5 steps to help create an estate plan

Planning your estate may seem like a daunting task, especially when you are young and have no concept of what the future holds. It can seem overwhelming to consider your worth or how much of your estate you will leave to loved ones. This article provides steps to create an estate plan, so you know where to start...

When it comes to estate planning, procrastinating is easy. The task of getting your house in order can seem daunting and the topic uncomfortable. In fact, while the majority of Americans believe that all adults should have an estate plan, only 44 percent have actually created one, according to a 2011 LexisNexis survey.

Unplanned estates may be left to wind their way through probate court, leaving state law to determine the disposition of your assets.

“The time to devise an estate plan is now, if you haven’t already,” says John Padberg, vice president of Life Event Services and Estate Planning for Wells Fargo Advisors. Many people equate estate plans with wills, he says, but a well-thought-out structure involves much more. There are many tools, such as living trusts and financial and health care powers of attorney, that can help trusted professionals and family members manage your affairs if you cannot.

Planning needn’t be stressful, and the results often confer the comfort given that comes from knowing your assets will be distributed in an orderly way. Padberg offers five steps to help you create an estate plan to accomplish that goal:

1. Work with an experienced estate planning attorney. It takes specialized expertise to create a plan that includes all the necessary elements and meets your specific needs. A solid estate plan will likely consist of several documents, which may include the following:

• A will, which states how individually-owned assets are to be distributed upon death.

• A living will, which communicates your wishes regarding life-prolonging medical treatments.

• Powers of attorney, which designate another individual to handle financial or health care matters if you are incapacitated.

• Revocable trusts, which can be useful in avoiding the probate process in states where probate is burdensome, and can be altered or canceled according to your wishes.

2. Assess your assets. Before drafting your estate plan, ask your financial advisor to prepare a financial net worth statement for you. This will give you a clear sense of what you are working with. Also, review your beneficiaries listed on critical documents such as life insurance policies and retirement plans. Beneficiary designations determine how those assets will be distributed, Padberg cautions, so you want the named beneficiaries to reflect — and not undermine — your intentions.

3. Define your goals. An estate plan is also your opportunity to direct how your wealth will be passed on to the next generation. “You want to think as much about how you want to pass your assets — outright to your heirs or distributed through a trust — as you do the amount that each person should get,” Padberg says. For instance, leaving a large sum to a child or young adult may create long-term issues if the child lacks the skills or maturity to manage such a windfall.

Read more:

http://www.ahwatukee.com/columns/financial_advice/article_8bd54ec0-9e4d-11e3-8e94-001a4bcf887a.html

Five Estate Planning Lessons From The Paul Walker Estate

Here is a celebrity that had an estate plan worth modeling yours after. Unlike so many public personas that don't put much in the concrete planning, Paul Walker planned for his daughter to be taken care of over time. She will not automatically receive a lot of money when she turns eighteen, which will avoid the urge to spend irresponsibly. Read the article for more information.

What lessons can we draw from this?  Good question!

Here are Trial & Heirs’ Top 5 Estate Planning Lessons from Paul Walker’s Estate.

1.  Paul Walker Placed His Trust In A Trust.

Having a will is only the start.  A revocable living trust is the best estate planning tool for most people.  Walker’s will left all of his assets to a trust he created, which means the probate process will be much simpler and less onerous than it could have been.

Hopefully, the trust also means that his young daughter will receive Walker’s millions in a controlled fashion, over time — not all at once when she turns 18.  Trusts done by good estate planning attorneys typically stretch out distributions for young adults, but we don’t know for certain with Paul Walker’s trust because it is a private document.

2.  To Be Most Effective, Trusts Need To Be Fully Funded During Life. 

The reason we do know that Walker had a will, trust, and 25 million in assets is because he didn’t fully fund his trust.  When trusts are fully funded — meaning that assets are transferred into the name of the trust during lifetime — then there is nothing left to pass through the will.  This means the probate court process can be completely avoided.

Instead of this, Paul Walker relied on his will, which is a pour-over will that passed everything along to his trust.  The end result is the same, because the trust — not the will– dictates who receives the assets and when.  However, the public scrutiny, cost and hassle are much higher than if he had completed the proper funding ahead of time.  Had he done so, it would have kept his family’s affairs private — wills and all probate filings are public record.

3.  Naming A Guardian For Minor Children Is Always A Good Idea.

Paul Walker gets a big point for naming a guardian for his daughter, Meadow, in his will.  Does that mean that Meadow’s mother will now lose custody of her?  Not necessarily.   The law still favors the custodial parents, meaning that Meadow’s grandmother will not take over guardianship unless the mother agrees or is found to be unfit.  It was still smart for Walker to address guardianship though, in case Meadow’s mother isn’t able or suitable to keep custody for any reason.

That may prove to be the case here, if media reports about the mother’s alleged drinking problems are true.  Reportedly, Meadow was already living with her grandmother and she may in fact become the guardian.  This report may not be accurate, however, because the probate filing indicates that Meadow lives with her mother, not her grandmother.

To read more:

  

http://www.forbes.com/sites/trialandheirs/2014/02/10/five-estate-planning-lessons-from-the-paul-walker-estate/2/

  

What You Can Learn From James Gandolfini

Don’t End Up Like James Gandolfini

Sopranos fan or not, most people are well aware of the passing of actor James Gandolfini, who played Tony Soprano on HBO’s hit show.  Though Gandolfini was not exactly the picture of good health, any time a 51 year old dies of a massive heart attack, it’s safe to call it unexpected.  And with unexpected deaths usually come unexpected consequences for that person’s estate.

