Great Planning Begins at Home

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you save everything you love — family, friends, and favorite charities. For more information, be sure to visit our website, where you will have access to our blog, events schedule, and a complimentary newsletter subscription!

Excellent Planning Begins at Home

It has been said that your home is your castle, and your home is where the heart is. Without a doubt, the place we call “home” is exceptional. This is especially true if your family is grown and gone. Can you hear laughter in the walls from birthdays, holiday celebrations, or graduation gatherings? Intermingled with the joy, there may be some sorrow in those walls, too.

Yes, home is an extraordinary place.

In addition to the memories that reside inside, your home likely holds a significant amount of your wealth. Consequently, you must ensure your home is protected while you live there. When you are ready to leave your home, there are some essential things to know about selling your home or even transferring it to your loved ones.

In this article, we will survey some fundamentals to help you avoid some common legal and tax mistakes when it comes to your home, along with some thoughts on transferring it successfully.

Insurance and State Law Protections

The purpose of homeowners insurance is obvious – you pay an insurance premium you can afford now to cover a loss you cannot afford later. Such insurance is prudent and necessary whether it is a fire, flood, twister, or other disaster. Mortgage companies require homeowners to maintain homeowners insurance as a condition of the mortgage. In addition to at least a basic homeowners policy, ask your insurance agent about an “umbrella” policy to provide additional coverage above your policy limits. This added protection is relatively inexpensive but can protect your home and other assets if you are sued. All it takes is one “slip and fall” by an invited (or uninvited) guest on your property for the policy to pay for itself many times over.

All states afford some degree of legal protection for your home itself should you be sued or file for bankruptcy. Some states protect a specific dollar value, others may protect the homestead to varying degrees depending on how long you have lived in your home, and still, others may provide complete protection to married couples when they jointly own the home as tenants by the entirety. In the end, state law will control when it comes to the degree of protection afforded your home ownership. An experienced estate planning attorney can explain the protection unique to the laws of your state.

Joint Ownership Dangers

Most married couples own their home together, reflected right on the deed to their home. If held as “joint tenants with rights of survivorship” or as “tenants by the entirety” and not as “tenants in common,” then no “probate” is required for the “surviving spouse” to “inherit” complete ownership of the home.

When that happens, do not make the typical “mistake” of adding the name of an adult child or other family member as a new “joint tenant” of your home to avoid future probate at your passing. This single mistake can have many severe tax and non-tax consequences, including:

• Lossing tax advantage by gifting your home to a child during your lifetime;
• Subjecting your home to the liabilities of your joint tenant (e.g., divorces, lawsuits, or bankruptcies); and
• Penalizing you for Medicaid eligibility purposes.

Gift versus Inheritance

When you gift your home by transferring full ownership to a loved one during your lifetime by deed, you are also making a future gift to the IRS in the form of additional capital gains taxes when the home is sold. That is because you are giving your loved ones your basis in the house and the home. On the other hand, if they “inherit” the home from you, then the basis they inherit is the home’s fair market value as of your date of death. This one move can make a big tax difference.

Wills, Deeds, and Living Trusts

There are a variety of ways to transfer your home at your death. One method is to do nothing and let the probate court distribute your home according to state law. This method may not reflect your wishes and can be expensive and time-consuming. A last will can enable you to control who inherits your home and authorize the most streamlined probate process permitted in your state. This can save considerable expenses and delays.

If you want to bypass probate, consult a qualified estate planning attorney to determine whether your state provides for non-probate real estate transfers. About 30 states provide for “beneficiary deeds” to transfer your home without probate upon your death. These deeds are revocable and amendable by you during your lifetime, too.

Revocable living trusts are a popular method to avoid probate on your home and other assets. You create the trust, name yourself as trustee, and are the beneficiary throughout your lifetime. If you become incapacitated, a successor you appoint takes over … but you remain the beneficiary. At your death, the trustee administers and distributes the trust assets according to your instructions.

All wills and deeds are a matter of public record. If “privacy” is essential to you, you may want to consider using a revocable living trust to transfer your home and other assets.

Exploring your options about how to pass your house on to your loved ones is a great place to start planning your estate. We have here to help guide the process and encourage completion when you are ready to start. We can also revisit the decisions you have put in place already.

Some updates about us

We at the Downs Law Firm now have four attorneys to help with the process. In addition to founder Tom Downs, we now have Stephen Wallace, Justin Wedgewood, and Patricia Peréz. They work with our team of experienced legal assistants to provide help as needed.

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“Testate” Probate Versus “Intestate” Probate

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you protect everything you love — family, friends, and favorite charities. For more information, be sure to visit our website, where you will have access to our blog, events schedule, and a complimentary newsletter subscription!

