Estate planning can be a challenging process, no matter how many or how few assets you possess. A well-drafted estate plan should provide for all contingencies and should clearly represent your wishes on how your assets should be managed and distributed among your family.
Unfortunately, there are a fair number of mistakes many people make while creating and maintaining their estate plans. The following estate planning mistakes are entirely avoidable, but only if you make the effort to keep your documentation up to date in terms of reflecting your current wishes.
Mistake #1: Failure to Update Beneficiary Forms
Many people don’t regularly update their estate plans, which can have unintended and serious consequences. In many ways, an estate plan is a “living” group of documents that aren’t static, but reflect your family’s changing circumstances. In order to best represent your contemporary interests in passing on your assets to your family, an estate plan’s beneficiary forms must be updated regularly. This allows your Personal Representative to distribute your assets swiftly and accurately, without additional confusion and excess court fees.
Major life events can precipitate the need to update beneficiary forms. A divorce is a prime example. An ex-spouse must be explicitly removed as a beneficiary from life insurance policies and the like, or else they will receive those assets, regardless of what you have put in your Will. The same goes for children born after your documents were initially created. Updating your beneficiary forms allows the proper beneficiaries to take control of certain assets without further legal hurdles.
Mistake #2: Outdated Tax Considerations
Estate taxes tend to change only marginally from year to year. But over the course of decades, your tax considerations may change substantially, requiring you to update your plans. For those with estate plans today, this need is particularly acute after recent changes made to the estate tax code made by the 2017 Tax Cuts and Jobs Act.
Without ensuring that new laws do not negatively affect your estate plan, a considerable portion of your assets may be paid away in taxes before a cent ever reaches your family. As such, this type of updating is crucial to their future financial security.
Mistake #3: Not Coordinating Wills and Trusts
Estate planning experts often see conflicting language between wills, trusts, and other documents. This can cause a great deal of legal confusion that can cost thousands of dollars and take several years to unwind.
Even if your will says one thing, you must remember that conflicting language in an estate plan can negate your wishes entirely. Also, failure to coordinate these important documents can result in extra taxation caused by inefficient asset inheritance.
Mistake #4: Trying to Do It Alone
Perhaps the biggest mistake an individual can make is trying to draw up an estate plan on their own. An estate plan is a complicated group of documents full of complex legal language that requires an expert to properly interpret. As such, you should always turn to estate planning experts like the team at SLN Law.
Their knowledgeable team members can help you to not only start an estate plan, but also keep an existing plan updated. Together with SLN Law, you can avoid these troublesome pitfalls and gain peace of mind when it comes to the future of your key assets.
Updating estate plans during and after a divorce is often the last thing someone feels like dealing with. However, it’s a vital step in the process. It will provide peace of mind and closure.
If you delay or avoid updating your plan, your assets could end up being distributed to your ex-spouse after you pass away. These steps will ensure your estate plan is updated and reflects your wishes.
Update Your Will
Laws vary by state, but in many cases, the information in the will still stands as valid after divorce, so it’s important to create a new will. After all, would you want your ex-spouse to inherit something from your estate?
Most planning processes start with revoking your current will. Assuming your ex-spouse was listed as executor, update the will with new details:
If you named your ex as durable power of attorney, this means you gave them access to all of your accounts and assets — including present-day assets in your name.
If you’re not sure how you named them, check with your estate planning lawyer and they’ll help you figure it out. Regardless, you’ll still want to change power of attorney by:
Update Healthcare Proxy
In most marriages, the spouse can make healthcare decisions in case of an accident, emergency or serious illness as power of attorney or healthcare proxy. For example, if you get in a car accident and sustain serious injuries and are sent to the hospital, unable to make decisions or communicate, the spouse would have authority to make decisions on your behalf.
During or immediately after a divorce, it’s imperative that you name a new proxy — someone who you trust and respect.
Name New Guardian for Minors
If you’re a parent of a child under age 18, you’ll likely want to name a new guardian in the event that you or your ex-spouse pass away or are unfit to raise the child.
Note: If you don’t want your ex-spouse to raise your children if you pass away simply for personal reasons, this can’t be prevented. Then it’s a matter of custody, which is a different topic. However, naming a guardian can provide peace of mind in the event neither you or your spouse can raise the child.
