Monday, October 5, 2015

6 Estate Planning Steps Even Broke People Need to Take

More Than a Will

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No one really wants to sit around thinking about what will happen if they get seriously sick or so incapacitated they can’t make sound financial decisions — let alone contemplate the actual D word. But that doesn’t mean you can forget about estate planning altogether. It won’t just go away if you ignore it, and you could be leaving yourself vulnerable in the future.
Maybe you have a will, which is usually the centerpiece of an estate plan and allows you to say who gets what when you die. But that won’t cover everything.
Even if you’re young or short on assets, you need to take steps to protect the quality of your life and the lives you leave behind. Luckily, the necessary documents won't break the bank: A lawyer can typically draft them for you for a few hundred dollars or you can use a do-it-yourself option, such as Quicken WillMaker or LegalZoom, for even less. (But definitely consider using a lawyer if you have a particularly complicated or contentious family situation in which people are likely to challenge your wishes.)
Here's what you need to do.

Draft a Durable Power of Attorney for Health Care

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If you're incapacitated and can't make medical decisions for yourself, you want to have someone trustworthy making those decisions for you. A durable power of attorney for health care, also known as an advanced directive, names and legally empowers that person to act on your behalf. This isn’t a document only for older people: Terri Schiavo, whose termination-of-treatment case sponsored huge national debate, was just 27 when she had her heart attack.
Choose your decision maker carefully. You'll want someone who can stand up to health care providers who may be pushing care you wouldn't want, and who will put your desires first, regardless of his or her own wishes. If that's a spouse or adult child, great, but a tenacious friend or other relative may be a better choice.
Make sure you discuss your wishes in advance and that the person is willing to serve. You may discover that he or she has reservations or moral qualms about doing what you ask. You'll want to find that out while you still have time to find someone else.

Draft a Durable Power of Attorney for Finances

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The people who have the skills to make sure your medical wishes are followed aren't necessarily the same people you'd want to manage your money. So feel free to name a different person to pay the bills and make financial decisions should you become incapacitated.
You can determine the scope of responsibility, limiting it to just day-to-day transactions or granting the power to sell real estate or make financial gifts. Ideally, it would be someone who gets along with the person you named in your durable power of attorney for health care, since the two of them likely will have to work together to handle your affairs.
The person you name as your agent should be honest, trustworthy and competent in financial matters, but he or she doesn't need to be an expert. Your agent can hire tax preparers or other financial professionals as necessary.

Create a Living Will

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While a durable power of attorney can cover all kinds of health care decisions, a living will focuses on the decisions typically made at the end of your life. A living will explains what medical procedures you do and don't want, and it can be used to help guide the person you've named in the durable power of attorney for health care if you're not expected to recover.
End-of-life care can be a difficult and emotional subject. The Aging with Dignity site offers an interactive tool called Five Wishes, which can help you clarify your desires. The document meets legal requirements in 42 states and can be attached to state-mandated forms elsewhere.

Name a Guardian for Minor Children

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If you don't create a will or living trust that names a guardian, a judge will appoint someone — and it may not be someone you'd want to raise your kids. Your lack of planning could lead to court battles over your children or, worse yet, they could wind up in foster care.
When deciding who should be your children's guardian, keep in mind that there is no single perfect person to raise your kids (other than yourself, of course). Pick someone who shares your values and who will raise your kids with love. Again, secure the person's permission first and consider naming an alternate as well.
You may want to name a different person as the guardian or custodian of any money or property your children inherit to create a checks-and-balances system that separates control of your kids from control of their money. If you don't want your children to get their hands on the money as soon as they technically become adults — at age 18 or 21, depending on state law — then you may also need to create a trust. You'll either need to hire an attorney or spend some time with a book that details the process, such as Nolo's Plan Your Estate.