“Testate” Probate Versus “Intestate” Probate

Asset distribution is a central task of both “testate” probate and “intestate” probate. A testate probate is available when the decedent dies executing a valid last will and testament. Conversely, an “intestate” (Without a Will) probate is the default when the decedent dies without a valid last will and testament.

In most states, probate is required when someone dies, leaving an asset or assets not titled to a trust or for which there is no surviving joint owner or without a designated beneficiary. Consider such assets “orphaned,” with no living owner. Consequently, probate is required in the state where the decedent was last a resident to find a new owner for any orphaned assets left behind.

How does “testate” probate work?

First, a petition is filed with the local Register of Wills, which is found in Prince George’s County, Montgomery County, or any other Maryland County. The Register’s office reviews the last will and testament to ensure that it is the “last will” and testament and that it satisfies the particulars required under state law to be valid. Once the Register accepts the document as a will, the local Orphan’s Court issues a “Letter of Administration” to the personal representative appointed under the last will. This document empowers that person, also called the executor, to begin paying just debts, taxes, and expenses of the estate and, ultimately, to distribute and manage assets according to the terms of the last will.

Once filed with the probate court, the last will and testament and related documents become part of the public record. Anyone can request and view these documents, including creditors, salespeople, and even thieves. This is why vulnerable surviving spouses are contacted by third parties promoting their professional (and less than professional) services. Scammers also use court documents to identify potential victims.

Probate also requires the executor to notify people named in the last will and lawful heirs not named in the last will. Each of these parties is also provided a copy of the last will. Consequently, state probate statutes provide for some time for disgruntled heirs to challenge the last will.

What happens if a person does not have a will but they do have an estate?

Without a last will, “orphaned” assets still require probate before distribution. With no last will appointing an executor chosen by the decedent, State Law, called “Intestate Succession,” applies, and the Register of Wills or probate court appoints an estate administrator to

fulfill that function. This person may be a professional administrator who never knew the decedent or the family of the decedent. There is no requirement for the probate court to appoint a family member to serve as the trust administrator.

The estate administrator follows the state laws of intestate succession.

The administrator of an “intestate” estate has the same responsibilities as the executor in a “testate” estate. However, since the decedent did not create a last will to provide instructions regarding the estate distribution, the intestate estate passes according to state law. In most states, this one-size-fits-all distribution formula is based on the degree of kinship to the decedent. If a surviving spouse has no children, the spouse may inherit everything. If there is a surviving spouse and children, then the spouse and children share the inheritance.

Failing to have a last will leave the family open to many challenges.

Without a last will, the family has no control over how assets are distributed. A professional administrator will need to be paid for their services. If the estate is small, this will decrease any potential inheritance. A last will is also used to name guardians for minor children. Therefore, if there is no last will and no surviving spouse, minor children will be assigned a foster family until long-term placement can be

made.

What if you want to avoid probate over your assets completely? Consider creating a fully-funded revocable living trust with a trustee of your own choosing to manage the trust assets privately and confidentially for your beneficiaries. An experienced estate planning attorney can help you select the right estate plan for your unique circumstances now and keep it up to date since changes inevitably occur.

I know we are preaching to the choir to a great extent, as you have an estate plan with our firm. This is given with the hope that you may inspire other family members or friends to take the same prudent steps that lead to a well-thought-out end of life. If we can be of help, we would be glad to assist.

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The Benefits of Beneficiaries

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you save everything you love — family, friends, and favorite charities. For more information, be sure to visit our website where you will have access to our blog, events schedule, and a complimentary newsletter subscription!

The Benefits of Beneficiaries

What is a Beneficiary?

Just like the word suggests, a “beneficiary” is a person or entity receiving the benefit of an asset. A beneficiary can be a spouse, child, grandchild, or really anyone. In addition, a beneficiary does not need to be flesh and blood. For example, your favorite charity can be a beneficiary. If giving to a charity is a significant part of your estate plan, directing IRA or 401K benefits to the charity makes sense, as they don’t pay income taxes. One beneficiary everyone wants to avoid, however, is the IRS!

How is a Beneficiary Created?

A beneficiary is designated when the person or legal entity is named in a legal document to inherit specific assets or assets, generally upon the owner’s death. These legal documents are commonly a last will and testament or a revocable living trust. Assets can alternatively pass directly independent of any such legal documents. Certain assets pass by contract through beneficiary designations, like those provided for life insurance death benefits or the proceeds from a retirement plan like a 401(k), 403(b), or IRA. The non-probate transfer laws of many states allow assets to pass directly to a beneficiary by a designation applied to the asset itself, whether paid on death or transferred on death. Other assets pass by operation of law to a beneficiary, like when a joint owner of an asset dies and there is a surviving joint owner.