Are you in the midst of a divorce or dealing with the aftermath? The SLN Law team is here to help you update your estate plan. Contact us today!
Confronting one’s mortality is rarely easy, but with the right guidance, estate planning does not have to be a difficult process. Don’t ignore the important function it serves when it comes to providing financial and emotional security for your family. Making estate plans shouldn’t be put off, but there are a variety of reasons why folks tend delay creating their own plans in a timely fashion.
If you see yourself in any of these categories, rest assured that there are trained estate planning experts who can help guide you through this very important legal process.
Reason #1: Intimidation
Nearly every adult feels some intimidation towards the estate planning process and in many ways, those feelings are justified. Mortality itself is intimidating and estate planning requires an individual to confront it. However, making an estate plan is an important step in adulthood that represents a commitment to one’s family regarding how you will care for them if you are personally unable to do so.
Many people are intimidated by the overwhelming amount of paperwork and choices that may be necessary to complete an estate plan. The good news is that most estate planning experts use a specialized questionnaire to streamline and simplify the process. These questionnaires lead you through the process step by step and allow your estate planner to do the heavy lifting for you.
While the ball is in your court when it comes to picking an Executor or Healthcare Agent, that decision is better made well before its implementation is necessary.
Reason #2: Too Young
Many adults feel that they are too young to be filling out such keystone documents such as a Will or Power of Attorney. The truth is, every adult with any assets or liabilities should have an estate plan drawn up, in case unforeseen circumstances require their implementation. Health complications can arise even in healthy young people, so it’s never too early to have these plans in place.
This necessity is doubled for adults with children. While many new parents can get caught up in the hustle and bustle of raising children, they should take time soon after having their first child to draw up an estate plan designed specifically to ensure their child is properly cared for with guardians and careers of the parents’ choosing and not someone appointed by a judge.
Reason #3: “It’s Only for The Wealthy”
While the estate planning conjures up images of an expansive home on a massive plot of land, an estate plan is applicable to adults in every economic class. If you have any type of noteworthy assets – even an asset with only strong sentimental value – then you have enough physical wealth to necessitate the implementation of an estate plan.
In short, if you have something worth protecting and passing on, then you have all the reason you could need for an estate plan.
Reason #4: Unsure Who to Contact
Finding the right attorney to draw up your estate plan can be a challenge, especially when it comes to cost versus benefits. That’s where the team at SLN Law comes in. Their team of trained estate planning experts will help you make and fulfill important estate planning goals, ensuring that every legal safeguard is implemented to protect your assets and ensure they are delivered safely into your family’s hands.
HOW TO TALK ABOUT YOUR ESTATE PLAN WITH FAMILY
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It’s a subject few people want to discuss and yet it’s extremely important and beneficial: talking about your estate plan with your family before something happens. Have you ever known someone who has torn the house apart looking for a will when a loved one passes because they didn't know if the deceased had written a will, what it said, or even where it was? Or a family who suffers from division, hurt feelings, and stress because what was in a parent's will was a surprise? It happens more often than you might think.
If you have this “talk” approaching and you’re concerned about the situation growing tense or uncomfortable, keep these thoughts in mind:
What else can be done to make the experience more comfortable and helpful to you and your family?
Acknowledge the Inevitable
The topic is understandably sensitive, and some might imagine it to be emotional and uncomfortable. You and your loved ones obviously don’t want to think about you passing away. Plus, people often feel awkward talking about money – even among family members.
However, estate plans are created for the benefit and well-being of the people you love and who love you back.
Discussing the estate plan prepares everyone involved for what’s to come. Sitting down with beneficiaries provides a clear understanding of how they’ll be impacted by your will and other estate plan decisions. It also helps if everyone knows who your personal representative is, so they know who to go to with questions and so that person knows that he or she has been given this responsibility.
Share the Information Your Family Will Need to Manage
The question often arises, “Who should I share my estate plan details with? When? And how?”
People also often wonder whether they should meet with each heir one-on-one, or bring every heir into the room.
Whether you meet privately or as a group, consider being as transparent as possible, by sharing clear legacy information and details while keeping the door open for questions and honest conversation.