Update Beneficiaries for Life Insurance

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You may have a life policy through your job — most full-time workers do — or you may have purchased one on your own. Either way, if you die while the policy is in place, the proceeds would go to the beneficiary you designated — even if that person is now your ex-spouse (or you named a parent and you've since gotten married).
Take a minute to review your policy and make sure the beneficiary is the person you'd want to get the money today. In community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — your current spouse will need to sign a waiver if you want to designate anyone else as a beneficiary.

Update Beneficiaries for Financial Accounts

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Banks and brokerages often allow you to name a beneficiary who would inherit your account should you die. Retirement plans also typically have beneficiary forms. And guess what? Those beneficiary forms typically override your will, even if you no longer want the money to go to the people you originally designated.
Make a list of all your accounts and contact each financial institution to review your beneficiaries (many times, you can do this online). This is an exercise you should repeat every few years, and after every major life change, including marriage, divorce, death, birth, and adoption.

Source: Yahoo Finance

Friday, September 18, 2015

Ten Rules For Asset Protection Planning

Start early, keep it simple, and don’t try to hide stuff from your creditors.

There’s a gambling saying that goes something like, “If you want to be a winner, you have to walk away from the table a winner.” One time-honored method of reaching this result is to systematically take your chips off the table as you win them, so that your potential for losses stays small.

Asset protection planning is all about taking chips off the table in good times, so that you still can walk away from the table a winner no matter what happens in bad times. Those who worry the most about asset protection are those who are the most likely to get sued; think obstetricians and, more recently, real estate investors here. But average folks often get caught up in difficult situations, and thus if you have something to protect then the topic of asset protection should at least cross your mind.

Technically, asset protection planning is the debtor’s side of creditor-debtor law. While creditors are concerned about the strategies and techniques of collection, debtors are interested in the strategies and techniques for protecting their most valuable assets from potential creditors.

But in this calculation, it is not just about protecting assets but also about making sure that one does not end up in jail for contempt or bankruptcy fraud for engaging in the process.

Keeping in mind the law school adage that “General rules are generally inapplicable”, the following 10 rules should always be kept in mind when you try to take your chips off the table.

1. Start Planning Before A Claim Arises

Many things you can do will effectively provide asset protection before a claim or liability arises, but few things will afterwards. That’s because what you do after a claim rises could be undone by “fraudulent transfer” law.  Moreover, the point at which a claim arises is earlier than a layman might think—it is, for example, usually much earlier than when a demand letter or a process server shows up at the door.

2. Late Planning Usually Backfires

Asset protection planning after a claim arises is apt to make matters worse; think of it as getting a flu shot while you have the flu, and the shot itself making you even more woozy. It is a common misconception that the only thing a judge can do is to unwind a fraudulent transfer,  leaving a debtor who unsuccessfully tried late planning  no worse off than if he had done nothing. To the contrary, both the debtor and whoever assisted in the fraudulent transfer can become liable for the creditor’s attorney fees, and the debtor can lose the hope of getting a discharge in bankruptcy.

3. Asset Protection Planning Is Not A Substitute For Insurance

Asset protection planning should not be a substitute for liability and professional insurance, but rather should supplement insurance. It is a myth that asset protection plans invariably scare away plaintiffs, and an asset protection plan doesn’t pay legal fees to defend against a lawsuit. Insurance also supplements asset protection planning, since it can help a debtor survive a claim a fraudulent transfer claim. If you get sued, let the insurance company pay to defend it and pay to settle it — that’s what you’re paying the premiums for.

4. Personal Assets Are For Trusts; Business Assets Are For Business Entities

Business entities such as corporations, partnerships and LLCs are meant to be vehicles for commercial operations, not to act as personal piggybanks. When personal assets are placed into a business entity, the potential for the entity to be pierced by a creditor on some theory or another, such as alter ego, increases exponentially. The place to put personal assets is in a trust.  There is a long and solid body of law that protects trust assets—when the trust is properly drafted and funded. And please don’t name the entity the “Family” Partnership or LLC, unless your family is famous for making sausage or some such.