Who Can Be a Beneficiary?

Minors may not be direct beneficiaries. If the intention is to provide financial support for the minor, an “inheritance trust” can be created to administer and distribute trust assets for the minor child’s benefit. The terms of the trust can be tailored to meet the objectives of the trust creator (i.e., owner of the trust assets) and the beneficiary’s needs. Whether the inheritance trust is created under a last will (known as a “testamentary trust) or under a revocable living trust, a trustee will follow the trust instructions and ensure that the terms of the trust are followed. The terms of payout from the retirement plan to the trust is a very income tax complex decision and should be made and ultimately orchestrated with an estate planning attorney, CPA, and financial advisor.

Every asset passing by the contract should have both a primary and contingent beneficiary. If the primary beneficiary dies before the owner, the contingent beneficiary receives the asset on the owner’s death. Identify beneficiaries clearly, using proper legal names and Social Security numbers. Problems occur when the identity is unclear, for instance, when multiple people in a family have the same or similar names.

Why Updating Beneficiaries is as Important as Updating Estate Plan

When an asset is arranged to pass by contract, operation of law, or by non-probate transfer laws, the beneficiary arrangements supersede the control of the owner’s last will or revocable living trust unless the previous will or revocable living trust is itself the beneficiary. Consequently, when the asset owner fails to update the beneficiary arrangement, unintended consequences follow. This can lead to litigation and even family feuds lasting for generations. Beneficiary arrangements must be updated to avoid this problem, especially when there are births, deaths, marriages, and divorces in the family. What was a correct beneficiary for younger children could be a significant headache for adult children.

What Happens When No Beneficiary is Named?

When an asset has no beneficiary designated or no surviving beneficiary, the asset becomes subject to probate. If there is no last will directing the disposition of any assets subject to probate, then the decedent owner has died intestate. As a result, the probate court applies the state laws of intestate succession to determine the beneficiary or beneficiaries of such assets. These laws apply by default and presume that people want to leave assets to their relatives based on how closely they are related. However, this is not always what the decedent would have liked.

Suppose no beneficiary is named for a retirement plan or life insurance policy. In that case, the custodian may have a process for assigning a “default” beneficiary, who may not be the person you want.

There may be further tax consequences if no beneficiary is named on tax-deferred retirement accounts.

Family Members with Special Needs Should Not Be Direct Beneficiaries

Means-tested public benefits are subject to strict asset limitations to become or remain eligible. Family members receiving or may become eligible for such uses may not own or have access to assets exceeding those eligibility limits. To preserve access to benefits and to enjoy the benefits of an inheritance, a special needs trust is required to administer the inheritance of the beneficiary with special needs.

The Benefits of Beneficiaries Require Care and Planning

Failing to maintain beneficiary designations is one of the most common and easily avoided errors in estate planning with competent advice. Once an inventory of accounts and assets has been created, an annual update is simple and quick.

We have a Zoom online training session on “Beneficiary Designations for Life Insurance and Retirement Plans” on Monday, June 5, at 6:30 pm. It will cover some basic beneficiary concepts.

To register, you can click here.

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Disability Legal Planning for All Ages

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you save everything you love — family, friends, and favorite charities. For more information, be sure to visit our website, where you will have access to our blog, events schedule, and a complimentary newsletter subscription!

Disability Legal Planning for All Ages

A life-altering disability can strike at any time, regardless of your age. From a complicated pregnancy to a severe automobile accident to a cancer diagnosis, these situations can significantly impact your life and the lives of your loved ones. Because one-in-four working-age adults may become disabled before they retire, there is a chance you may become disabled. Prior legal planning is essential to reduce the legal hardships caused by a debilitating illness or injury. Here are a few tips to help you make proper disability legal plans.

Create Powers of Attorney

If you were disabled due to an injury or illness, which would make your personal, health care, and financial decisions? Would you rather it be someone you know and trust, perhaps a family member or friend, or would you prefer someone appointed for you by a judge who likely knows nothing about you, your family, and your circumstances? If you are like most people, you will choose the former alternative over the latter. Unfortunately, without proper advance legal planning, the latter is the default and more typical result.

Since none of us knows when to expect the unexpected, you need to create a durable power of attorney for health care decisions and a durable power of attorney for financial decisions. The word “durable” means the authority you give the person appointed in your power of attorney will continue in force should you become disabled. After all, that is when you would need them to act for you, right? This is a crucial point to remember.