Why? Because, for example, if one of your adult children assumes you plan on leaving the family business to them, or another is expecting to inherit the family home, it only seems fair to discuss your plans with them, especially if their assumptions are incorrect, so that they can be better prepared for their inheritance when it comes. Or you may have specific reasons for naming one of your children as personal representative instead of the other- better to talk about it now than have hurt feelings or misunderstanding after you are gone, while your children are already in a stressful and sad situation.
There are also plenty of other things that are likely not controversial, but important for your family to know ahead of time. Remember that if something happens to you- either death or a sudden illness or accident that leaves you unable to communicate or make decisions for any period of time- your family will already be under tremendous stress and grief, and you should try to make it as easy for them as you can. These include:
You may also want to have a separate conversation with the individuals designated as your personal representative, health care proxy, and durable power of attorney. Massachusetts does not recognize specific advance health care directives as legally binding- instead, you designate a person you trust to make the decision for you. If you have strong opinions about what kind of medical care you do and do not want, it is helpful to make sure the person you have designated as your health care proxy knows what those wishes and opinions are. In the same way, you could benefit from making sure the person who holds your power of attorney understands how you would like certain things to be handled if you are incapacitated.
Keep Your Focus on Family
Once you focus on the relationship between you and your family members, it’s often easier to keep sight on what’s most important — family! — while leading the discussion.
To encourage the spirit of positivity and goodwill among heirs, determine how your decisions will impact everyone individually. Be empathetic and compassionate by looking at your decision from multiple perspectives.
For example, if you leave one granddaughter a trust but leave another grandchild her full inheritance, your family will naturally wonder why. Often, decisions are extremely practical and beneficial, but it’s not always interpreted as intended.
You probably also have stories to relate that can help your family think about this issue. For example, you may have a specific experience- positive or negative- with how your own parents or grandparents set up their estate plan, and how that impacted you when they passed. Show your family that you know this is part of life, that you have been through it too, and that you are trying to make things as easy as possible for them when the inevitable occurs, hopefully a long way in the future.
Talking with your family about your estate plan isn’t always clear cut or easy, but it’s a vital step in your wealth legacy journey. Want to know more about estate planning? Click here to get your free book, "What You Need to Know About Estate Planning."
WHAT’S THE DIFFERENCE BETWEEN INDEPENDENT CONTRACTORS AND W-2 EMPLOYEES?
It’s important for employers to know the difference between independent contractors and W-2 employees for legal reasons. Sometimes differentiating between the two is frustrating and confusing, especially for an employer, but it’s a necessary employment step.
Independent contractors and employees can be paid for the same or similar work, but it’s vital to know the legal differences between them. You need to know this because if you are the independent contractor, you may be missing out on important benefits and legal protections because of your classification. If you are the employer, you could be at risk for a lawsuit or enforcement action by the Attorney General if you get the classification wrong.
Below are some ways to determine if someone is an employee or an independent contractor.
When is an Employee Not an Employee, or a Contractor Not a Contractor?
The definition of an employee isn’t exactly straightforward, so it’s important for you to consult an employment lawyer if you have concerns or feel confused. Employees must receive Form W-2, which shows gross amounts paid and amounts withheld for taxes.
When it comes to employees, your company should withhold the following from wages:
According to Massachusetts Independent Contractor Law, you must consider an individual performing any services to be an employee unless the employer can prove all three of the following:
It is not enough to meet one or two of these tests- all three things must be true for you to lawfully pay someone as an independent contractor. This means that if the service someone are providing is within the usual course of business of their employer (for example, you are providing painting services for a painting company, or writing ad copy for a marketing agency, or delivering food for a take out restaurant), that person should not be classified as an independent contractor even if they meet the other two prongs.
Similarly, if the service they are providing is not something the employer usually does (for example, you are providing painting services for a law office, or web design services for a restaurant), if the work is subject to significant control or direction, or if the contractor is not free to offer those services to others at the same time they are performing them for the business in question, the law might consider them an employee rather than an independent contractor.
What Does It Mean if You Are an Independent Contractor?
