• Reduce the number of tax brackets from seven to three, with rates of 12%, 25%, and 35%, without specifying where the brackets start and end;

• Almost doubling the standard deduction from its current amount to $24,000 for married taxpayers filing jointly and $12,000 for single filers;

• Repeal personal exemptions for dependents and, to offset the repeal, increase the child tax credit to an unspecified amount and increase the income levels at which the child tax credit begins to phase out;

• Expand the child tax credit concept to give a $500 credit to anyone caring for a family member who isn’t a child, regardless of age;

• Repeal the individual alternative minimum tax; • Eliminate most itemized deductions (including deductions for state and local income taxes), but retain tax incentives for home mortgage interest and charitable contributions;

• Repeal the estate and generation-skipping transfer taxes (without mention of the gift tax); 

• Eliminate the deduction for state and local taxes. 

What's The Value of an Estate Plan?

Most people agree that some type of life insurance is very important. I certainly believe it is, which is why I make monthly payments on my term-life policy . If something where to happen to me, life insurance will ensure that my wife and kids are financially taken care of.

Consider this: Depending on which study you read or expert you ask, less than 1-2% of term-life policies will actually pay out. Why? Because 98-99% of people will outlive their term policy.

Now think about estate planning. Do we consider an estate plan as important as life insurance? We should, because 100% of people will actually use their will or trust.

Why Putting Off Your Estate Planning Is A Bad Idea

A friend of mine is a pilot. He was recently flying with his wife when he experienced problems with his plane. His plane lost power at 12,000 feet and he was forced to make an emergency landing in a snowy field. His plane came to a stop less than 100 yards from a 700 foot cliff. Fortunately, he and his wife were unharmed. They also have their estate planning in order. 

This experience reminded me that we never know when tragedy might strike. And it's not just limited to what we might consider a high risk activity like flying a plan. A car accident or a botched surgery could be life-changing. There's really no reason to put off your estate planning. In fact, getting it done will create a sense of peace.

Call me today for your free estate planning consultation. 

What To Do With An Inherited IRA


IRAs are unique creatures. There are very specific rules that apply when these are inherited. There are several distribution options that apply to both spouses and non-spouses. Each option has its own tax implications. Regardless of your relationship, you can:

  • Inherit the IRA. You can transfer the proceeds into an inherited IRA for your benefit so that the assets can grow tax-deferred. You can then take distributions over your lifetime and enjoy the benefit of tax-deferred growth on the assets remaining in the inherited IRA.
  • Take a lump-sum distribution of the assets. Once you've inherited the IRA, you can take a lump-sum cash distribution. However, you'll lose the benefit of tax-deferred investing and, because the money counts as ordinary income for the year in which you receive it, you may end up with a sizable tax bill.
  • Refuse to take ownership of the assets. You have the right not to take the inheritance. This refusal is called "disclaiming" the inheritance. If you do, the surviving primary beneficiaries, or secondary beneficiaries if there are no other primaries, are entitled to the undistributed amounts. 

If you inherit an IRA, whether it's a traditional or Roth, the IRS requires you to take at least some of the account balance out each year. It's called a required minimum distribution (RMD). (Depending on your situation, you may be able to wait until you reach age 70½ to take your first RMD.)

The amount of your first RMD and when you need to take it to avoid tax penalties are based on a few factors:

  • Your status as a surviving spouse, a spouse who's also one of several beneficiaries, or a nonspouse beneficiary.
  • The date of the original owner's passing and whether the owner was older or younger than age 70½ at the time of death. In most cases, you'll need to take your RMD by December 31 of the following year. However, if the owner passed after reaching age 70½, you may also be responsible for taking the owner's remaining final RMD by December 31 of the year of death.
  • If other beneficiaries were named. The life expectancy used in the RMD calculation depends on whether each beneficiary has established his or her own inherited IRA by December 31 of the year following the original owner's death. If so, you can use your own life expectancy. However, if the account isn't split into separate IRAs by the deadline, the oldest beneficiary's age is the one used to determine the RMD amounts for all the beneficiaries.