Health Care Matters

Creating a durable power of attorney for health care decisions is a matter of life and death. Who better advocates your health care needs than someone selected by you? Who knows you better than the doctors and nurses treating you? As a result, you should share with your agent the nature of treatments you would want (or not want) under various scenarios.

A health care treatment directive is a document commonly completed with the durable power of attorney for health care decisions. Its purpose is to provide written evidence and guidance regarding end-of-life medical care. Be as general or specific as you wish. While at it, do not forget to include a HIPAA authorization as part of your healthcare disability planning. Under federal law, such approval is necessary for healthcare providers to disclose otherwise confidential and protected information to your agent.

Financial Matters

If the durable power of attorney for financial matters is “general,” then your agent (also known as an “attorney in fact”) may have comprehensive authority to act on your behalf. For example, the agent may be able to sell your home, sign and file your tax returns and pay ongoing bills from your account. On the other hand, if the durable power of attorney is “special or limited,” then your agent will have authority restricted to the acts you specify in the document. The scope of the control you authorize is worthy of careful reflection. There have been cases where agents have exceeded the intended authority.

In addition to controlling the extent of authority you authorize under your general durable power of attorney, you may control when it becomes activated. Suppose you want the source to begin only when you become disabled. In that case, you will want to create a “springing” power of attorney requiring some specific proof of your disability defined in the document itself. Otherwise, the authority of your agent may become effective immediately.

Help When It Matters

When disability does strike, and a crisis is at hand, having a trusted, experienced legal team to offer assistance is imperative. That is when the rubber meets the road with your planning. We have been assisting in these critical times since 1995 and are here to help if needed. Please be sure your decision makers know you are connected to a team for just these circumstances.

We have a Zoom online training session on “What to Tell Your Executor” on Thursday, April 20, at 6:00 pm. They may find that introduction helpful.

To register, you can click here.

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Trust Administration Matters

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you save everything you love — family, friends, and favorite charities. For more information, visit our website, where you will have access to our blog, events schedule, and a complimentary newsletter subscription!

Trust Administration Matters

If you have never handled funds for another person (as a “Fiduciary”) before, it might feel somewhat daunting to be appointed to serve as the trustee of a trust. In such a role, you owe high loyalty to that person or their beneficiaries if they have died.

This is true whether the trust is created under a will (i.e., a “testamentary trust”) or is an irrevocable trust created under a revocable living trust only after the maker of that trust dies.

It is preferable if the person establishing the trust notifies you before your appointment. If they did, you should ask for a copy of the legal document appointing you and ask the preparing attorney to provide you with an overview and address your questions. It is far better to know the responsibilities you will be taking on and politely refuse the appointment now than to bail out when the appointment takes effect later. But first, what are some of those responsibilities?

Trustee 101

A trustee may be a person or a financial institution, or both. The trustee holds legal title to the property for the benefit of another and acts according to the terms of the trust. The trust document will identify who the trustee is. Suppose the person who set up the trust was the initial trustee (as in a revocable living trust). In that case, you might be named successor trustee to administer the trust when the original trustee becomes incapacitated or dies. For example, John might set up a living trust and put all his assets into the trust. He is the initial trustee. John handles all the administrative matters of the trust during his lifetime. When John dies, the person and/or institution appointed as his successor trustee assumes complete control.

If a trust appoints you as the successor trustee, you do not have to do all the work yourself. Handling the assets of another can monopolize your time, so many people hire and supervise specific professionals to do some or all the work. For example, you may have an accountant take care of the taxes. Alternatively, the trust may authorize you to appoint an institutional trustee to handle all the “heavy lifting” responsibilities, with you overseeing that trustee.

Trust Administration

The specific actions that a trustee must take require the utmost integrity and care, including the following responsibilities:

• Read the trust agreement. Make sure you understand what the trust directs you to do. Get professional advice if you have questions. You need to know who the beneficiaries are, what they are supposed to receive, and when you must make distributions to the beneficiaries.
• Notify the plan’s beneficiaries and provide a basic roadmap to establish reasonable expectations.
• Marshal the assets. In other words, you must find, secure and value all trust assets as soon as possible. You may be required to file a claim to collect certain assets, like the proceeds of life insurance policies. You may need to hire a professional appraiser to value some assets, like the home’s contents, jewelry, and vehicles.
• Verify that homeowners insurance and property taxes are current and that coverage will continue until the sale or distribution is made.
• Identify and pay all final expenses, personal and trust taxes, and legitimate debts of the decedent. Some bills must be paid promptly. You also must provide proper notice to known and likely creditors.
• Provide an accounting to beneficiaries and obtain waivers or agreements before making significant distributions.
• Keep track of your time, and find out what fair compensation you deserve for taking on this significant role.
• Distribute assets. Follow the trust agreement carefully when making distributions to beneficiaries. Be prepared to say “no” to beneficiaries when they demand distributions not authorized by the trust.
• Terminate the trust. After paying all expenses, debts, and taxes and distributing all trust assets (if the trust permits), you can terminate the trust and conclude your duties as a trustee.