An independent contractor is someone who provides services to a business but isn’t paid as an employee. At the beginning of each year, they’re given an IRS Form 1099 strictly showing amounts paid (This is why contractors are often called 1099 employees).
Under Massachusetts employment law, the following applies to contractors:
Does It Even Matter?
Aside from the obvious — it being the law — differentiating between W-2 and 1099 income is important. Even though logistics are complicated, they can often be beneficial because, for example, if you’re really an employee but are inaccurately filed as a contractor, you are missing out on some of the benefits of being an employee and may find yourself unable to collect unemployment benefits if you’re laid off or fired.
If you are an employer and have independent contractors working for you who really should be W-2 employees, you are at risk for a lawsuit under the Massachusetts Wage Act, which can get very expensive for the employer. If someone is misclassified as an independent contractor and wins a lawsuit for damages, the employer will have to pay three times the damages proven (for example, unpaid overtime, missed unemployment benefits, amounts paid by the employee in self-employment tax), and will also be responsible for the employee's legal fees and expenses, on top of your own.
Also, though most often complaints about independent contractor classification are made by a lawsuit filed by the worker, you should know that the Massachusetts Attorney General has enforcement authority under the Independent Contractor Law, and can investigate and impose penalties on the employer even if your contractors do not complain.
If you’re struggling to determine whether you or the person you’ve hired is considered an independent contractor or W-2 employee, don’t worry! Contact us today and our team will help you figure it out, stress-free.
HOW OFTEN SHOULD YOU REVIEW YOUR ESTATE PLAN?
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An estate plan isn’t a one-time thing, written just to be set aside to collect dust. Life changes. Laws and regulations change. And it is important for you to understand when those changes could affect your estate planning documents.
Reviewing your estate plan regularly and during major life events, regardless of the last update, will help make sure your affairs are in order.
Here’s everything you need to know about when you should review your estate plan, or at least reach out to your estate planning attorney to find out whether you should revise your plan.
Conduct Maintenance Reviews of Your Estate Plan Every 3 to 5 Years
Everyone with an estate plan should regularly sit down with their attorney to review their documents, but the frequency depends on each individual plan, as well as what is going on in your life and the life of your family.
For example, one person might request to go over their plan every year. Others might do a bi-annual review. Many wait five or more years between reviews. However, the general expert recommendation is to check in on your estate plan at least every three to five years.
Pick a time frame you and your attorney think is best, but understand that because laws change, regular estate plan reviews really should be done no fewer than every five years so that you can keep pace with updated regulations and laws. This doesn't mean you have to re-write your estate plan every three to five years- what it does mean is that you should check in with your estate planning lawyer to (i) find out if there have been any changes in the tax or inheritance laws that might affect you; and (ii) let him or her know about any significant changes in your life and family circumstances and ask whether any of those changes affect your current plan.
Review Your Estate Plan When There Are Financial Changes
If major financial changes occur in your life, you should update your estate plan. But what qualifies as a major financial change? They include updates in the following areas:
Your estate plan should also be reviewed if you purchase large asset like a home, or if you borrow a large sum of money.
You also may wish to review your plan or make changes if the financial situation of your heirs changes.
Review Your Estate Plan if Family Changes Occur
Other life events include major family changes, usually relating primarily to children or changes in your marital status. For example, the birth or adoption of a child or grandchild often requires an update to your estate plan. Not only can you create an inheritance for them, but you can name guardians or set up trusts, too.
Aside from the birth of a child, when else should you review your estate?
Your estate planning needs will also naturally change as time passes, and your children get older. The careful plans you made for the care of your children when they were toddlers may not be what you need or want when they graduate from college, or start their own families. You may also need to review your life insurance policies and plans for assets after you are done paying for college and other large expenses.
If Marital Circumstances Change, Review Your Estate Plan
Finally, you should review your estate plan if anything regarding your marital state changes.
Usually, this is necessary if you get married or divorced or if illness, disability or death of your spouse occurs. In the case of a divorce, it is likely that your original estate planning documents included your spouse as the first-line personal representative, health care proxy, and power of attorney. Though it is certainly your choice to leave these designations in place, it is usually not what people want after a divorce. In the case of marriage, especially re-marriage after a death or divorce, you will want to make sure you are providing not only for your new spouse, but for any children you may already have from a prior marriage.
