Choosing the Right Beneficiary

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While estate planning allows you the freedom to choose who will receive your money and property upon your passing, struggling to determine who should receive your accounts and property at your death may prevent you from starting the process. You should not let this stop you from creating an estate plan, however. Whether it is naming a person or organization as your beneficiary in your last will and testament (also referred to as a will) or in a revocable living trust, making this important decision and having it officially documented is the best way to ensure that your wishes will be carried out.

 

What will happen without an estate plan? If you do not formally write out your wishes, the state will use its own default estate plan, outlined in state laws called “intestacy” rules, to give away your money and property. The exact amounts and order of priority for who will receive your money and property vary by state. Still, in general, the state’s plan will first give your money and property to your surviving spouse, then to your descendants (children or grandchildren), then to your parents, and then to your siblings and their children (your nieces and nephews), depending upon who has survived you.

 

Most importantly, the state—not you—decides how much each person will receive. For example, if you have more than one child, each child will receive an equal amount of your money and property. Depending upon the age difference between your children, this may not be the fair treatment you would have wanted. An older child will get their share immediately if the child has attained the majority’s age in your state (usually eighteen or twenty-one). However, a younger child (who has not attained adulthood) will have their share managed by a court-appointed individual, called a conservator or guardian, until the child becomes a legal adult. Additionally, your younger child may have to use his or her share to pay for things such as a first car or college tuition, whereas you may have been able to provide those items for your older child, who will now be able to use his or her share for other purposes.

 

If you are unmarried with no children, your money and property will be given to your parents. Depending on your parents’ relationship, and assuming that they survive you, these may not be the people you intend to leave your money and property to. Also, if your parents are older, receiving a large amount of money or property from you at your death could cause issues for them if they receive government benefits such as Medicaid for nursing home care.

 

If you are unmarried and have no children or living parents, your siblings will receive your money and property. Hopefully, this is what you would have wanted because this is the result. If this is not the outcome you want, you need to consider some other options.

 

Who are some other possible recipients? Now that you know who will receive your money and property, if you do nothing, consider who you do want to receive your money and property. With proper estate planning, you can help ensure that your money and property are given to those you want and used in the way you want. As alternatives to the individuals who may receive your money and property under the state’s plan, there are some other options for you to consider:

  • Your unmarried significant other. Regardless of how long a relationship the two of you have been in, if your state’s law does not recognize your relationship, the state’s plan may not treat your significant other as your spouse. If you want this person to receive any of the accounts or property solely in your name, you need to create an estate plan.
  • Your extended family members (nieces, nephews, cousins). While these individuals could receive your money and property under the state’s plan, many people would have to be deceased for them to be first in line. Therefore, if you have a close relationship with your nieces, nephews, or cousins, and you want any of them to receive money or property, you will need to take proactive steps.
  • Your close friends. Many people view their close friends as their family. Although you may not be blood-related, the bond between you may be stronger than what you share with those you are related to. If this is the case, providing for your close friends in your estate plan may be a great way to show you care and help them have a brighter and more prosperous future.
  • Your pets. According to a survey conducted in 2019–2020 by the American Pet Products Association, 85 million families own pets. Just like children, pets need to be cared for and loved after you have passed. Depending on the type of animal you have, your pet may have a substantial life expectancy. Using your money and property to care for your pets after your passing is a great way to continue to provide for them and could be a great financial help to whomever you choose to care for them.
  • Your favorite charity. In addition to the options discussed above, is there a cause that is particularly near and dear to your heart? Your money and property may be a great resource to further a cause and leave a lasting legacy. If this is the case, you must plan. By planning, you can meet with the charity and discuss your gift and determine how it will be used.

 

Important Points to Remember

  • It is your stuff, and you have the right to choose who gets it and how it gets used. Do not listen to the preconceived notions that people have regarding who should get your money and property: “You should leave everything to your family, no matter how distant the relation,” or “Because you are a religious person, you should give everything to your church.”
  • Just because a person has a special circumstance (is currently receiving government benefits, has an addiction, or is going through a divorce) does not mean you have to leave them out of your estate plan. If someone is important to you, they are worth providing for. We can help you craft your gift in a way that will protect your loved one while protecting your hard-earned money and property.
  • When deciding who to leave money or property to, always name a backup or plan for the money or property if the person has passed or the charitable organization is no longer in existence. You get to choose what happens to your money and property. Do not allow someone to step in and derail your intentions because of an unforeseen circumstance.
  • Estate planning is not a one-and-done endeavor. Once you have signed your documents, it is important that you periodically review your choices. Life is constantly changing; we want to make sure that the individuals or organizations you chose years ago to leave money and property to are still the same individuals or organizations you want to leave money and property to today.

Taking the first step can be hard, but we are here to help you. There are many reasons why you may be postponing your estate planning. We are here to help you navigate your fears and concerns and create a plan that addresses them and allows you to take control of your money and property, leaving a legacy designed by you, not the state. We are available for in-person and virtual consultations. Please contact us today.

Estate Planning Considerations for Religious Leaders

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Your noble calling is to help others grow in their faith and help them navigate the difficult circumstances that life may throw their way. It is important that you also take care of your affairs, however. A financial and estate planning team can help you create a plan that will protect you today and tomorrow so you can better serve your community and provide for those who count on you. Below are some important considerations for you to be aware of as you begin your planning journey

Retirement Accounts

If your benefits package includes a retirement account, this valuable and sometimes complex account must be planned and managed properly. One thing that makes a retirement account attractive is that you can name a beneficiary to receive ownership of the account when you pass away without court involvement. However, for this to work, you must complete the appropriate beneficiary designation forms. If you do not list a beneficiary, you risk the account having to go through the time-consuming and costly process known as probate and being given to the person that the state designates, not the person you would have chosen. Depending on your circumstances, the state’s choice could be the last person you would want to receive such a potentially large account.

If you had already designated someone as the beneficiary of your account when was the last time you reviewed the designation? Is this still the same person you would like to leave the account to? There are several reasons why you might reconsider your beneficiary designation. It is possible that the individual has passed away, has become disabled and needs to maintain eligibility for government assistance (in which receiving a large retirement account could disqualify them), or is someone with whom you have had a falling out. Or there may be some other individual or charitable entity that you would rather leave the account to now. As with many steps in the estate planning process, completing the beneficiary designation is not just a one-and-done task.

As with so many other areas of life, it is always good to have a backup plan. Your retirement account is no exception. After you have decided on a beneficiary or reviewed your beneficiary designation, you must name a backup beneficiary (also known as a contingent beneficiary). This will ensure that your account goes to the person you have chosen and not someone the state has chosen if your original beneficiary is deceased or decides that they do not want the retirement account.

If you find that deciding on a beneficiary or backup beneficiary for your retirement account is difficult, we can assist you. Due to recent changes in the rules governing retirement accounts, some beneficiaries may benefit more from receiving a retirement account than others. We can help you navigate the sometimes complex rules and design a plan that leaves the account to who you want, the way you want.

Choosing Beneficiaries

Just like with a retirement account, if you do not have an estate plan, your money and property will be given to those individuals that the state dictates in its intestacy laws. The exact amounts and order of who will receive your money and property are determined by these state laws. Still, in general, your money and property will go first to your surviving spouse, then to your descendants (children or grandchildren), then to your parents, then to your siblings, and then to your siblings’ children, depending on who survives you. If you are not close to these individuals, this could be the last thing you want to happen.

