Downs Law Firm, P.C.
Downs Law Firm, P.C.
The government will be more than happy to distribute your assets. Years ago a friend of mine told me of his final moments with his father. He was in the hospital signing documents with the lawyer and his father. Dad was on his death bed, dying several hours later. The family business went to him, as he had worked in the business for over two decades. It was what he was promised all along but did not make the final time with his Dad as he would have wanted. If that hadn’t happened, state law would have controlled, leaving promises unkept. Dying intestate will result in your state of residence deciding where your assets will go. However, it doesn’t have to be like that, because creating an estate plan will leave the decision in your hands, according to KREM.com in “Head off a small-business skirmish: Draw up your will or estate plan today.” Here’s a tale from another law office that makes it all very clear. A business owner died unexpectedly. He had never completed his divorce from his first wife after 20 years. He had been in a relationship with another woman for 10 years and they had two children together. Since he never divorced his wife, she inherited his business. No one likes to consider that they will die, or in this case, that it is really time to deal with their marital status. He probably thought he had plenty of time to plan. However, the result was not pretty. Here’s how you can avoid your own unintended consequence: Preplan. A business owner needs to do a complete estate plan, so your property, family and business will be protected, if you should become incapacitated or die. You’ll need the following: Disability insurance. This is a relatively affordable product that replaces up to 60% of your income, if injury or illness prevents you from working. Life insurance. Consider the cost of providing food, shelter, education and care for your family. How would that be replaced, if you died tomorrow? Another thing life insurance can do is keep a business alive after the owner dies. Proceeds can be earmarked in your estate plan to be used to meet business costs and spare your loved ones from selling the business for a low amount, because they need to raise funds fast. Create a succession plan. How will your business go forward without you? Have your documents prepared. Hire an estate planning attorney who can protect your business and your family. Here’s what you’ll need: A will and/or a trust. You need a will, especially if you have small children. This is because you’ll want to name guardians for them. A will does go through probate. However, this is only true if your assets are not placed in trusts. Your estate planning attorney will create a plan that fits your needs. Health care directives. This gives a family member or friend the ability to make health care decisions, if you are unable.
Do you really want the state to determine where your assets end up? A key concept to planning your estate is that you already have a plan in place, whether you know it or not. If you die without a will, or die “intestacy”, meaning “without a Will”, the laws of your state essentially write a will for you. That may not result in your assets going where your would have preferred, according to The Daily News in “’Are You My Heir?’-Who Inherits When You Die Without a Will,” Each state has laws called “intestacy laws” that govern how probate assets are distributed, if someone dies without having a will and establishes the inheritance hierarchy based on a person’s family structure. For example, if you are married but have no children and no grandchildren, your estate will be passed to your spouse. If two people die and there are no descendants (children or grandchildren), their parents, if living, will inherit their assets. A child who is legally adopted has the same rights of inheritance as biological children. Children born outside of the marriage may not. If a child should predecease a parent, the living descendants of the child (if there are any) will inherit their share. In some states, heirs are limited to family members who share the same grandparents. If your family is not geographically or otherwise close, you may have heirs you have never met. Intestacy can become extremely complex, when there are children and grandchildren. Descendants inherit from their parents and grandparents in percentages dependent upon the total number of children and the number of children in each generation that follows. If a grandfather has three adult children who are living and one adult child who has passed, then the estate will be divided by three—a third each to each of the two living children and the final third to the grandchildren of the third (deceased) child. The children of the deceased child are heirs, even if the parent has died. Add non-marital children—children born outside of a legal marriage or step-children—and things start to get complicated. A court will have to determine the intestate inheritance, based on proof that the child is a descendant and if that relationship is established in a timely manner. If the father’s name is on the child’s birth certificate, that is generally enough proof of the relationship. It doesn’t matter if they have a close relationship or have never met. The same applies to marital children—whether they have been close and caring or are estranged. An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and makes reliance on state law unnecessary.Reference: The Daily News (Sep. 7, 2018) “’Are You My Heir?’-Who Inherits When You Die Without a Will”