As the trustee, you bear significant potential liability for misdeeds. If the assets are substantial, seek an estate planning lawyer who has been through the process for many years.

To find out more about being a trustee, executor, or as the appointed person in a power of attorney, please join us at a Zoom: Thursday, April 20th, at 6:00 p.m. – “What To Tell Your Backup Person” with Tom Downs.

We also have the following other events available to you or your family, chosen successor agents, and those who you would like to invite to share a learning opportunity:

• In Person: Wednesday, March 29th, 10:30 a.m. – “Overview of Estate Planning” with Tom Downs, Stephen Wallace, and Justin Wedgewood
• In Person: Wednesday, April 12th, 5 p.m. – “Overview of Estate Planning” with Stephen Wallace
• Zoom: Thursday, April 20th, 6 p.m. – “What To Tell Your Backup Person” with Tom Downs

Click here to register.

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Estate Planning Checklist

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you protect everything you love — family, friends, and favorite charities. For more information, be sure to visit our website, where you will have access to our blog, events schedule, and a complimentary newsletter subscription!

Estate Planning Checklist

Estate plans, like Rome, are not built in a day. It takes time to map out how you want your estate distributed after death – and decide who will be in charge of your finances and health care in case of incapacity.

An Updated Last Will and Testament

Regardless of the value of your estate, a last will legally distributes assets after death according to your wishes. Your last will should be reviewed every two to three years to reflect changes in your life and changes in the law. Your last will should also be updated when there is a death, divorce, marriage, birth, relocation, or another significant event.

A revocable living trust is a popular alternative to a last will. If properly prepared and “funded” with your assets, your living trust can avoid probate, unlike a last will. It should likewise be reviewed every two to three years.

It is not uncommon for us to meet with people after death who have no will or one that is terribly out of date. We are working with a case now where the will names a now ex-spouse to manage and receive all.

Review Named Beneficiaries

Any asset with a named beneficiary is distributed outside of your probate estate. For example, perhaps you started a retirement plan (e.g., whether employer-sponsored or your own individual IRA) years ago. Have you forgotten who you designated as the beneficiary at your death? Whoever is designated will inherit the asset. This could be someone who is no longer part of your life or can manage assets. If the designated beneficiary is now deceased, then the retirement plan will become part of your probate estate. It is a prudent practice to regularly review your beneficiary designations for retirement plans and life insurance. Make sure that you also have both primary and contingent beneficiaries.

Failing to have a beneficiary named or deceased beneficiaries named are all too frequent problems we encounter while providing post-death assistance.

Create an Inventory of Assets

Whenever someone dies, they take information when they go. Recreating this information is time-consuming and often imperfect. An inventory of all assets every few years is a necessary act of love. The inventory should include account names and numbers, contact information if the asset was purchased through a financial advisor or broker, the original “basis” of the asset when acquired, and the asset value at the time of the inventory. Passwords to your digital life are also very helpful to pass on.  This information, and other private information, should not be included in your last will. It becomes a public document when filed with the probate court after death.

Our clients have the start of this process in your binder under the personal information tab. Check out how much you have filled in.

Planning for Incapacity

A general durable power of attorney (POA) appoints someone you know and trust to be in charge of your financial life if you are ever incapacitated. This person, known as an agent or an “Attorney-in-fact,” can then legally perform tasks as simple as paying household bills or as complex as selling your home or business. Ask any candidates you are considering whether they are willing and able to serve before committing them to the POA. While you’re at it, always name several alternative backup agents in case the first predeceases you or cannot serve.

As with the POA, a medical or healthcare power of attorney is used to appoint your healthcare agent in the event of incapacity. Your healthcare agent can make your medical decisions, talk with doctors and other healthcare providers, and be involved in your ongoing care. The agent will also talk with your loved ones during critical times. This is ideally someone who can stay clear-headed during emotionally-charged situations.

Have you emailed your documents to the agents? Have they stored them on their smartphones?

End-of-Life Planning

A living will and healthcare treatment directive guides your healthcare agent and loved ones regarding your wishes in the event of a terminal illness or injury when you have little chance of recovery. It clearly states your wishes about being kept alive through artificial means, whether to exhaust all options or to allow you to die.