Choosing beneficiaries can be a major roadblock for many people, but it does not have to be for you. As part of the estate planning process, we can work with you to do some soul searching to determine the legacy that you want to leave behind. Are there individuals you are particularly close to, regardless of blood relationship, that could benefit from additional money or property from you? Do you have a pet that needs to be provided for at your passing? (No one said your beneficiary had to be human.) Is there a cause important to you that you would like to see furthered by a charitable contribution? No matter your answer, proper estate planning must be in place to get your money and property into someone else’s hands.

Charitable Giving

If you are considering donating money to your favorite charitable organization either during your lifetime or at death, here are a couple of questions you need to ask yourself before moving forward.

  • If you plan to make gifts during your lifetime, can you afford to donate? It is important to spend your money wisely, especially if you are nearing retirement, have already retired, or are on a fixed income. While a cause or organization may be near and dear to your heart, you still need to have money available to meet your living expenses. Consider making smaller donations during your lifetime and including the charitable organization in your estate plan as a beneficiary, allowing you to give a larger amount of money when you no longer need it.
  • How much should you donate? This is a great opportunity for you to identify your charitable goals and work with us to craft a plan that will leave a lasting legacy. Is there a specific project you want to help fund (e.g., the construction of a new library) where a large lump sum might be more useful to the charitable organization? Or would you rather provide continuous financial support to an organization? That decision would make a stream of income a better option. The choice is yours.
  • Are there any tax benefits to donating? While not all giving is motivated by tax considerations, you may want to check with your tax professional to see if your good deed can also generate a tax deduction for you.

Once you consider these questions and decide to move forward with making a charitable gift, there are a variety of ways you can do so during your lifetime and at your death.

During your lifetime:

  • Lump-sum. If there is a specific project that you would like your money to go towards, providing the charitable organization with a lump sum may be the best option. Hence, money is readily available to complete the project.
  • Over a period of time. If there is an ongoing cause that you would like to help fund, smaller gifts over time may help you better accomplish this—for instance, if you would like to provide a certain amount each year to fund a scholarship or sponsor a young adult on a mission trip.

At your death:

  • Last will and testament. Also known as a will, you can use this document to leave money or property to your desired charitable organization. With a will, you can determine which organization receives the money, how much the organization will receive, and how the organization will receive it (one lump sum or several gifts over a period of time). An important thing to remember is that by using a will, your loved ones will have to go through the probate process to get the money and property to the charitable organization at your death. If you want the charitable organization to receive money over a period of time, court oversight may continue until the last amounts are paid to the charitable organization.
  • Revocable living trust. This document also allows you to determine which organization receives the money, how much the organization will receive, and how the organization will receive it (one lump sum or several gifts over a period of time); however, this can all be handled privately without the involvement of the probate court.

Choosing Trusted Decision Makers

Another important estate planning consideration is who you should choose to make important decisions on your behalf. These are people that will either communicate or make decisions for you when you cannot due to incapacity or death. The following are some important roles that will need to be filled:

  • Personal representative. This trusted individual is appointed in your last will and testament and is responsible for collecting all of your accounts and property, paying your outstanding debts, and distributing your money and property to those you have named. This person is tasked with “winding up” your affairs.
  • This trusted individual has similar duties and responsibilities as the personal representative but without the close supervision of the probate court. The trustee must follow the instructions set forth in your revocable living trust document, collecting and protecting property, identifying and paying creditors, filing and paying any taxes due, and, finally, distributing the trust’s money and property to the beneficiaries you have chosen.
  • An agent under a financial power of attorney. This individual carries out financial transactions (such as signing a check or opening a bank account) on your behalf. The duration and scope of the agent’s authority is laid out in the financial power of attorney.
  • An agent under a medical power of attorney. If you cannot communicate or make medical decisions, someone else will have to do it for you. By properly naming this person, you retain control over who is making medical decisions on your behalf instead of allowing a judge to make those decisions.

We Are Here to Serve You

These can be very overwhelming decisions to make on your own, but you are not alone. We are here to walk you through the process, answer your questions, and help you design a plan that protects you and your loved ones and leaves a lasting legacy you can be proud of. We are available for in-person and virtual consultations, whichever is more convenient for you. Contact us today.

Estate Planning Considerations for Incarcerated Individuals

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If you are preparing for or are currently incarcerated, the future may be uncertain right now. Proper estate planning may ease some of the worries you are facing. Regardless of how long your incarceration is for, we are here to help you address your concerns and develop a plan that will protect you and your family for many years to come.

How will my bills get paid while I am away?

A helpful tool to manage your money and property, regardless of the reason, is an immediate durable financial power of attorney. A financial power of attorney allows you to choose a trusted person (an agent) to handle your financial matters for you. Your agent can handle a wide variety of transactions, from signing checks to opening a new bank account, depending on the authority you give that person. Because it is an immediate power of attorney, your agent will have the authority to act on your behalf as soon as you sign the document (or the agent signs an acceptance form acknowledging their responsibilities, if your state requires it). Although your agent can immediately act on your behalf, you will still have the ability to conduct your own business—you just have the benefit of an additional person being able to act for you. Lastly, by making your financial power of attorney durable, your agent’s authority will continue even if you become incapacitated (unable to communicate or make decisions for yourself).

A revocable living trust (RLT) can also be a helpful solution to manage your money and property while you are away. An RLT is a trust you create during your lifetime that can be changed until your incapacity or death. This planning tool enables you to name yourself as the current trustee (the person or entity charged with managing, investing, and handing out the money and property) and to designate a co-trustee or alternate trustee if you are unable, for whatever reason, to act as the trustee. An RLT also allows you to continue enjoying the money and property during your lifetime, as well as designate what will happen to that money and property upon your death, protecting it for your chosen recipients.

An added benefit of an RLT is that any accounts and property owned by the trust will not have to go through the probate process. Probate is the court-supervised process that must take place to distribute accounts and property you own at your death to your loved ones. By avoiding probate, you can keep your private family matters out of court and save your loved ones’ time and money.

If you have a minor child, an RLT may be especially useful for you. You can include provisions in an RLT that specify when and how the funds should be used for your minor child’s benefit while you are present. You can also provide instructions to your alternate trustee for certain expenses to be paid while you are away to ensure that your minor child is provided for in the same way you would provide for your child. Similar provisions can also be included for other individuals in your family who may depend upon you for care.

Should you pass away without proper planning, any money or property that would go to your minor child according to state law will be managed by a court-appointed individual, who could be a stranger. Also, once your minor child reaches the age of majority (eighteen or twenty-one depending on your state law), the court will give your child the remainder of the money and property in one lump sum. This means your newly-minted adult could spend everything on a wild weekend in Vegas or be taken advantage of by someone wanting your child’s money.

One caveat, however: This type of trust will not protect your money and property from your creditors, including fines, costs, restitution, and other charges associated with your incarceration.

Who will take care of my minor child?

Another critical concern during incarceration is the care of any minor children you may have. If your minor child’s other legal parent is still alive and able to care for your child, the other parent will continue to provide care or will assume caregiver responsibilities. Nevertheless, it is a good idea to plan for what will happen if both of you are unable to care for the minor child, just in case. If you are the only living parent or the other legal parent is unfit to care for your child, however, you must make the proper arrangements. While most people are familiar with the idea of naming a guardian for a minor child in a Last Will and Testament, this document does not become effective until your death. Therefore, to properly plan for your minor child’s care during your absence, you must name a guardian in a separate writing that meets state law requirements. We can discuss the planning options available to you under our specific state law.