Estate problems can sometimes lead to a fractured family. We speak to many people who believe that if they die without a will, everything goes to the State. This is almost never the case. “Dying intestate” is the term used to describe the legal status of someone who has died without a will. The laws of your state law will then dictate what happens to your assets. Most of your tangible possessions will be distributed following probate. If your estate is complex, for example, and you own property in more than one state, the process will take a long time and the costs can be high. With a will, you can control who gets what, when they get it, and who is in control of the process. Without a will (or possibly a Revocable Living Trust), you have a plan, drafted by your legislature, but forfeit the right to decide these things. Some of your assets do not pass to heirs through a will. Jointly titled assets pass by title regardless of what your will might say. Other assets usually transfer at death by the contract that controls the asset, such as retirement accounts, life insurance policies and annuities. All accounts that have named beneficiaries go directly to the people who are named. If they predecease you, then the contingent beneficiary receives the asset. The companies do not care what your will instructs. Reconsidering your joint ownership decisions and beneficiary designations are important parts of reviewing your entire estate plan. If you name only your son as the beneficiary for your insurance policy, then later welcome a daughter into your family by birth or adoption, you’ll want to add her as a named beneficiary as well. Otherwise, when you die, only your son will receive the proceeds. Anytime a life event occurs—births, deaths, divorces, marriages—is the right time to review your beneficiary designations. You can make these changes when you are living. When you die, the designation is irrevocable. A will—and an estate plan that is updated regularly—can prevent surprises and ensure that your choices are honored. Family members can end up feeling mistreated by the distribution of an estate. However, a good estate plan can help prevent those hard feelings from developing, according to the Observer-Reporter in “Improper estate planning can lead to familial conflict.” Keeping that plan current can lessen the trauma of something happening by oversight instead of intention. Here’s a celebrity story that serves as a perfect example. A famous father made his third wife his executor and gave her total control over his business, despite the fact that his son was equally famous and the top executive in that business, as well as its public face. The son was baffled when he learned that the third wife now controlled the business, including the rights to his own name. When the father died, a long, expensive and unpleasant estate battle began. The son was Dale Earnhardt Jr. An estate planning attorney can advise you in creating
We all procrastinate about something. The time may never seem right to deal with your inevitable death. Aretha Franklin. the “Queen of Soul” has passed away, leaving an $80 million estate and no estate plan, according to Investment News in “Aretha Franklin estate echoes planning problems of Prince.” Franklin was not married so the estate will pass to her four children. It’s similar to the situation that occurred when Prince died unmarried and without a will in 2016. Had she been married her estate could have passed tax-free to a spouse and there would have been planning opportunities available at that time. Franklin’s four kids will now receive equal shares of her estate. However, they will have to pay a considerable amount in taxes. She was a resident of Michigan, which does not have an estate tax, so there won’t be a state estate tax. However, the federal government takes 40% of portions of the estate valued over $11.18 million. In other words, a $27.5 million tax bill. Without the benefit of a trust being established by a will, those assets will be taxed again by the federal government at the time that the four heirs pass, when the money moves to her grandchildren. Celebrity estates, like that of Franklin, must undergo a complex valuation process to correctly assign an approximate future value of income. Like Prince, there are image rights and music royalties, and the buzz surrounding her death is likely to inflate its value and the tax that will be levied. While Michigan does not have an estate tax, the state does have a “postmortem right of publicity,” meaning that her heirs have the right to legally protect her image for commercial use. Her postmortem rights of publicity are expected to be extremely high, because of her iconic stature as a musician, songwriter and cultural touchstone. Estates of celebrities and creative artists are required to be valued and the appraisal must be reconciled with a parallel appraisal conducted by the IRS. Remember Michael Jackson’s situation? The estate initially valued his name and image at $2,015, while the IRS valued it at more than $434 million. One of Franklin’s children reportedly has special needs. This could put him in a precarious position. If he inherits a large sum of money, he will no longer be eligible for any government programs. Given the size of his inheritance that will not be a problem. For those with less wealth, however, that is why estate planners encourage the use of special needs trusts. This not only protects the child’s eligibility but protects them from misusing the money or being scammed by unscrupulous individuals. Even if you are not an entertainer with assets that total in the millions, an estate planning attorney can advise you in creating an estate plan that fits your unique circumstances. Reference: Investment News (Aug. 22, 2018) “Aretha Franklin estate echoes planning problems of Prince”