5. Too Much Control Is A Bad Thing

Asset protection planning attempts to reach a balance between giving the client sufficient control so that the assets do not disappear, but at the same time not so much control that a creditor can successfully argue that the debtor and the asset protection structure are effectively one-and-the-same and thus should be disregarded on alter ego or some similar theory.

Source: Frobes

Monday, August 24, 2015

How To Choose The Right Trustee For Your Estate

No one enjoys thinking about their own mortality, but we all want our families to be well-cared for after we’re gone. Many people set up trusts to help provide for loved ones and favorite causes after they pass away. A trust can help manage the wealth you wish to transfer and ensures the efficient distribution of assets—such as property or a sum of money—over a set period of time.

Yet a trust is only as strong as the trustee overseeing it. Choosing the right trustee is vital to ensuring that your beneficiaries enjoy the legacy you intend to leave behind. Rick Friedman, senior vice president and financial advisor at RBC Wealth Management, offers some important considerations.

The Role of a Trustee

A trustee is a person or financial institution that administers a trust for the benefit of named beneficiaries. Their duties can range widely and may include paying bills and taxes, overseeing property, and making sure investments are managed properly. Above all, says Friedman, a trustee “has a legal fiduciary duty to manage a trust on a beneficiary’s behalf,” by always acting in the beneficiary’s best interests, as outlined by the trust.

A trustee’s role is significant, especially when you consider  trusts are commonly used when the trust is intended to provide for children or family members with special needs, who could require extensive assistance with overseeing their property, health, education and financial affairs. Trusts can also be used as a way to ensure that a spendthrift beneficiary is not given a single lump sum of money that could be mismanaged.

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The Traits of a Trustee

The job of a trustee is neither easy nor quick. Overseeing a trust could mean years of active engagement with the estate’s beneficiaries. For this reason, Friedman insists, it is essential to put careful consideration into who you choose.

While a trustee does not need advanced legal or financial knowledge, he or she does need to be someone you trust implicitly. Proximity to the beneficiaries is another important consideration to ensure duties can be performed swiftly and without undue travel expense.

“Above all,” says Friedman, “you want someone who is of sound mind—and body,” so be sure the person you choose has the energy and mental acuity to take on all responsibilities.

The Trustee’s Commitment

Managing a trust is a heavy responsibility and requires a candid conversation with the potential trustee. A trustee needs to know up front what is being asked of him or her. What is the estimated time commitment? What are the daily, weekly and monthly duties? How long will this person be expected to administer the trust?

It’s not uncommon for a person—no matter how close a friend or family member—to balk when asked to be a trustee due to the potential time and energy administering a trust can demand.

“What you see as an honor that you are bestowing on someone, they may actually see as a headache,” Friedman notes. Depending on what you’re asking them to oversee, it could be a huge responsibility that may weigh heavily in their lives for a long time.

Friedman also emphasizes the importance of periodically reevaluating your chosen trustee because circumstances can change. Was it a friend you have grown apart from, or a parent who may now be too old to take everything on? If so, it may be time to consider a new trustee.

Hiring a Trust Company

Because of the potential difficulty in finding a qualified person who is willing to undertake administering a trust, some people hire a trust company to manage their estate.

“One of the best reasons to choose a trust company is that they are unemotional,” says Friedman. A professional company is completely detached from the situation and will not be swayed, for example, by family members tearfully asking for more money. “There are definitely fewer family feuds when trust companies are involved,” Friedman says.

Trust companies can also bring expertise and experience that a non-professional trustee can rarely match.

The potential downside to hiring a company, notes Friedman, is that trust companies charge a fee—which varies and is usually a percentage of the estate—whereas a friend or family trustee will often not charge for their services.

Flexible Trust Language

Finally, Friedman emphasizes the importance of having language in your will that allows you to assign new trustees. “You want to have some flexibility in your trust language so that you can alter trustees if something changes,” he says. Friedman uses the economic downturn of 2008 when some people lost faith in their banks and wanted to change financial institutions, as an example of the importance of being able to change trustees.