Failing to plan can have dire consequences for your minor child. Without instruction from you, the court will use its discretion in deciding who is best suited to care for or make decisions for your child should you be unable. We all know of individuals who appear one way in public but are completely different in private. Because you know your family best, you need to be the one making this decision, not a judge.

Why do I need other estate planning documents?

The above-mentioned estate planning documents can offer you and your family critical support during this time of transition. However, to make sure that you and your loved ones are protected to the fullest extent, there are a few other documents that are worth mentioning.

Medical Power of Attorney

This document allows you to name a trusted decision-maker to communicate your healthcare wishes if you cannot do so. Regardless of where you may be, someone must be able to make these decisions for you if you cannot. If you do not formally choose a medical decision-maker, your loved ones will face going to court to have someone appointed by a judge to make these medical decisions. This person may not be the one you would have chosen. Additionally, this court process takes additional time and money during an already stressful time.

Living Will or Advanced Directive

Known by either name depending on your state, this document allows you to convey your wishes regarding end-of-life decisions. Because these can be very sensitive topics, it is important that you carefully consider your wishes. This may take some soul-searching, but you must know what you want to happen in certain situations so that your wishes can be properly documented and communicated to your chosen medical decision-maker. Absent specific instructions from you, your medical decision-maker will be left trying to figure out what you would have wanted. Not only can this can cause additional grief in a difficult situation, but it could also breed disagreements among your loved ones if there is a differing opinion on how to best care for you.

HIPAA Authorization Form

This form allows you to grant specific individuals access to your medical information (e.g., to get a status update on your condition or receive your test results) without giving those individuals the authority to make decisions on your behalf. By at least providing medical information to your loved ones, you can help quiet the anxieties and uncertainties that often arise during times of emergency. This can also help alleviate tensions between your medical decision-maker and the rest of your loved ones. Although only one person will be making medical decisions, the rest of your loved ones will at least understand why those decisions were made.

Last Will and Testament

A Last Will and Testament, also referred to as a will, is a document where you can name a personal representative or executor (the person in charge of collecting all of your accounts and property, paying your outstanding debts, and distributing your money and property to those you have named), specify who will receive your accounts and property, and name a guardian for your minor child, if necessary. Although this document is only useful at your death, it provides a way for you to officially express your wishes. If you fail to have a will, the probate court will determine who gets your money and property according to state law.

Let us help you

We understand that you may be going through a difficult time, but we want you to know that we are here to help. Protecting you and your family is our priority. If you have any questions or would like to discuss ways we can best serve you and your family, please give us a call today. We are available for in-person and virtual consultations, whichever is most convenient for you.

Understanding the Differences Between Wills and Trusts

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Wills and trusts have specific and quite different benefits for estate planning purposes. Each state has specific laws and regulations governing these legal documents. You can have both a will and a trust; however, the information in each should compliment the other. As a standalone, it is not accurate to say one is better than the other. The better choice for you, or a blend of both documents, depends on your assets and life circumstances. Begin by assessing your situation, goals, and needs, and understanding what wills and trusts do to guide your decision making. Then, along with an attorney, you will be able to identify the solution that best suits and protects your family.

At its most basic level, a will allows you to appoint an executor for your estate, name guardians for your children and pets, designate where your assets go, and specify final wishes and arrangements. A will is only enacted upon your death. It has some limitations regarding the distribution of assets, and wills are also subject to a probate process (which occurs in court and is overseen by a judge) and, as such, are part of public records.

Types of Wills for Your Estate Plan

The last will and testament designates a person’s final wishes about bank accounts, real estate, personal property, and who should inherit these items. A personal will outlines how to distribute possessions, whether to another person, a group, or donate them to charity. It also deems responsibility to others for custody of dependents and management of accounts and other interests. Accounts can include digital assets with a tangible or monetary value associated with it, such as funds in a PayPal account.

A pour-over will ensures an individual’s remaining assets will automatically transfer to a previously established trust upon their death. This type of will always accompanies a trust.

A living will or advance directive specifies the type of medical care that an individual prefers if they cannot communicate their wishes.

A joint will and mutual will is meant for a married couple to ensure that their property is disposed of in an identical manner. A mirror will is two separate but identical wills, which may or may not also be mutual wills.

A holographic or handwritten will is valid in about half of the states and must meet the specific state’s requirements. Authentication of this will type for acceptance to the probate process also varies by state. There is always the possibility that a court will not accept a holographic will. Even if you have limited assets, your best strategy is to have your will professionally documented by an attorney. A video of your final wishes does not create a valid will.

Trusts are somewhat more complicated than wills, and the many different trust types can greatly benefit your estate and beneficiaries. Generally, a trust provides for the distribution and management of your assets during your lifetime and after death. Trusts can apply to any asset you hold inside the trust and offer more control over when and how your assets are distributed. There are many different trust forms and types, far more than wills.

However, the creation of a trust is only the beginning of the process. You must fund your trust by legally transferring assets into it, making the trust the owner of those assets. This process makes creating a trust a bit more complicated to set up; however, a trust is often enacted to minimize or completely avoid probate, thus keeping personal records private. Avoiding probate is a huge advantage for some people and often justifies the additional complex legal work of setting up a trust. There are nearly as many types of trusts as issues to address in your estate planning, and each offers different protections. However, trusts generally fall into three basic categories.

Basic Trust Types For an Estate Plan

A revocable living trust is, by far, the most commonly implemented trust type. The person who creates and funds the trust is known as the grantor and will typically act as the directing trustee during their lifetime. The grantor may undo the trust, change its terms, and move property and assets in and out of the trust’s ownership as they deem desirable. Revocable living trusts are designed to switch to an irrevocable trust upon the death of the grantor.

An irrevocable living trust is legally binding on its date of designation and allows very few provisions for change. The trust grantor funds the irrevocable living trust with property and assets, and the trust property is then under the care and control of the individual the grantor names as trustee. The grantor cannot change their mind and “undo” the trust. There are unique tax implications and other benefits to an irrevocable trust, including protecting a person’s home and savings from the high costs of long term care. These benefits can make relinquishing control worthwhile.

A testamentary trust is a provision within a will, appointing a trustee to manage the deceased’s assets. This trust is often used when the beneficiaries are minor children or someone who is receiving public benefits. This trust type is also used to reduce estate tax liabilities and ensure professional asset management. A testamentary trust is not a living trust. It only exists upon the death of the testator (the writer of the will). The executor of the deceased’s estate would follow the terms of the trust (called administering the trust) as part of the probate process.

Things to put into a trust include but are not limited to:

·      Stocks, bonds, mutual funds

·      Money market accounts

·      Brokerage accounts

·      Patents, copyrights, and royalty contracts

·      House and other real estate

·      Business interests and notes payable to you

·      Jewelry and precious metals

·      Works of art or other valuable collections

Assets that are not affected by trusts include but are not limited to:

·      Life insurance proceeds

·      Payable on death bank accounts

·      Retirement accounts

·      Jointly owned assets

·      Real estate subject to transfer-on-death deed

The many benefits that proper estate planning with wills and trusts can provide to your family are worth some thoughtful contemplation, legal counsel, and properly drafted documents.  We would be happy to meet with you and discuss which options are best for your particular situation.

Protecting a Loved one Who Is, Will Be, or Has Been Incarcerated

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It is natural to want to protect our loved ones no matter what. However, you may be finding it difficult to provide a prosperous future for your loved one if that person will be, is, or has been incarcerated. Unfortunately, this event will forever change your loved one’s life, but with the right planning, you may still be able to provide the kind of future you envision for your loved one.