Gandolfini died with what appears to be only a Last Will and Testament.  For some people, just having a Will is fine.  For someone with significant assets or a more complex estate though, a Will is generally insufficient.  Especially if the decedent hopes to pass along some of his accumulated wealth to heirs.  Gandolfini died with what appears to be a whopping $70M estate, with 20% of the estate passing to his wife, and 80% of the estate passing to his sisters and infant daughter.  More on this breakdown below.

What are the practical consequences of Gandolfini’s overall estate planning setup? First, by leaving such a large probate estate, Gandolfini’s private affairs have become ripe for public consumption.  We probably wouldn’t be talking about anything beyond the shock of his untimely death had he used a simple revocable trust to hold his assets.  As has been discussed in previous editions of this newsletter, revocable trusts, while not offering much in the way of long-term care planning or tax protection, at least offer probate avoidance and control of asset management.  Contrary to popular belief, a Will does nothing to help avoid the probate process.  It’s merely a tool that provides guidance on where a decedent’s assets are supposed to go upon death.

While I certainly wouldn’t have advised Gandolfini to use a bare bones revocable trust, I’d at least have counseled him to consider the multitude of other alternative estate planning strategies to help his family avoid the invasiveness and public scrutiny of probate. 

The bigger problem is the estate tax liability Gandolfini’s estate faces.  With the federal estate tax assessed on estates over $5.25M, it’s clear that Gandolfini’s estate is going to have a large bill from Uncle Sam.  How big? On the $70M estate that Gandolfini is reported to have, he’ll owe approximately $30M of that to the federal government. 

The Internal Revenue Code offers an unlimited marital deduction for estates passing to surviving spouses.  Thus, had Gandolfini left the entire amount to his wife, there would not currently be any estate taxes owed.  But because Gandolfini left 80% of his estate to non-spousal beneficiaries, that amount is taxed immediately upon his death.  And because of his poorly drafted Will, Gandolfini’s estate will have the added accounting and legal fees that come with attempting to calculate exactly what 80% of his estate amounts to.  Unless he died with cash only, valuing fractional interests in non-liquid assets is a complicated and time consuming process. 

Another major issue with Gandolfini’s estate plan is that he left an enormous share of the estate to his daughter, with no conditions on her receipt of the assets.  So while she won’t receive these assets until age 21, it’s safe to say that most twenty-one year olds aren’t equipped to handle millions of dollars.  Simply having a well-drafted Will that creates trust shares for minor beneficiaries is a simple and easy way to avoid such a problem. 

Again, it’s not so much that Gandolfini did a bad job of planning during his life. It’s that he wasn’t sufficiently prepared for the unexpected, and the unexpected happened.  These kinds of issues can happen with estates of $70M and they can happen to estates of $700,000.  Make sure you’re well-prepared.

*Many thanks to Jim Witt, a senior attorney at the National Legal Research Group in Charlottesville, VA, whose article on Gandolfini’s estate my own was derived from.  To read Jim’s article, visit www.nlrg.com.

Changing the Face of Special Needs Planning With 3 Simple Words

  Changing the Face of Special Needs Planning

With 3 Simple Words 

      - by Chad E. Nelson, Esq.

      Three simple words could change the face of special needs planning: "by such individual".  Without the proper context behind these three words, you're probably wondering what exactly their significance is. As we noted in November’s Elder Law Newsletter, special needs trusts are an invaluable vehicle for disabled persons who want to maintain their independence, but don’t want to have to impoverish themselves to do so.  Without getting into the technical aspects of the various kinds of special needs trusts available (for further review of this subject matter, you can visit our website), these trusts allow disabled persons to preserve assets while at the same time remaining financially eligible for programs like Medicaid and SSI. 

    The relevant statutory language authorizing special needs trusts permits “trust[s] containing the assets of an individual under the age of 65 who is disabled…and which is established for the benefit of such individual by a parent, grandparent, legal guardian of the individual, or a court…”  (Author’s italics).  Special needs planning practitioners often encounter clients who are ideally suited for a special needs trust, but because their clients may not have living parents or grandparents, nor a legal guardian, they are forced to petition the court for creation of their special needs trust in order to conform to the statute.  Functionally, this can be a nightmare, as the trust petition becomes the most time-consuming and expensive part of the entire process. 

    Special needs planning advocates, including the National Academy of Elder Law Attorneys (NAELA), are now attempting to address the issue by adding those three simple words to the statute: “by such individual”.   By authorizing the disabled individual to be the person who establishes his or her own trust, an entire cross-section of disabled persons who are without a parent or grandparent to act on their behalf may become able to enjoy the benefits of a special needs trust, but without the high cost and legal headache frequently involved. 

            When the statute was created in 1993, it was worded with the erroneous assumption that special needs individuals would not be competent to act on their own behalf.  Disabled persons and special needs planners now realize the folly of the wording.  Individuals receiving awards from personal injury lawsuits commonly suffer from this legislative oversight, as they are perfectly capable of privately creating their own special needs trust, but instead find themselves spending thousands of dollars in additional legal fees in order to have the court establish the trust. 

CHAD E. NELSON, ESQ.

CNelson@counsel1st.com

Professional Information:

State of Rhode Island, admitted in January 2009.

State of Massachusetts, admitted in January 2009.

State of Connecticut, admitted in September 2011.

Publications:

• "Planning for Special Needs Individuals", The Rhode Island Pooled Trust, July 2013.
• "Understanding Special Needs Trusts", Rhode Island Bar Association, December 2013.

Presentations:

• L.I.F.E., Inc., Bristol, RI, "Special Needs Life, Financial and Estate Planning", 2010.
• North Providence Special Education Advisory Committee, Quarterly Meeting, "Special Needs Planning Update", 2011.
• Kent County Sr. Provider Network, "Probate Process Basics", 2013.
• "CARE Sr. Provider Network, Newport, RI, "Guardianships and Pre-Planning," 2013."