What Kind of Changes Might You Make to Your Estate Plan?
Ideally, your original estate plan was written in a way that provides generically for your children and descendants, so that if you have another child, or if you have a new grandchild, you do not necessarily need to make changes. This works when your plan is to divide everything evenly among your children or their children- if you have made specific allocations in your original documents, you will need to amend the documents when new children and grandchildren come on the scene.
In the case of divorce or death of a spouse, there are likely a number of documents where you have named that individual, such as your designation of a personal representative in your will, your health care proxy, and your durable power of attorney.
You do not necessarily have to re-write your entire estate plan. Many changes can be made through the use of a codicil, a document you attach to your original will that specifies the changes you wish to make.
It’s imperative to have your attorney’s help when you review your estate plan. If you are experiencing a life event or are ready for a regular review and you’re looking for a trusted, experienced team to stand by your side, contact the SLNLaw team today!
Blog Reader Special: We are offering all blog readers a 10% discount on our estate planning rates. Best of all, the first step — a consultation to assess your needs — is absolutely free!
WHAT TO DO IF YOUR EMPLOYER DOESN’T PAY YOU ON TIME
The facts are simple: it is illegal for your employer to not pay you on time. Under the Department of Labor’s Fair Labor Standards Act and the Massachusetts Wage Act, an employer must pay an employee when payment is due — whether that’s once a month, every two weeks, or in some cases, as frequently as every day, depending on what state you live in and your profession. Violation of these laws is sometimes referred to as "wage theft" because, by failing to pay you what you are supposed to be paid for your work, the employer is in effect stealing your wages.
In Massachusetts, employees must be paid weekly or biweekly (note: regulations are different for union workers, who can be paid less frequently depending on union negotiations). Massachusetts law also requires employers to provide earned sick time for their employees; this includes part-time and temporary employees.
In Massachusetts, employees must be paid within six days of the end of the payroll period, in order for payment to be timely under the Wage Act. If you are fired or laid off, you must also be paid your final paycheck- including payment for any accrued but unused vacation time- on the day of termination. If you resign or quit, you still need to be paid these amounts, but your employer can make that payment in the next regularly scheduled payroll instead of the day of resignation.
It is illegal for your employer to retaliate against you for asking to be paid appropriately under the law, or even for filing a complaint in court or with the Attorney General.
If an employer withholds your wages, it’s a serious offense that not only breaks the law but causes stress and anxiety for you, the employee. There is a reason the laws are so strict, and impose such severe penalties on employers- we recognize that all workers depend on their wages to live their own lives, pay their bills, and take care of their families, and that it is not right or fair that the employer who controls the payroll can get the benefit of your time without paying you fairly.
Here’s what wage theft looks like, and what you can do about it if it happens to you.
Some Common Examples of Problems with Unpaid Wages
Most employers try to do the right thing in terms of their workers, and make every effort to comply with the wage and hour laws. Sometimes, however, either a lack of information, misunderstanding of the rules, or cash flow pressures on a business lead to violations of those laws. Here are some examples of common errors that we see in paying wages:
Request to See the Employer’s Policy
If you’re not paid on time, or think you should have been paid for sick time and were not, request to see the employer’s policy, which includes information about sick leave, vacation, personal leave, holidays and work hours. The policy will help determine whether there has been a violation of terms of employment or not.
Make Sure It’s Not a Technical Issue
Before you file a formal complaint, do one more thing: Make sure a technical error hasn’t caused the issue by contacting your manager and payroll department. Payroll could have made a technical mistake and the whole ordeal could be an unfortunate, embarrassing accident.
While an accident is unprofessional and still doesn’t make the withheld pay justified, technical errors can often be cleared up quickly in-house with little fuss. And, even though you are absolutely protected from retaliation for pursuing a wage claim, if you can get the situation resolved without putting strain on the employment relationship, it is worth trying to do so.