 What You Should Not Do

When crafting an estate plan for you and your loved one, it is important to do it properly. The most important thing to remember is that you should not leave any money or property outright (directly to) your loved one. If money or property is given directly to your loved one, those accounts or pieces of property will be deemed to be owned by your loved one and may be subject to any outstanding fines, costs, restitution, or other charges associated with your loved one’s incarceration. If your goal is to make sure that your money and property are used for the benefit of your loved one and not for expenses incurred due to the incarceration, you need to do the proper planning.

What You Should Do

To adequately protect yourself, your accounts and property, and your loved one, the first thing you need to do is put an estate plan in place. If you do not create an estate plan, the probate court will use its default estate plan. This means that your accounts and property will be distributed according to state law, not your wishes. The state law will dictate

  • who will receive your money and property (usually your spouse and children, or your parents if you do not have a spouse or child),
  • how much the individuals will receive, and
  • when those individuals will receive the money and property (typically as soon as the probate proceeding is done).

If you have a minor child, this distribution plan can be exceptionally harmful because the money or property left to your child will have to be managed by a court-appointed adult (possibly a stranger), and the child will receive the balance of any money and property when the child reaches the age of majority (eighteen or twenty-one years old depending on state law) with no strings attached. After receiving the money, your new adult could spend the entirety of your hard-earned money and property on a wild trip to Atlantic City or could be swindled out of it by a malicious predator.

Secondly, when creating your estate planning, work with an experienced estate planning attorney. While it may seem easier to use a DIY solution found online, an experienced estate planning attorney will ask you specific questions and follow-up questions to best understand your true wishes and family dynamics, explain the available planning options, answer any additional questions you may have, and be a trusted advisor through all stages of your life (and possibly those of your loved ones).

One legal strategy that may be beneficial is using a discretionary trust for any money or property you would like to leave to your incarcerated loved one. A discretionary trust is a trust in which the trustee (the person or entity you have chosen to be in charge of managing, investing, and handing out the money and property) uses the trustee’s discretion as to when distributions of money or property are made to or for the benefit of your chosen beneficiary (your incarcerated loved one). Because your loved one will not be guaranteed a specific amount of money or piece of property, the funds will be better protected from any creditors, predators, or a divorcing spouse that your loved one may have.

A discretionary trust can be set up as its own separate legal entity, or it can be used as part of your revocable living trust, whichever makes the most sense for your planning needs. It is important to work with an experienced estate planning attorney to ensure that the trust is structured in a way that best protects the accounts and property owned by the trust from the specific costs, fees, and orders associated with your loved one’s incarceration. Because state laws can vary regarding the payment of fines, costs, restitution, and other charges associated with your loved one’s incarceration, an experienced attorney can help make sure you use the right strategy for your unique situation. Choosing the right trustee for the discretionary trust is important and must be done carefully. Consider the person’s ability and availability to carry out the responsibilities of being a trustee and make sure to provide clear guidelines for the trustee to consider when looking to use the trust funds for the benefit of your loved one.

Additional Considerations for Your Estate Plan

A comprehensive estate plan can include several different documents: last will and testament, revocable living trust, financial power of attorney, medical power of attorney, living will or advanced directive, and HIPAA authorization form. As part of these documents, you will need to name several different trusted individuals to act on your behalf. Depending on your relationship with your loved one and the length of your loved one’s incarceration, you may be tempted to appoint your loved one to one of the following important roles in your estate plan. Before doing so, you need to carefully consider the duties and responsibilities for each role and inform your estate planning attorney of your loved one’s status, as it may impact your loved one’s ability to serve in that role.

Personal representative: This trusted individual is appointed in your last will and testament and is responsible for collecting all of your accounts and property, paying your outstanding debts, and distributing your money and property to those you have named upon your death. This person is tasked with winding up your affairs, which can be a time-consuming role. It is important to note that some states prohibit a felon from serving in this position, so you will want to determine whether or not your loved one would even be allowed to serve before you make such an appointment. This is also a good reason to make sure that you name a backup personal representative in case your first choice is not able to serve, for whatever reason.

The agent under a financial power of attorney: This is the individual chosen to carry out financial transactions (such as signing a check or opening a bank account) on your behalf. The duration and scope of the agent’s authority are specified in the financial power of attorney. Depending on your state’s laws, you may be free to choose someone with a criminal record to act on your behalf, but depending upon the nature of the individual’s crime, you may want to consider whether your loved one is the appropriate choice. Can you trust this individual to make financial decisions that are in your best interest? Will choosing this individual cause fighting among your loved ones and unnecessary court challenges if you become incapacitated and your agent is now making decisions on your behalf without your oversight? When choosing someone to serve in a role such as this, it is important not to let stereotypical notions, such as always picking the oldest child, deter you from choosing the right person for the job.

Guardian for your minor child: If your minor child’s other legal parent is still alive and can care for your child, the other parent will continue to provide care or will assume the caregiver’s day-to-day responsibilities. However, if you are the only living parent, or if the other legal parent is unfit to care for your minor child, a guardian will be needed. Because your designation of a guardian in a will or separate writing is a nomination, a judge will still need to determine whether the person you have chosen is fit to care for your minor child. Depending on state law, someone with a criminal background might not be automatically disqualified, but a judge could weigh this factor heavily if other family members are opposing the nomination of your loved one with a criminal background. Ultimately, the judge will make a decision that is deemed to be in the child’s best interest.

The agent under a medical power of attorney: If you cannot communicate or make medical decisions, someone else will have to do it for you. By naming an agent under a medical power of attorney, you are able to dictate who has the authority to do so instead of having a judge make that decision. Although someone with a criminal background can serve as your medical decision-maker, you will want to make sure that this individual will be available to make those decisions on your behalf whenever the need may arise. If your loved one’s ability to travel is restricted, could these limitations impact your loved one’s ability to be by your side and be your medical advocate?

Protecting Your Family As You Wish

Having a loved one in trouble with the law is never easy. We are here to help you protect yourself, your money, and your property, and to provide the type of future you want for your loved one. If you have any questions or would like to discuss next steps for crafting an estate plan that meets your family’s unique needs, please give us a call. We are available for in-person or virtual consultations, whichever is more convenient for you.

Social security disability for Income and Qualifications

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It’s important to understand, anyone can become either temporarily or permanently disabled. Some projections are estimating that Americans in their 20s today have an approximate 30 percent chance of experiencing a disability profound enough to cause them to miss three or more months of work before retiring. Despite the risks, most Americans do not carry short or long-term disability insurance. Close to half of all mortgage foreclosures are due to owners being struck with a disability, and fewer than 15 percent of people who purchase life insurance opt for disability insurance. The Social Security Administration (SSA) was tasked in 1956 to address disability and work income by creating a disability insurance program. Throughout its long history, additional rules have contributed to its complex regulations and eligibility requirements that make applying for disability benefits difficult.

Understanding Disability Benefits

The disability benefits are in the form of monthly payments to provide a safety net for qualified individuals who have become too disabled to work. The benefits are paid through the Social Security Disability Insurance (SSDI) or the Supplemental Security Income (SSI) Programs. Both of the programs are intended for disabled workers, but they have different benefits and qualifying requirements as well as different funding sources.

To become eligible for the SSDI program, you will have worked a required number of years in a job where you paid into the social security taxes (FICA, Federal Insurance Contributions Act). You have to have accrued a certain number of work credits. You can earn up to 4 work credits per year. Workers that do not have the required number of work years and who also have low income and minimal assets can apply for SSI. In both programs, you are not eligible to be engaged in a substantial gainful activity (SGA), earning a certain amount of income from some other work.