This document can be difficult to contemplate and should be given careful thought. Not only should it be discussed with your physician, but also with your loved ones. Having these difficult discussions will take the burden from your agent and loved ones, who otherwise would be left to guess about your wishes. In the absence of such planning, too many families fight for control over such decisions in court.

Estate Taxes and Inheritance Taxes

Given the current high federal estate tax exemption of $12.6 million per person, few American households need to be concerned with federal estate taxes for the next year or so. However, some states have their own estate taxes with much lower exemption limits. Maryland’s Estate tax threshold is now Fove Million dollars. Some states have inheritance taxes, which are levied on heirs based on their relationship to the deceased. Maryland taxes people who are not close relatives, like nephews and nieces, 10% on an inheritance of over $1,000. We have both their own estate taxes and inheritance taxes! Consequently, estate tax planning is part of every comprehensive estate plan.

Summary

This brief “checklist” is a good starting point for creating and maintaining your estate plan. As you can see, proper estate planning is not a “set it and forget it” experience. Like your home or automobile, your estate plan requires ongoing maintenance to perform as intended when needed. While thinking about it, take some time to pull out your estate plan and see what might be outdated.

Upcoming Seminar February 22 at 6:00 pm

We have a  Basis Estate Planning Seminar at our office on February 22 at 6: pm. We estimate One hour in length. To register, click here.

This is a discussion about joint ownership, beneficiary designations, wills and how probate works, and living trusts. It is a helpful overview for future financial and medical decision-makers and can be a springboard to introduce your family to your decisions and preferences.

Please join us if you want a refresher on your own planning and want to introduce your family to basic estate planning tools. Also, if you’re going to give a friend a chance to find out about their options for planning, please pass this invitation on to them.

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Our New Lawyer

Find Us Online

Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you protect everything you love — family, friends, and favorite charities. For more information, visit our website, where you can access our blog, events schedule, and complimentary newsletter!

A New Lawyer Has Joined Our Team

We are proud to announce that a new attorney has joined our firm.

Justin Wedgewood is an Estate Planning Attorney who resides in Silver Spring, Maryland. He is blessed to be the father of a beautiful daughter named Emmeline.

What Needs to be Done When a Loved One Dies?

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you protect everything you love — family, friends, and favorite charities. For more information, visit our website, where you will have access to our blog, events schedule, and a complimentary newsletter!

What Needs to be Done When a Loved One Dies?

Once the initial shock has subsided, many tasks must be done when a loved one dies. Unfortunately, many of them are time sensitive and cannot be delayed. Most of these tasks fall to the surviving spouse unless a trustworthy and well-organized sibling or adult child can help. They include:

• Making funeral arrangements if they have not been done previously.
• Contacting family members and close friends.
• Securing the home or apartment.
• If there is a pet, find someone to care for them, even if it’s a short-term arrangement.
• I am locating the will and estate planning documents.
• Contacting Social Security, Medicare, Medicaid, and the Veterans Administration.
• Contact the U.S. Post Office to have mail forwarded.
• Obtain ten (10) original death certificates.
• If the decedent was working, notify their employer.
• Unless you had joint accounts or POD accounts, notify financial institutions.
• Notify the CPA, financial advisor, and any attorneys.
• Notify credit card companies and freeze the cards.
• Verify that property taxes have been paid and that homeowners insurance coverage is in place.

These are the more immediate tasks. In the weeks and months to come, there will be many more. In the early weeks, you will need to submit the decedent’s will to the court, known as probate, identify all assets and liabilities, pay utility bills and create a list of personal effects. Find the most recent tax returns to prepare the last tax return. Tax filings contain a wealth of information about assets, accounts, and property.

You’ll also need to notify the life insurance company. Find out how policy proceeds will be distributed and if any outstanding premiums can be returned.

The Department of Motor Vehicles needs to be notified to cancel the driver’s license, and you may want to inform the local Board of Elections.

It can take a year from when a person dies until their estate is settled. A complex estate can take several years, especially with no estate plan.

What If You Need Help?

Unless you have done this before, it’s hard to imagine how difficult it is. There are seemingly endless boxes of documents, and often directives for funeral planning and disposition of personal effects are buried in paperwork.

For some people going through a loved one’s documents offers a window into the details of the past and can be comforting. But for most, it’s a painful, long, and frustrating process. Today, this is further complicated by online accounts, which are harder to identify and often protected by passwords, two-factor identification, and facial recognition.

If you need help, ask a trusted family member or professionals who worked with the deceased.

What Can Be Done in Advance?