File a Complaint with the Attorney General
If all signs lead to withheld pay which you haven’t been able to sort out with your employer, file a formal complaint with the Massachusetts Attorney General’s Office. They will either investigate your complaint or issue you a “right to sue” letter, which gives you the right to bring a private action to recover your wages and attorneys’ fees. It is important to know that, if your employer does not make it right and pay you what you are owed, you cannot bring a civil lawsuit to collect your wages unless you have first filed this form with the Attorney General's Office. If you make it clear in your complaint that you are seeking a "right to sue" letter, you should get that letter in the mail within a few weeks.
You can fill out this form without the help of a lawyer, but it is a good idea to contact an attorney as soon as you think you have a problem with unpaid wages. Understand that if your employer fails to pay you, and you get a court ruling awarding you your unpaid wages, your employer will also have to reimburse you for anything you have paid to an attorney to recover your wages. They will also be required to pay you three times the wages you were owed, unless they pay you before you file a complaint.
Usually, these situations are resolved after a lawsuit is filed. Because of the possibility of triple damages and attorneys' fees, most employers are willing to make you whole for your missed wages once they realize the potential liability.
Being a victim of withheld pay is demeaning and stressful. If your employer hasn’t paid you on time — or has withheld funds, intentionally or unintentionally — and the situation hasn’t been quickly and amicably resolved, it’s time for the experts to step in and fight for you. We have helped hundreds of people get paid after wages, commissions, or vacation time was wrongfully withheld from them. Call the loyal team at SLN Law today!
HOW DO ANNUAL FAMILY GIFTS REDUCE ESTATE TAXES?
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Annual family gifts reduce estate taxes for individuals who have funds that they want to turn into tax-exempt gifts. You may be nowhere near the exemption limit for federal estate taxes (currently $11.4 million). But the Massachusetts limit is much lower- $1 million per person- and includes assets you may not consider part of your estate, like life insurance proceeds, the equity in your home, and retirement accounts. As a result, many middle class families are affected by the Massachusetts estate tax, and could face a heavy tax burden without careful planning.
Shrinking your estate taxes is about making sure your hard-earned and meticulously-saved money will be used for purposes important to you — like paying for your grandchildren’s college educations — not going into government pockets. There are many tools available to an estate planning lawyer to shelter assets without giving them away, but sometimes you simply have to reduce the overall size of your estate in order to minimize tax liability.
By starting to give your wealth away now, you minimize and avoid estate taxes that otherwise could eat up your wealth.
If that sounds confusing, don’t worry. Here’s everything you need to know about how annual family gifts reduce estate taxes — plus some important financial changes this year.
How Annual Family Gifts Work
One way to reduce estate taxes is to cut the value of your estate by giving annual gifts. An annual family gift, often called an exclusion gift, is simple: It’s a gift that qualifies for annual exclusion from federal gift taxes. This means you won’t have to pay taxes on that specific amount. Under the federal tax laws, you can give away a certain amount of money to any given person each year without having to pay a gift tax. Once that money is given away, it is no longer part of your estate and therefore will also not count for estate tax purposes.
Annual giving usually includes gifts of:
For example, if you are a parent or grandparent, you would be given an annual exclusion amount to gift, which you can give to an unlimited number of people like grandchildren, children, nieces, nephews, etc., during that year. If your children are married, you can gift $15,000 to your child and another $15,000 to their spouse, to increase the amount you can move out of our estate in a single year. If your child has three children, you can gift $15,000 for each child into a trust or college savings account established for those children. Gifts aren’t restricted to family — non-family members can receive gifts, too.
How Much Can You Gift to Reduce Tax?
The amount is set each year by the IRS through a revenue procedure and is usually published in early November for the following year.
The annual gift exclusion amount is $15,000 for this year. And married couples can combine their giving power to collectively gift $30,000 to one recipient.
Currently, and through the remainder of 2018, the 2017 Tax Cuts and Job Acts increased the lifetime estate and gift tax exemption to $11.180 million per person. That means that you don’t pay any federal taxes on your estate until you’ve exceeded this limit.
Also, you should know that annual gifts made during your lifetime don’t count towards this limit, unless you give more than the annual limit. For example, if you gift someone $20,000, the excess $5,000 will reduce your lifetime estate and gift tax exemption by that much – and you’ll owe taxes on it as well.