Requirements for SSDI Benefits

The number of work credits required as a qualification for SSDI benefits depends on the age at which you became disabled. Generally, it is possible to qualify if you have earned at least 20 credits in the ten years before being disabled and if you have earned credits that total 40 or more. If you do not have enough work credits to qualify, there is a chance you can become qualified based on a spouse or parent’s work record. There are many regulations governing eligibility for SSDI, and each individual has a varied work history. To understand how to qualify and how much you should be able to receive, it is best to contact a legal professional for help.

Meeting Requirements for SSDI

Once you qualify from a work history perspective for SSDI, then you must prove you meet medical eligibility requirements. SSDI benefits are available to those workers who have a severe, long-term, or total disability. A severe disability is a condition that interferes with general work-related actions. Long-term disability means you are unable to perform “substantial gainful activity” (SGA) for a minimum of one year. Total disability is a person’s inability to work in their own or any other occupation for which they are suited by training, experience, or education due to a sickness or injury.

Programs Available for Disabilities

SSI medical qualifications are similar to medical terms used in SSDI qualifications; however, these individuals must also have limited resources and a low income. The benefits from the SSI program are funded through general tax revenue and not dependent on your work history or having paid into the social security taxes known as FICA.

For either program, it can be challenging to qualify for the SSA’s definition of disabled. To be considered disabled by the SSA, your condition has to last a year or be expected to last a year. Or your condition should be expected to result in your death. Your condition must also significantly limit your abilities to do necessary work activities like walking, sitting, standing, or retaining and remembering information. Additionally, your condition must be listed in the SSA’s “Listing of Impairments” (Blue Book) or have medical equivalency to listed conditions. Finally, your condition must prevent you from doing any work for which you qualify before your disability.

Application Process for SSDI

Becoming approved for benefits is a lengthy and often frustrating process as many people are denied on their first application. A myriad of forms, doctors’ recommendations, personal medical history, work, and tax documentation all contribute to becoming accepted into either program. You can apply online or at your local social security office. It is best to contact the office to schedule an appointment to submit your application for benefits. Regarding financial qualification, be prepared with your work history and current earnings, household assets and income, your bank, and financial institution information. Also required is your current and past employers and up to five jobs you have held in the past 15 years, any other benefits you may be receiving, your status of citizenship, and, if applicable, any paperwork from a military discharge.  Pay stubs, proof of citizenship, W-2s or 1099s, information about your disability, and detailed medical records are all pertinent data to bring.

An initial application that is denied has multiple stages of appeal. You can enter a request for reconsideration or even go up as high as an appeal to a federal court. If your condition has made you very sick and you are experiencing a severe medical condition, there is a streamlined process known as the SSA’s Compassionate Allowance List. This list primarily includes adult brain disorders, certain cancers, and several rare disorders that affect children.

If and when you are approved for disability income through SSDI or SSI, there is a waiting period. Benefits will not be made available to you until you have been disabled for a full five months, and, likely, you will not be approved for six months to a year, including the likelihood for at least one level of appeal. Be prepared from the outset for a lengthy process and improve your chances for approval with a well thought out, legally reviewed application for disability income. If you have questions or would like to discuss your situation with us, please don’t hesitate to reach out contact our office by calling us at (405) 241-5994.

Athletes: Your Game Is Not the Only Thing That Needs a Winning Strategy

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In sports, success frequently brings significant monetary compensation. While this is a dream come true for most individuals, it is important to take the right steps to safeguard this hard-earned money. Most people assume that the biggest challenge is spending beyond one’s means. While this can cause many problems, it is not the only issue that athletes need to be aware of and plan for.

Your Off-Court or Off-Field Penalty: Taxes

There are several types of taxes that may impact you as an athlete if you play in the United States.

Gift tax

As you make more money, it is natural to want to give gifts to or support your loved ones. But be careful, as those gifts could generate a tax. According to the Internal Revenue Service (IRS), the gift tax is a tax on the transfer of property from one person to another when nothing, or less than full value, is received in return. Luckily, not all gifts are subject to the tax. Each person has an annual gift tax exclusion amount ($15,000 in 2020). This cap is the amount or value someone can give another person during the calendar year without the IRS assessing the gift tax. This amount is per person, meaning you can give up to $15,000 to as many people as you want in 2020. An easy way to avoid the gift tax is to make sure you are not giving a friend or loved one more than the annual exclusion amount each year.

Alternatively, if you want to make a larger gift, keep in mind that every US citizen has a lifetime estate and gift tax exclusion of $10 million adjusted for inflation ($11.58 million in 2020). However, this is the maximum aggregate amount you can give during your lifetime; it is not per person like the annual gift tax exclusion. Be aware that this exclusion amount is set to sunset back to $5 million (adjusted for inflation) on December 31, 2025, so if you wish to make large gifts, it is better to do so now while the exemption is high. Although you should file paperwork with the IRS, there should be no gift tax due as long as you have your exclusion. We can discuss your gifting desires and offer ways to make gifts, save taxes, and protect the gift recipient from wasting the money.

Income Tax

Depending on your team’s location, it is quite possible that you permanently reside in one state but play for a team in another state (or even country). Because you are earning income in one state (or country) but are residing in another, you may owe taxes in both jurisdictions. It is important that you work with an experienced tax professional to make sure that you are paying the right income taxes at the right time. The last thing you want is to owe more because of penalties and interest.

Estate Tax

Although estate tax is not assessed until you die, it is vital to think about it now. As previously mentioned, the lifetime estate and gift tax exclusion is currently high but will sunset. Because no one has a crystal ball to determine when you are going to die and what the estate tax exclusion amount will be at that time, we always need to be mindful. Given your career as an athlete, your income potential is great and will most likely come in large lump sums. Invested properly, those large lump sums can grow even larger.

Guarding Your Money and Property

As a high-earning individual, your first line of defense is having the proper insurance. This includes homeowners, automobile, long-term care, disability, and life insurance. In the event money is needed to pay a claim or satisfy a judgment, these policies will be available first before looking to the rest of your money and property. You should periodically review these policies with an experienced insurance professional to ensure that you are adequately covered. As your income increases, so should the amount of your life insurance. As you acquire more accounts and property, you should also adjust your other policies’ value to reflect these increases.

As a further step, there are sophisticated asset protection planning tools we can use to provide you with more protection. A domestic asset protection trust (DAPT) is an irrevocable (unable to change) trust into which you (in your role as the grantor or trustmaker) permanently gift your accounts and property such as your home, cash, stocks, or other investments. Once transferred into the DAPT, the accounts and property are legally protected from future lawsuits, divorcing spouses, bankruptcies, and similar threats. The trustee (the person or entity you have chosen to manage, invest, and use the accounts and property) can then make distributions to you as the grantor, thereby allowing you to continue enjoying some benefits of the property in the trust. In most cases, the trustee must be an independent trustee (someone who is not related or subordinate to you or any other beneficiary and will not inherit anything from the trust) to preserve the trust’s asset protection nature. It is important to remember that DAPT laws can vary significantly by state. Residency requirements for the grantor or trustee of a DAPT vary from state to state, as does the required connection of the grantor with the DAPT state. It is crucial that you work with an experienced attorney when designing a DAPT to make sure that it is not considered a fraudulent transfer meant to defraud an existing creditor, which could land you in hot water.