Just as estate planning is a kindness for loved ones, so is planning for the practical side of death. Whenever a person dies, information is lost. Taking sets to leave helpful hints and breadcrumbs for your survivors to use to figure things out can be very helpful during these difficult moments.

While it may not be admissible in court, a detailed description of the person’s wishes for their funeral, instructions for the care of their animal companions, and the location of important documents are a great help to surviving spouses and family members.

To you and yours, we extend our best Holiday wishes and hopes for a great 2023.

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Gifting to Minors with Custodial Accounts

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you protect everything you love — family, friends, and favorite charities. For more information, be sure to visit our website, where you will have access to our blog, events schedule, and a complimentary newsletter subscription!

Gifting to Minors with Custodial Accounts

Legally speaking, a minor is a person under the “age of majority,” which defines the transition from childhood to adulthood. The age of majority depends upon the jurisdiction and application, but it commonly occurs at age 18 in most states.

While minors cannot legally own assets outright, you can transfer assets to your minor child or any minor children, regardless of whether they are related to you. However, you must adhere to specific rules to ensure these transfers are legal and tax efficient. There are several options for gifting to minors, depending on your situation and goals. This article will introduce one of these methods: the custodial account.

UGMA and UTMA

Have you heard of the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA)? Parents often set up custodial accounts, as either UGMA or UTMA accounts, to make gifts to their minor children, usually for college education. These accounts are popular and are a simpler, less expensive alternative to creating and administering a formal trust for the minor child.

You are making an irrevocable gift to a minor child with either account, and the account is held under the child’s Social Security number. As a result, any taxes on the bill are reported on the child’s income tax return. These two accounts also have subtle but significant differences.

For example, UTMA accounts can hold a wider variety of assets for longer than UGMA accounts. Whereas UGMA account investment options are limited to traditional financial products, like savings accounts, certificates of deposit, stocks, and bonds, the UTMA account investment options are much broader, extending to nearly any manner of tangible or intangible asset. Limitations are typically in place to prevent the custodian from higher-risk investing, like buying securities on margin.

The accounts also differ regarding how long they can be withheld from the minor child’s direct control after attaining the majority age under state law. UGMA accounts become fully available at age 18, while UTMA accounts can be withheld until age 21. This delayed availability age under a UTMA account can prove invaluable, especially if the newly-minted young adult is financially immature. Consequently, funds held in a UTMA account are more likely to be used for college when controlled by a parent until the child is age 21.

Older age controls are available in other trusts, which an estate planning attorney can help you create.

How They Work

While underage, the beneficiary cannot serve as the custodian of a UGMA or UTMA account. Consequently, an adult or financial institution will act as the account’s custodian. The parent who contributes the funds into the account usually also serves as its custodian. Once the account is opened, any friend or family member can make deposits into the account for the child. At that point, assets in the account belong to the child beneficiary. If the beneficiary applies for federal financial aid for college, the account will be considered an asset of the beneficiary when determining student loan eligibility.

Tax-Free Gifting Rules

The law limits how much can be added to either of these accounts per year without triggering gift taxes. Under current law, the “annual gift exclusion” amount is $16,000 per donee (to increase to $17,000 on January 1, 2023). In other words, you and your spouse could each deposit $15,000 into your son’s UTMA account each year without triggering gift taxes. By not exceeding this $16,000 limit, no Form 709 Gift Tax filing is required. “Gifts” include all gifts made during the year, even birthday gifts. Your gifts to your son are not considered “income” reportable on his tax return, but they are not “deductible” on your tax return.

What if you want to gift more than the annual exclusion amount in a given year? What if you want to leverage a “down market” and transfer currently undervalued assets to take advantage of potential exponential appreciation later? In 2020, the maximum transfer you and your spouse may make to your son without triggering gift taxes is $23,190,000! You would need to file a Form 709 Gift Tax Return to report the value of your gift in 2022 when filing your personal income tax return. Giving more than $20 million to any newly minted adult may not be a wise move. Therefore, a custodial account may not be the best option if you are considering a substantial gift to a minor child.

Trust a Trust?

Therefore, what is an alternative to a custodial account when making a substantial gift (or series of gifts) to a minor child over the annual gift exclusion? As a famed jurist, Oliver Wendell Holmes Sr., famously quipped, “Put not your trust in money, but put your money in trust.” Consequently, consider creating an irrevocable trust with your minor child as the beneficiary. This approach provides many benefits not available with a UGMA or UTMA account. For example, a trust can be designed to protect the inheritance from and for your son.