If you have an ownership interest in a small business as part of your estate, you can also give away interests in that business as part of your annual gifting strategy. If the business is "closely held," meaning it is not a publicly traded company (most family businesses are closely held), the IRS allows you to discount the valuation of the business for purposes of determining the value of a gift of shares. You are also allowed to discount the value of the ownership interest if what you are giving away is not a majority or controlling interest. This is often the first place people should look for a gifting strategy, because it allows you to move more real value out of your estate within the gift tax limits than if you were to give away liquid assets like cash or publicly traded stocks.
There are various other ways to make sure you reduce estate taxes. One of our best suggestions?
Work with an estate lawyer to create trusts for you and your spouse that effectively double your exemption, and, if you are still at risk for owing estate tax, consider moving some assets into an irrevocable trust that takes them out of your estate.
Want to give gifts to reduce your estate taxes this year? There’s still time to figure it out with an SLN Law consultation!
WHAT’S THE DIFFERENCE BETWEEN ASSET PROTECTION AND ESTATE PLANNING?
Knowing the difference between asset protection and estate planning is the first step when it comes to protecting your property for yourself and future generations.
The logistics can feel overwhelming and confusing at first, but don’t worry. Here’s a breakdown of the differences:
Asset protection is fairly self-explanatory. It aims to find ways to proactively protect assets. Financial planning and estate planning result in asset protection. Once you have integrated your financial goals with your estate planning goals and positioned or repositioned your assets to be protected from creditors, you will have a comprehensive asset protection plan in place.
Estate planning determines how assets are cared for and protected when an individual can no longer manage them or they pass away. Here’s everything you need to know about how estate planning is a vital component of asset protection.
Why Estate Planning Matters
Estate planning covers a range of topics relating to plans for the end of a person’s life and after.
The most commonly known part of an estate plan is a person’s last will and testament. This document makes your final wishes clear about how you want property distributed or managed after death, ensures any remaining debts are properly cleared, can be used to create a trust, names who will care for minor children, and more.
However, estate planning is much more than just a will, and by using the full spectrum of estate planning tools available to you, you can ensure that your loved ones are well cared for and your property is well managed and protected from depletion by unnecessary fees and costs.
Estate Planning Provides Protection During Your Lifetime
It’s important to recognize that estate planning isn’t designed solely for after someone is deceased. A well-drafted estate plan provides for a person’s inability to manage their affairs during their life, whether temporarily or more long-term.
This is accomplished by including a power of attorney, giving a chosen person- probably a loved one or intimate friend – the right to act, as your Attorney in Fact, on your behalf when it comes to financial decisions. A power of attorney protects you from having a court-appointed conservator, reduces administrative fees, unnecessary delay, and needless litigation.
Your Power of Attorney can be as specific or broad as the you want. For example: The role can begin immediately or designate a specific time or period, depending on the individual’s desire.
A second necessary document in a well-drafted estate plan is a Health Care Proxy. A Health Care Proxy names the person of your choosing, who will make health care decisions on your behalf, should you be unable to do so. Having a document that clearly designates a Health Care Agent, prevents unnecessary delays in your care, ensures that your health care wishes are followed, and removes the requirement of a court-appointed guardian.
When Trusts Are Incorporated Into Estate Planning
Trusts, are containers which hold your assets for your benefit and/or for others that you name as beneficiaries, according to detailed instructions dictated by you, the person who created the trust. Here are the most common types of trusts:
Trusts provide detailed asset management during your life and after. They can protect assets from being dissipated by careless beneficiaries, lost through divorce, and ensure that your assets that you grew over your lifetime, benefit your children and even their children for years to come.
The Benefits of Asset Protection
Asset protection is not just about protecting your assets from creditors or relegated only to the wealthy. Asset protection, in its simplest form, is any method used to protect your hard-earned wealth from loss and dissipation due to life’s many uncertainties. Asset protection is for everyone.
So why is asset protection so important? After all, what belongs to you will always belong to you, right? Well, in some cases, it’s a little more complicated than that.
Asset protection strategies help keep assets from being absorbed or taken by others by protecting yourself and loved ones from creditors or financial complications due to divorce. Asset protection plans can help protect homes, business interests, funds and more. It’s a way to give stability in an often-unstable world. With a solid estate plan in place, you and your family will be able to handle the unexpected with ease, decorum, in a timely manner, and according to your wishes.