Another valuable strategy, which protects the financial well-being of your loved ones, is an irrevocable life insurance trust (ILIT). An ILIT is an irrevocable trust created by transferring an existing life insurance policy into the trust or by the trust purchasing a new policy. Using your annual gift tax exclusion, you make cash gifts to the trust in order to pay the premiums on the insurance policy. Upon your death, the death benefit is paid to the trust, and the money is distributed according to the instructions you have left in the trust document. Not only does this strategy allow you to utilize your annual gift tax exclusion and remove the value of the life insurance policy and death benefit from your estate, but it also allows you to direct and protect the money you are leaving for your surviving loved ones. You can also use an ILIT to provide cash to your loved ones without increasing the value of your accounts and property that are subject to estate tax.

Next Player Up: Managing Your Money and Property If You Cannot

While you may currently manage your money and property yourself or with a professional’s help, have you considered what would happen if you were unable to continue managing your money and property? You may be injured on the job or afflicted with a condition that renders you incapacitated (unable to communicate or make decisions for yourself), or if you play for a team in a state or country other than where you permanently reside, you may be out of town and unavailable to handle necessary transactions.

A revocable living trust (RLT) is a trust you create during your lifetime and can change at any time prior to your incapacity or death. This planning tool enables you to name yourself as the current trustee (the person or entity charged with managing, investing, and handing out the money and property) and to designate a co-trustee or alternate trustee if you are unable to act as the trustee. An RLT also allows you to continue enjoying the money and property during your life and while you are incapacitated, as well as designate what will happen to that money and property upon your death, protecting it for your chosen recipients.

For this strategy to work as intended, however, any accounts or property meant to be owned by the trust must be properly funded into the trust. Funding the trust involves changing the ownership of the accounts or pieces of property from yourself as an individual to yourself as the trustee of the trust. If the trust does not own a particular account or property, the trust terms will not control what happens to it.

Lastly, not only does an RLT allow for continued management of your accounts and property if you become unable to act for yourself, but a properly funded RLT also allows those accounts and property to avoid the probate process. This means that upon your incapacity or death, your financial matters can be handled privately by those you have chosen, and the details will be kept out of court records and the media. One caveat, however: an RLT will not protect your money and property from your creditors or judgments.

An additional tool that can help manage your money and property is a financial power of attorney. This document allows you to choose a trusted person (your agent) to handle your financial matters on your behalf. Your agent can handle a wide variety of transactions, from signing checks to opening a bank account, depending on the authority you give that person. If you wish your agent to act only in certain instances or transactions, then a limited financial power of attorney can be drafted for those circumstances. Alternatively, if you would like to grant your agent the authority to conduct all the financial transactions that you would be able to do yourself, then we can prepare a general financial power of attorney. Another consideration is when you want your agent to act. If you want to limit when your agent can act, a springing financial power of attorney allows your agent to step in only when a determination has been made that you are no longer able to handle your financial affairs. On the other hand, if you would like your agent to be able to act right away, the immediate financial power of attorney can be created. Even though your agent can act on your behalf as soon as the document is signed, it does not impact your ability to continue carrying on the business for yourself. Your agent is just an additional person who has the authority to act. This can be a useful tool if you routinely travel for work. Lastly, if you want your agent to be able to act when you are no longer able to handle your affairs, it is important that the financial power of attorney be durable. This means that the document and your agent’s authority will not be affected if you are later determined to be unable to make financial decisions for yourself. When the agent can act and what the agent can do are all things that can be customized to your unique situation.

Caring for Your Physical Well-Being If You Have Been Benched

Due to the risk of injury that comes with such a physically demanding occupation, having proper healthcare documents is crucial. These include a durable medical power of attorney, living will or advance directive and a HIPAA authorization form.

A medical power of attorney allows you to name a trusted healthcare decision-maker to communicate your medical wishes in the event you are unable to do so. It is important that you name someone who will respect your wishes and carry them out when you are unable to communicate them to the appropriate medical professional. However, this person will only be able to make medical decisions on your behalf if you cannot. If you can make decisions and communicate them, you remain in control.

A living will or advance directive allows you to clearly convey your wishes regarding end-of-life decisions. Because these can be very sensitive topics, it is important that you carefully consider your wishes. This may take some soul-searching, but it is necessary that you know what you would like to have happened in certain situations so that your wishes can be properly documented and communicated to your chosen medical decision-maker. Absent specific instructions from you, your medical decision-maker is going to be left trying to figure out what you would have wanted. This can cause additional grief in a difficult situation, as well as potential fighting among your loved ones.

A HIPAA authorization form allows you to grant certain individuals access to your medical information (e.g., to get a status update on your condition or receive your test results) without giving those individuals the authority to make any decisions on your behalf. By at least providing the medical information to your loved ones, you can help quiet the anxieties and uncertainties that often arise during times of emergency. This can also help alleviate tensions between your medical decision-maker and the rest of your loved ones. Although only one person will be making the decisions, the rest of your loved ones will at least understand why those decisions were made.

Let Us Be Your Team Off the Court or Field

Proper estate planning is a must for everyone, but especially for you as an athlete. Not only do you have to address and manage tax, asset protection, and other financial concerns, you also need to protect yourself and your family in the event you are injured on the job. We welcome the opportunity to work with you and any other financial professionals on your team to help craft a winning game plan that will have you and your loved ones scoring for years to come. To accommodate your busy schedule, we are available for both in-person and virtual meetings.

Wealth Transfer Strategies to Consider in an Election Year

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With a push by the Democratic party to return federal estate taxes to their historic norms, taxpayers need to act now before Congress passes legislation that could adversely impact their estates. Currently, the federal estate and gift tax exemption is set at $11.58 million per taxpayer. Assets included in a decedent’s estate that exceed the decedent’s remaining exemption available at death are taxed at a federal rate of 40 percent (with some states adding an additional state estate tax). However, each asset included in the decedent’s estate receives an income tax basis adjustment so that the asset’s basis equals its fair market value on the date of the decedent’s death. Thus, beneficiaries realize capital gain upon the subsequent sale of an asset only to the extent of the asset’s appreciation since the decedent’s death.

If the election results in a political party change, it could mean not only lower estate and gift tax exemption amounts but also the end of the longtime taxpayer benefit of a stepped-up basis at death. To avoid the negative impact of these potential changes, there are a few wealth transfer strategies it would be prudent to consider before the year-end.

Intrafamily Notes and Sales

In response to the COVID-19 crisis, the Federal Reserve lowered the federal interest rates to stimulate the economy. Accordingly, donors should consider loaning funds or selling one or more income-producing assets, such as an interest in a family business or a rental property, to a family member in exchange for a promissory note that charges interest at the applicable federal rate. In this way, a donor can provide a financial resource to a family member on more flexible terms than a commercial loan. If the investment of the loaned funds or income resulting from the sold assets produces a return greater than the applicable interest rate, the donor effectively transfers wealth to the family members without using the donor’s estate or gift tax exemption.

Swap Power for Basis Management

Assets such as property or accounts gifted or transferred to an irrevocable trust do not receive a step-up in income tax basis at the donor’s death. Gifted assets instead retain the donor’s carryover basis, potentially resulting in significant capital gains realization upon the subsequent sale of any appreciated assets. Exercising the swap power allows the donor to exchange one or more low-basis assets in an existing irrevocable trust for one or more high-basis assets currently owned by and includible in the donor’s estate for estate tax purposes. In this way, low-basis assets are positioned to receive a basis adjustment upon the donor’s death, and the capital gains realized upon the sale of any high-basis assets, whether by the trustee of the irrevocable trust or any trust beneficiary who received an asset-in-kind, may be reduced or eliminated.