Which is why Friedman says it is important to be somewhat flexible.

“After all, you want a little leeway in your trust language because everything changes—except death, of course.”

Source: Forbes

Monday, August 17, 2015

Review your estate plan against this 14-point checklist

Many Americans have estate plans in place — but unfortunately, many are incomplete and the most important subjects aren’t even addressed. 

I compiled a 14-point checklist to help create a sound estate plan, but first, if you don’t have an attorney who specializes in elder law, I strongly recommend that you get one. Start by visiting The National Academy of Elder Law Attorneys website and click on the red “Find an Attorney” button. To search for a local attorney, try the American Bar Association Lawyer Referral Directory.

And if you need a financial adviser, here are a few tips for finding a competent, honest financial adviser willing to work for a reasonable fee. To find a certified financial planner, use the CFP Board’s search tool. To consider a fee-only adviser that charges by the hour, try The National Association of Personal Financial Advisors. 

Now, your estate plan should include:
A will provides instructions for distributing assets to your family and other beneficiaries.. You will also appoint someone to be an executor to pay final expenses, taxes, etc. and then distribute the remaining assets. If you have minor children, a will is also a way to designate a guardian for them. A will doesn’t take effect until you die and it cannot provide for management of your assets if you become incapacitated. That’s why it is necessary to have other estate planning documents in place which become effective if you should be unable to act.
  • A durable power of attorney designating who will handle your business affairs and health-care decisions if you are disabled or unable to act.
A power of attorney is a legal document in which you name another person to act on your behalf. You can give this person/agent broad or limited powers. You should choose this person carefully because he or she will be able to sell, invest and spend or distribute your assets. A traditional power of attorney terminates upon your disability or death. A durable power of attorney continues during incapacity and terminates upon your death.
  • A power of attorney for health care (living will).
A health-care power of attorney authorizes the person you designate to make medical decisions for you in the event you are unable to do so yourself. This document, coupled with a living will are necessary to avoid family conflicts and even court intervention should you become unable to make your own health care decisions.

A living will provides your wishes regarding the use of life-sustaining measures in the event of a terminal illness. It says what you want done and what you don’t want done but doesn’t give any individual the legal authority to speak for you. That is why it is usually coupled with a health-care power of attorney.
  • A revocable living trust to transfer, manage and distribute assets while you are alive and that will avoid probate after your death.
There are many different kinds of trusts, which are usually put in place to minimize estate taxes. Each trust has benefits and should be discussed with your attorney. There are marital trusts, charitable trusts, generation-skipping trusts, bypass trusts, testamentary trusts, qualified terminable interest property trusts, and so on.

A revocable living trust is a trust often used in estate plans. By transferring assets into a revocable living trust, you can manage your financial affairs during your lifetime and provide management if you become incapacitated. A revocable living trust lets trust assets avoid probate, keeps personal information private, and can designate the disposition of trust assets to future generations.
  • A form where you can list all your assets and where they are located.
  • A do not resuscitate, or DNR, medical order written by a doctor. It instructs health-care providers not to do cardiopulmonary resuscitation (CPR) if a patient’s breathing stops or if the patient’s heart stops beating. Some feel this is an important document while others don't.
  • A legacy letter. This is a document designed to pass “ethical values” from one generation to the next. Traditional wills involve what you want your loved ones to have. Ethical wills involve what you want your loved ones to know.
  • A discussion with your attorney involving whom you want to inherit various assets.
  • A decision as to whom you want making medical decisions if you are unable to act yourself.
  • A list of how you want your assets distributed. Have this discussion with your attorney and/or spouse or appropriate family member, trustee, etc.
  • A decision as to whether you want to name a guardian for your minor children, if any.
  • A discussion with your accountant/CPA and attorney as to the tax consequences of your estate plan.
  • Check your digital footprints. Most people aren’t aware of the full extent of their digital presence and a review of the steps necessary to protect online information after your death or if you are no longer able to act is warranted.
  • Letters to your spouse/family. Consider writing a letter to your spouse or family regarding your wishes should you need to be removed from life support. This letter will make their doing so a great deal easier if you reiterate that this is your wish with a personal, not formal, request.
Source: MarketWatch