For example, in the unfortunate case a divorce happens to one of your children down the road, a well-drafted trust can prevent your child’s inheritance from being given to an unfaithful former spouse. Or, if you own your own business and suddenly fall ill, with the right documents, your business can be properly managed and protected in your absence while you recover.
Protect your property now – and later – with asset protection and estate planning strategies. Contact the experts at SLN Law today to get started!
3 UNINTENDED CONSEQUENCES OF DYING WITHOUT A WILL
Dying without a will happens more often than you might think. Aretha Franklin. Prince. Howard Hughes. Celebrity or not, if you neglect taking the time to compile a legal document that outlines your full and complete wishes for your assets and the minors in your care, there can be life-changing consequences for the people left behind.
These are the top three negative unintended consequences of dying without a will:
1. Your Heirs Must Spend Time and Money to Locate and Distribute Your Assets
As soon as the asset distribution process begins and your surviving loved ones realize you have no will, it’s going to cost them. With no personal representative (formerly known as an executor) appointed, a judge will have to determine who should locate and catalog all of your assets.
The individual chosen will be required to comb through bank statements, tax returns, email folders, file cabinets and more to get the details on policies, accounts and plans you own. This will take both time and money, and can be an exhausting process for a family member who is grieving. Not to mention, the person the judge appoints to administer your estate may not be who you would have preferred managing your private financial affairs.
Once all the assets are located, the probate court will have to determine how they are distributed. Even if there is no disagreement about what to do with the assets, the process itself can eat away at the value of your estate. It is estimated that the cost of the probate process can eat up 3% to 8% of the assets available leave to your loved ones. That means if your estate is worth $500,000, it could cost between $15,000 and $40,000 to get it through probate and to the point where your assets can be distributed. Compare this to the cost of a comprehensive estate plan, which is usually between $1500 and $3000 and you will see the value.
2. Intestate Succession Could Leave Your Assets to the Wrong Parties
When you die “intestate,” meaning “without a will,” your assets pass to your survivors according to intestate succession laws.
However, there are many assets that are not governed by intestate succession laws, including:
These assets will pass to the beneficiary named on the account or the other joint owner will assume full property rights after you die.
But all other assets, such as savings accounts, checking accounts, property owned by you solely, etc. will follow intestate succession laws:
These strict succession rules do not account for many individuals’ specific wishes, and that’s why a will is so vital. For example, stepchildren and foster children are not included in intestate succession unless you have legally adopted them. In addition, because the law assumes your spouse will provide for your children, the children will not receive anything directly. If your surviving spouse remarries down the road, and/or has other children, your children may not be fully protected with respect to the legacy you wanted to leave for them.
What if your first spouse dies and you remarry late in life? You may wish to leave the majority of your estate to the children from your first marriage. If you don’t devise a will to state just that, your second spouse will receive half of your assets. When they die, their assets (which now include 50 percent of yours) will pass to their children – not yours.
The bottom line is this: the intestate succession rules represent the state's best guess as to what most people would want. By definition this does not take into account your specific situation, family make-up, or wishes.
3. You Lose Control Over the Guardianship Choice of Minor Children
Dying without a will is most complex when there are children involved, especially when the children don’t have another living parent. If you don’t have a will that includes a named guardian you wish to care for the minor children, the court will appoint a person for this role. This person may or may not be suitable or ideal for this responsibility, and it may result in litigation between this individual and other relatives who are both vying for custody of the children.
Talk about an ugly situation. It’s avoidable when you leave behind a will with specific guardianship provisions in place to guarantee your children end up in the best scenario possible.
And, even in the best case scenario where a suitable guardian steps forward and there is no disagreement about that person, the simple fact that a court has to make the ultimate decision can prolong the process and delay your children's sense of permanence and security at an already difficult time.
Creating a will doesn’t have to be a painful, painstaking process. Work with slnlaw and see how we’re different. We know our clients are real people with real needs, and we believe a thoughtful, precise estate plan is sure to take a weight off your shoulders.