Example: Phoenix purchased real estate in 2005 for $1 million and gifted the property to his irrevocable trust in 2015 when the property had a fair market value of $5 million. Phoenix dies in 2020, and the property has a date-of-death value of $11 million. If the trust sells the property soon after Phoenix’s death for $13 million, the trust would be required to pay capital gains tax on $12 million, the difference between the sale price and the purchase price. Let us say that before Phoenix died, he utilized the swap power in his irrevocable trust and exchanged the real estate in the irrevocable trust for stocks and cash having a value equivalent to the fair market value of the real estate on the date of the swap. At Phoenix’s death, because the property is part of his gross estate, the property receives an adjusted basis of $11 million. If his estate or beneficiaries sell the property for $13 million, they will only pay capital gains tax on $2 million, the difference between the adjusted date-of-death basis and the sale price. Under this scenario, Phoenix’s estate and beneficiaries avoid paying capital gains tax on $10 million by taking advantage of the swap power.

Grantor Retained Annuity Trust

A grantor retained annuity trust (GRAT) is an efficient way for a donor to transfer asset appreciation to beneficiaries without using, or using a minimal amount, of the donor’s gift tax exemption. After the donor transfers property to the GRAT and until the expiration of the initial term, the trustee of the GRAT (often the donor for the initial term) will pay the donor an annual annuity amount. The annuity amount is calculated using the applicable federal rate as a specified percentage of the initial fair market value of the property transferred to the GRAT. A Walton or zeroed-out GRAT is intended to result in a remainder interest (the interest that is considered a gift) valued at zero or as close to zero as possible. The donor’s retained interest terminates after the initial term, and any appreciation on the assets in excess of the annuity amounts passes to the beneficiaries. In other words, if the transferred assets appreciate at a rate greater than the historic low applicable federal rate, the GRAT will have succeeded in transferring wealth!

Example: Kevin executes a GRAT with a three-year term when the applicable federal rate is 0.8 percent. He funds the trust with $1 million and receives annuity payments of $279,400 at the end of the first year, $335,280 at the end of the second year, and $402,336 at the end of the third year. Assume that during the three-year term, the GRAT invested the $1 million and realized a return on investment of 5 percent, or approximately $95,000. Over the term of the GRAT, Kevin received a total of $1,017,016 in principal and interest payments and also transferred approximately $95,000 to his beneficiaries with minimal or no impact on his gift tax exemption.

Installment Sale to an Irrevocable Trust

This strategy is similar to the intrafamily sale. However, the income-producing assets are sold to an existing irrevocable trust instead of directly to a family member. In addition to selling the assets, the donor also seeds the irrevocable trust with assets worth at least 10 percent of the assets being sold to the trust. The seed money is used to demonstrate to the Internal Revenue Service (IRS) that the trust has assets of its own and that the installment sale is a bona fide sale. Without the seed money, the IRS could recharacterize the transaction as a transfer of the assets with a retained interest instead of a bona fide sale, which would result in the very negative outcome of the entire interest in the assets being includible in the donor’s taxable estate. This strategy not only allows donors to pass appreciation to their beneficiaries with limited estate and gift tax implications but also gives donors the opportunity to maximize their remaining gift and generation-skipping transfer tax exemptions if the assets sold to the trust warrant a valuation discount.

Example: Scooby owns 100 percent of a family business worth $100 million. He gifts $80,000 to his irrevocable trust as seed money. The trustee of the irrevocable trust purchases a $1 million dollar interest in the family business from Scooby for $800,000 in return for an installment note with interest calculated using the applicable federal rate. It can be argued that the trustee paid $800,000 for a $1 million interest because the interest is a minority interest in a family business and therefore only worth $800,000. A discount is justified because a minority interest does not give the owner much if any, control over the family business, and a prudent investor would not pay full price for the minority interest. Under this scenario, Scooby has removed $200,000 from his taxable gross estate while only using $80,000 of his federal estate and gift tax exemption.

Spousal Lifetime Access Trust

With the threat of a lowered estate and gift tax exemption amount, a spousal lifetime access trust (SLAT) allows donors to lock in the current, historic high exemption amounts to avoid adverse estate tax consequences at death. The donor transfers an amount up to the donor’s available gift tax exemption into the SLAT. Because the gift tax exemption is used, the value of the SLAT’s assets is excluded from the gross estates of both the donor and the donor’s spouse. An independent trustee administers the SLAT for the benefit of the donor’s beneficiaries. In addition to the donor’s spouse, the beneficiaries can be any person or entity including children, friends, and charities. The donor’s spouse may also execute a similar but not identical SLAT for the donor’s benefit. The SLAT allows the appreciation of the assets to escape federal estate taxation and, in most cases, the assets in the SLAT are generally protected against credit claims. Because the SLAT provides protection against both federal estate taxation and creditor claims, it is a powerful wealth transfer vehicle that can be used to transfer wealth to multiple generations of beneficiaries

Example: Karen and Chad are married, and they are concerned about a potential decrease in the estate and gift tax exemption amount in the upcoming years. Karen executes a SLAT and funds it with $11.58 million in assets. Karen’s SLAT names Chad and their three children as beneficiaries and designates their friend Gus as a trustee. Chad creates and funds a similar trust with $11.58 million that names Karen, their three children, and his nephew as beneficiaries and designates Friendly Bank as a corporate trustee (among other differences between the trust structures). Karen and Chad pass away in the same year when the estate and gift tax exemption is only $6.58 million per person. Even though they have gifted more than the $6.58 million exemption in place at their deaths, the IRS has taken the position that it will not punish taxpayers with a clawback provision that pulls transferred assets back into the taxpayer’s taxable estate. As a result, Karen and Chad have saved $2 million each in estate taxes assuming a 40 percent estate tax rate at the time of their deaths. 

Irrevocable Life Insurance Trust

An existing insurance policy can be transferred into an irrevocable life insurance trust (ILIT), or the trustee of the ILIT can purchase an insurance policy in the name of the trust. The donor can make gifts to the ILIT that qualify for the annual gift tax exclusion, and the trustee will use those gifts to pay the policy premiums. Since the insurance policy is held by the ILIT, the premium payments and the full death benefit are not included in the donor’s taxable estate. Furthermore, the insurance proceeds at the donor’s death will be exempt from income taxes.

When Should I Talk to an Estate Planner

If any of the strategies discussed above interest you, or you feel that potential changes in legislation will negatively impact your wealth, we strongly encourage you to schedule a meeting with us at your earliest convenience and definitely before the end of the year. We can review your estate plan and recommend changes and improvements to protect you from potential future changes in legislation.

How Trusts Have Helped Athletes

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Estate planning is not just about what happens when you die. Proper estate planning takes into consideration all aspects of your life and how to protect your accounts and property so that you can receive the maximum use and enjoyment during your life as well as protect whatever you choose to leave to your loved ones upon your death.

A trust is an important planning tool used to provide this protection. In its basic form, a trust is a formal relationship in which someone (the trustmaker) appoints someone else (the trustee) to hold title to and manage the trust accounts and property for the benefit of one or more people (the beneficiaries). In most cases, when people refer to a trust, they are usually referring to the document that outlines the trust details. Depending upon the type of trust that is created, it can be used for many purposes, such as protecting the trustmaker’s accounts and property from the trustmaker’s creditors, divorcing spouses, and lawsuits, as well as providing for the trustmaker’s family if the trust maker passes away

Everyone needs estate planning and could possibly benefit from the use of a trust as part of that planning—even famous athletes. The following are some notable athletes whose use of trusts to protect themselves and their loved ones offers important lessons.