An irrevocable trust can shield gifted assets from being squandered or lost to potential divorces, lawsuits, or bankruptcies. There are very few negatives to using an irrevocable trust when making substantial gifts to loved ones. Creating, funding, and administering an irrevocable trust is not a do-it-yourself project. Work with an experienced estate planning attorney when considering your gifting alternatives.

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Frightening Estate Planning Mistakes

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Building wealth is only half the job. Protecting wealth for your loved ones and yourself is equally important. Through estate planning, business planning, and asset protection, our firm will help you protect everything you love — family, friends, and favorite charities. For more information, be sure to visit our website, where you will have access to our blog, events schedule, and a complimentary newsletter subscription!

What are the Most Common Estate Planning Mistakes?

The most common estate planning mistake is failing to have a plan. Estate planning attorneys know people prefer not to address their own incapacity and death. They also know the problems that result when there is no plan. Having a properly prepared estate plan alleviates some of the financial and emotional stress for a surviving spouse and other family members.

Failing to Fund Trusts Undermines the Best Estate Plan

If you have a revocable living trust, then “funding” the trust is required to take assets out of your direct ownership and make your trust the owner. This is the process through which homes, vehicles, and any other assets owned through titles or deeds are formally transferred to your trust. A properly funded revocable living trust can help your estate avoid probate. Depending on your state of residence, this can expedite settling your estate, save unnecessary legal expenses and keep your private matters private.

Neglecting Incapacity Planning

Planning for incapacity due to illness or injury is as important as planning for the eventual administration of your estate at death. Without proper legal documents—advance health care directive, HIPAA authorization, healthcare proxy, living will, and general durable power of attorney —family members, including spouses, may not be able to access medical information or be part of your health care and financial decision-making process, without first going to court. At a time of family stress, this is no time to pile on any additional legal red tape.

Also, part of this planning is having a good backup for the depth of your planning. We want at least three possible successive decision-makers.

Creating an Estate Plan Without Professional Guidance

Expecting an online, DIY last will and testament to replace a comprehensive estate plan prepared by an experienced estate planning attorney is risky at best and disastrous at worst. Not surprisingly, each state has its own laws regarding the proper preparation and execution of a last will and testament. If your last will fails to comply with state law, it may be declared invalid. In that case, the only option for your surviving spouse or other family members will be to process the estate under the intestate succession law of your state. In other words, when your last will is declared invalid, state law decides who will inherit what and when from your estate. This is best avoided. The good news? You will not be around to see the mess you left. The bad news? Your loved ones will have to clean up your mess.

Remember that when the family needs legal advice the most, they will start searching for the right law firm to help without your assistance or input.

Leaving Original Beneficiaries on Non-Probate Assets

Every account with a designated beneficiary transfers on death to that beneficiary. However, failing to review and update those beneficiary designations may result in unwittingly disinherited loved ones. For example, take life insurance. It is not uncommon for an ex-spouse to

receive an unintended windfall when the policy owner dies. Fortunately, such outcomes can be easily avoided simply by updating the beneficiary designations on all assets for which beneficiaries have been designated. Review them regularly or whenever a major life event occurs, like a divorce or the death of a spouse.

Not Updating Estate Plans to Stay Current with Changes in Estate and Tax Law

Just as changes happen throughout our lives, estate and tax laws change also. In the coming year, major changes will occur in estate and tax laws. An estate plan created five to ten years ago may not provide the same financial protection or legal outcomes as one created last year. Changes coming in 2021 may require further updating.

Let Adult Children or a Trusted Friend Know Where Documents Can be Found

An estate plan is a gift to your loved ones—unless they cannot locate the documents in a timely fashion following your incapacity or death. Would those appointed to have an active role in your estate plan know where you keep your essential estate planning, financial, tax, and personal documents? Would they be able to access them? Do you want them to wade through file drawers and boxes of thirty, forty, and fifty-year-old paper records to find important information? While a safe is a great place to store original documents, it can defeat the purpose if the password is unknown or available. Similarly, a safe deposit box may require a court order to access the contents unless you include your spouse, adult children, or others on the signature card at the bank.

Leave a Legacy by Preparing for the Future

The loved ones you leave behind will recognize your effort to address your estate planning. It is part of caring for your family and the legacy you will leave with them.

Activities this Month

The Downs Law Firm will be sponsoring two events for Laurel Main Street for the Laurel Board of Trade:

First, we are hosting the Main Street Trivia Contest that the Laurel Main Street Festival on October 15, from 9 to 4.

After October 15, check our website, where you can test your knowledge with the quiz yourself.

Second, with the help of convicts and ghouls, we are handing out candy and fright for Main Street Trick or Treat on October 27 from 6 to 8.

Copyright © Integrity Marketing Solutions. All Rights Reserved.