Before you decide on a distribution option, you should talk to an attorney who has experience with these decisions. The potential tax implications and loss of tax-deferred growth are serious issues with substantial financial consequences.

Will Your Estate Plan Work?

My wife and I recently purchased a mattress and are in the process of replacing our car that was stolen/wrecked ( a story for another time). With most of these products, you can try them out for a few days or a few months. If it doesn't work right or you don't like it, you return it with no further obligation. This ability to try things out provides a sense of comfort and confidence in your purchase.

How do you get the same effect with your estate plan? You really won't know whether your estate plan works like it should until your incapacitated or you've died. Those aren't the ideal times to validate your estate plan. There are ways to ensure your plan will work. 1) Don't do it yourself. Let a professional handle it. 2) Work with an attorney who is experienced and has created plans that have proven effective. 3) If you have an existing plan, have it reviewed. 

Urgent vs. Important

I was reminded last week of a concept from Steven Covey's book "Seven Habits of Highly Effective People." It's the idea of categorizing tasks as urgent/not urgent and important/not important. I'm usually pretty good about taking care of things that are urgent and important. It's the not urgent/important tasks that I put off. I've found that estate planning falls into the not urgent/important category for many people. It's something they know they need to get done, but there's no sense of urgency.

 There was a client at my old firm who loved to purchase properties at tax lien auctions, and had over 100 properties. The story goes that he told his family that all of the information about the properties was in his head and he'd eventually get around to taking care of his estate planning. He didn't get around to planning before he died.  The family was left with a huge mess as they tried to discover all of the information that their father had kept to himself. 

Because life is so unpredictable, estate planning should not just be important. It should also be urgent. 

Summer Plans Without Kids?

A friend of mine with young children was lucky enough to get away with just his wife for a few days. He was concerned about what would happen if their was an accident while he was gone. How would his mother-in-law be able to make medical decisions for his children if he and his wife couldn't be reached? 

I was able to help him with a document that appointed his mother-in-law as a temporary guardian. For the duration of my friend's trip, his mother-in-law had the authority to make medical decisions for his children. 

If your summer plans involve leaving the kids at home, consider preparing a power of attorney that specifically covers your time away.

Prince: An Estate Planning Example of What Not To Do

Estate planning recently took center stage with news that singer, Prince died without a will or trust. Prince joins a long list of celebrities who died without an estate plan in place. This failure to plan is certainly not unique to celebrities. It’s estimated that close to 65% of Americans die without a will or trust.

So why is Prince’s failure to plan such a big deal?

·        His entire estate, valued at around $300 million, will be distributed outright to each of his siblings. This means no provisions on how the money should be spent. No asset protection that a trust could have provided. Who knows what kinds of problems await Prince’s siblings with this new-found wealth. 

·        Prince was a philanthropist and supported numerous causes. He was also a devout Jehovah’s Witness. He could have established foundations to continue his legacy of giving. Think about all of the good that could have been accomplished with gifts to the charities and causes he supported. Instead, they will get nothing.

·        For someone who went to great lengths to protect his privacy while living, he did nothing to keep the administration of his estate private. Since probate proceedings are public records, this entire process will be broadcast to the world.  A trust could have kept this out of the courts and kept the estate administration private.

·        Prince’s estate will likely end up paying estate taxes in excess of $100 million. A good estate planning team could have significantly lowered this amount.

While none of us will have this type of fortune to plan for, there are still important lessons to learn.

1.      Now is the time to get it done. Estate planning is one of those things that people know that they need to do, but it always gets shoved to the bottom of the to-do list. Stop making excuses and make it a priority to get it done this month or this year.

2.      It’s more than just planning for when you die. Most people overlook what happens when they become incapacitated and are unable to manage their financial affairs or make their own medical decisions. Through powers of attorney, you appoint someone to make decisions when you can’t.

3.      Are you comfortable leaving an outright lump sum of assets to your kids? If you have children who have problems with addiction, who are in a profession that’s prone to lawsuits, are in a less than ideal marriage or have problems managing money, you should consider leaving their inheritance in a trust.

4.      You’re not just doing this for yourself. I assure you that you will feel a sense of peace and relief knowing that you’re not leaving your loved ones a huge mess when you die.