Allen Iverson

Allen Iverson, also known as “The Answer,” played professional basketball from 1996 until his official retirement in 2013. During his career, he played for a number of professional teams such as the Philadelphia 76ers, the Denver Nuggets, the Detroit Pistons, and the Memphis Grizzlies. Over the course of his career, it is estimated that he made over $200 million (including contracts and endorsements). However, in 2012, it was rumored that Iverson was experiencing financial troubles due to an outstanding creditor issue.

But there was a saving grace. As part of a deal he signed with Reebok in 2001, Iverson currently receives $800,000 per year and had a lump sum of $32 million placed into a trust, which will become accessible to him when he turns fifty-five years old (which will be in 2030). Although the specific terms of the trust have not been disclosed, and his ex-wife may be entitled to half of the trust, this strategic planning has protected a large part of the Reebok contract for Iverson’s future use and enjoyment.

Lesson: Saving for a rainy day is an excellent strategy, and a trust can be a great way to set aside money or property for a future date. Additionally, it is never too late to get a proper estate plan in place. Depending upon his current legal situation and the terms of the existing trust with Reebok, Iverson should meet with an experienced estate planning attorney and financial advisor to develop an asset protection strategy for this money before the first disbursement is made. Through proper investment and management, this money should be able to go a long way toward ensuring a happy retirement.

Michael Carter-Williams

Currently playing for the Orlando Magic, Michael Carter-Williams made headlines in 2013 when he decided to put the salary he received from the Philadelphia 76ers into an irrevocable trust to be managed by his mother and a close family friend. Instead of his salary, he lived off his endorsement deals. Per the terms of the trust, Carter-Williams would not have access to the money for three years

Using a trust in this manner was a unique move because Carter-Williams was relatively young, did not have a family of his own to support, and did not have any creditor issues. This strategy was a thoughtful financial decision in light of what was happening in the industry at the time. While not much is known about the status of the trust, with the proper oversight by his trusted advisors, this trust can offer him a source of income whenever he may need it

Lesson: An estate plan is not a one-size-fits-all product. With the multitude of planning strategies available, an experienced estate planning attorney can craft a plan that will provide what you need for today and tomorrow. During the estate planning process, it is important to consider your priorities. Are you looking to avoid a potentially large tax burden; protect your accounts and property from lawsuits, creditors, or a future divorcing spouse; or protect the inheritance you are leaving your loved ones after you have died?

Kobe Bryant

The legendary professional basketball player Kobe Bryant died on January 26, 2020, in a tragic helicopter accident that also claimed the life of his daughter and other passengers. With an estate worth over $600 million, proper estate planning was crucial in making sure that his wife and children were cared for.

There are few details about the extent of his estate planning for one very good reason: he had an estate plan. The only misstep in the estate planning process was Bryant’s failure to update the Kobe Bryant Trust upon the birth of his youngest child. According to court documents, the trust had been amended each time one of his children was born, but because his youngest child was born in June 2019, he had not amended his documents as he had done in the past prior to his death.

Lesson: Estate planning is not a one-and-done task. To ensure that your wishes are carried out in the best possible way, the documentation must be up to date. Once you have signed your estate planning documents, we encourage you to review them each year. Ask yourself the following questions:

  • Have there been any marriages, divorces, births, or deaths that might affect my estate plan?
  • Are the individuals I have chosen as my trustee, guardian for my minor child, agent under a power of attorney, or healthcare decision-maker still the individuals I want?
  • Do I want to change the types of items or amount of money that I am leaving to my beneficiaries?

We Are Here to Help

Estate planning can be difficult. It forces you to evaluate aspects of your life that may not be ideal. However, by diving in and addressing these concerns, we can help you craft a unique estate plan that will protect you during your lifetime and provide for your loved ones upon your death. Give us a call today to schedule your in-person or virtual consultation.

Seniors are Changing Their Living Wills Due to COVID-19 Concerns

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Kaiser Health News is reporting the coronavirus pandemic is prompting seniors to create or modify their living wills. Specifically, intubation is the topic that has many seniors crafting or rethinking their strategies amidst a wealth of disparate COVID-19 information that makes forming reliable conclusions for decision making, dubious at best.

Ventilators Options Seniors During COVID-19

Initial reports were suggesting that the use of a ventilator, a machine that pumps oxygen throughout a patient’s body while lying in bed, sedated, with a breathing tube down their windpipe, was showing signs of promise in severe cases of COVID-19. Yet, further into the pandemic timeline, these machines that help patients to overcome respiratory failure appear to have discouraging survival rates.

The prognosis of an older adult with COVID-19 placed on a ventilator with an underlying medical condition like lung, kidney, or heart disease is even more dismal. These older COVID-19 patients who do survive, spend considerably longer (two weeks or more) on a ventilator and tend to come out of the treatment extremely weak, deconditioned, often suffering delirium, and requiring months of rehabilitative care.

Opting Out of Ventilators

Many seniors are revising their advance health care directive to address the case of COVID-19 specifically, and they are opting out on the use of a ventilator. Joyce Edwards from St Paul, Minnesota, is unmarried and living on her own with no children spoke to the issue stating, “I have to think about what the quality of my life is going to be. Could I live independently and take care of myself, the things I value the most? There’s no spouse to take care of me or adult children. Who would step into the breach and look after me while I’m in recovery?”

Joyce’s situation is not uncommon in the United States. American seniors are more likely to live alone than ever before: the new mantra of “aging in place.” Living alone does not mean they do not have family, somewhere. Still, in the case of contracting COVID-19 and the difficulties recovery can present, many seniors prefer not to upend the lives of their younger children to prolong their own lives. Some seniors prefer to ‘go quietly into that good night’ after a life well-lived. They are conceding in writing that extraordinary measures to keep them alive are not how they wish to spend their final months, weeks, or days. It is especially true in the case of intubation, where a patient is essentially in a coma state and unable to communicate with loved ones before they might pass on.

pewresearch.org

COVID-19 Care Gray Area

Then there is the gray area of choice regarding respiratory failure due to COVID-19. While some seniors may be saying NO to a ventilator, doctors can give high-flow oxygen and antibiotics. Positive airway pressure (PAP) machines are another mode of respiratory ventilation. BiPAP and CPAP machines deliver oxygen but without the sedation required during intubation, which allows the patient to be alert, more comfortable, and have interaction with family and friends.

COVID-19 Discussions for Senior Care

Having discussions with your spouse, family, or doctor if you are alone, about COVID-19 and what to do if you contract the disease and how you might amend your living will to reflect your desires are more important than ever. Dr. Rebecca Sudore, a professor of medicine at the University of California at San Francisco, suggests directing the discussion away from using a ventilator or not, to a more general discussion of how an older adult sees their future.

The discussion should include questions about what is most important to you as an older adult. Do you treasure your independence? Or is time with your family more valuable to you? Is being able to walk and be physically capable important to you, or can you live happily with compromised lungs in a more sedentary lifestyle? Is your goal to live as long as possible? Or is it about the quality of your years on earth? In an open and calm discussion, answering these and other general questions will provide the context that will lead you to your decision about ventilators and other breathing machines.

There is a lot to think about when it comes to end-of-life wishes. We are here to help you decide what documents are appropriate to adequately express your wishes. We look forward to talking with you.

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