Wednesday, August 12, 2015

5 Tips For Handing Down Your Wealth

You’ve spent a lifetime building your estate. Now it’s time to decide how it will be distributed. Handing down your wealth is not as simple as writing a check or naming a beneficiary; you want to make the best decisions to preserve your financial legacy. Thomas Brockley, senior vice president and branch director at RBC Wealth Management, shares some tips on how to maximize your giving and ensure your wishes are followed.

1. Explore Charitable Remainder Trusts

When donating to charity, structure your gift carefully to help your recipient receive the most from your bequest, Brockley advised. If you’re donating highly appreciated assets, such as stocks, you may wish to work with the charity and your financial advisor to set up a charitable remainder trust.

With a charitable remainder trust, the stock is removed from your taxable estate and held in a trust while you’re alive, then transferred to the charity when you pass away, he said. During your lifetime, you’ll get an income stream and receive an income-tax deduction for the value of the gift in the year it was given.

While a charitable remainder trust is ideal for highly appreciated assets such as stocks and real estate, you also can fund the trust with cash.

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2. Keep It In The Family

If you’re passing a family business to the next generation, you may want to consider a life insurance trust, Brockley said. Whether your estate includes prime Manhattan real estate, a family dairy farm or a chain of retail stores, a number of taxes and fees will need to be paid—such as insurance premiums, mortgage payments, property taxes, utilities and accounting fees—while your estate is still being settled. A life insurance trust will provide the funds for your heirs to pay those bills.

For real estate bequests (if you are passing down a family vacation home, for example), consider establishing an irrevocable personal residence trust. Assets placed in such a trust count against the federal $5.43 million gift tax exclusion. The value of the property increases outside your estate and estate taxes are based on the value of the property at the time it was placed in the trust. Adding life insurance in the trust will ensure your heirs receive funds to pay the immediate bills and taxes on the property.

3. Set Guidelines

An old accounting maxim says, “Trust, but verify.” In this case, the wording could be changed to, “Create a trust, but specify.”

To set guidelines on how and when an inheritance will be spent, you can set up trusts for your children and grandchildren—as opposed to making direct monetary bequests. Careful wording in the trust will help further ensure your heirs don’t fritter away the estate you spent years building. Language in the trust can clearly spell out what the money can be spent on (college) and cannot be spent on (a new Porsche, Botox or trip to Tahiti), Brockley said.

“You probably don’t want a grandchild at age 19 to get a million dollars to spend however they want to,” he warned.

He’s seen it happen. One young client spent $50,000 of a quarter-million dollar inheritance in just a couple of weeks, he said. The client bought a car, wrecked it the next day and then bought another one.

4. Consider A Corporate Trust Manager

Choosing the right trustee is also key. A family member may be your best option for a smaller estate, but if the estate is larger than $500,000, you might be better off hiring a corporate trust manager, Brockley advised. That corporate trust manager will ensure that requests for funds are only approved if they fit within the trust parameters.

“You could have nieces and nephews going to their uncle and saying ‘I know I was only supposed to get X but I need more,’” Brockley said. “If the uncle says no, you have one less guest at the Christmas table. The corporate trustee can say, ‘Here are the rules and that’s it.’”

5. Check Names

Finally, it may sound basic, but periodically check the beneficiaries on your accounts to make sure your estate goes to the right people, said Brockley. That’s an easy step that people often ignore.

“A young person’s first insurance policy might name their mother as beneficiary,” he said. “Now they’re married and have two kids. You have $100,000 of insurance going to the mother. The mother can’t give all the proceeds to the daughter-in-law because of gifting limits.”

With the right plan in place, your estate will be passed along according to your wishes, and your loved ones and favorite causes will all benefit.

Source: Forbes