Tag Archives: estate planning

No Will? You’re Putting Your Kids at Risk

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Many people delay the conversation or thoughts of having to prepare a will. Confronting the possibility of one’s death is not easy. However, as the recent death of Anne Heche shows us, not having a will can place a significant burden on your children and cause undesirable complications. Even if difficult, planning ahead may be a better solution than the alternative.

What Happened With Actress Anne Heche?

Anne Heche’s case is a good example of why a person may want to consider creating a will sooner rather than later. Heche was divorced with two children from different relationships when she passed away. Her eldest son is 20 years old, but her younger son is still a minor.

Although they are assumed to be her sole heirs, only her oldest son is of age to administer her estate. He has filed a petition for a guardian ad litem to be put in place to protect his younger brother’s interests. The guardian ad litem may be a financial burden to Heche’s estate, and the costs of securing this professional will potentially reduce the assets available to her sons.

Even though her eldest son is dealing with his mother’s estate, this is undoubtedly very difficult for a person to go through at such a young age. Heche’s eldest son likely will not be able to do this all on his own and will need the services of a probate attorney — likely further increasing the costs of administering her estate and depleting how much is left for her children.

It has also been reported that an inventory and appraisal of her estate is needed to determine its worth and what assets she had. This process requires further professional involvement and fees that her estate must pay. In addition, it is possible that the father of her youngest son may seek to intervene in the estate’s administration to ensure he is treated fairly. Litigation costs could rack up quickly if there is any disagreement related to this.

Preparing a will and other estate planning documents can make legal proceedings significantly less complex and expensive and keep your situation as private as possible. It can also make it easier for your loved ones to know exactly what you want to happen to your assets and possessions.

Who Inherits When You Die Without a Will?

Many people do not realize that if you pass away without a will, your local state laws on intestacy will determine who qualifies as your heirs and inherits your property.

For example, in many states, if a person passes away unmarried but with children, the children will inherit everything. But what if the person had a long-term partner or was engaged to be married? They may have wanted their significant other to inherit some of their assets, but a “default” state law may lead to a different result. Or, what if you have no living children, siblings, parents, or spouse? Your property may go to the government instead of friends, grandchildren, nieces, or nephews. Having a will prevents these scenarios from happening.

Choose a Guardian for Your Children

Another benefit parents should consider is their ability to choose a guardian for their children in advance.

This matters, for example, when the other parent is not living or cannot be located. If a person does not set forth their wishes ahead of time, multiple parties may step up after a person’s death and argue over who should care for any minor children.

A court may be tasked with making this decision, and it may not be what you would have wanted. This can be expensive, traumatic for all involved, and a long process. Courts will generally try to appoint the individual a person has selected if your wishes are in a will or other planning document.

The Bottom Line

The bottom line is that having estate planning documents in place makes your wishes more likely to be honored and less likely that a court will decide what happens. This is also true where you may be incapacitated and unable to voice your wishes. While Anne Heche’s situation is not unusual, it is avoidable.

For information on preparing a will or other estate planning documents, contact your attorney.

What Is a Life Estate?

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The phrase “life estate” often comes up in discussions of estate and Medicaid planning, but what exactly does it mean? A life estate is a form of joint ownership that allows one person to remain in a house until his or her death, when it passes to the other owner. Life estates can be used to avoid probate and to give a house to children without giving up the ability to live in it. They also can play an important role in Medicaid planning.

In a life estate, two or more people each have an ownership interest in a property, but for different periods of time. The person holding the life estate — the life tenant — possesses the property during his or her life. The other owner — the remainderman — has a current ownership interest but cannot take possession until the death of the life estate holder. The life tenant has full control of the property during his or her lifetime and has the legal responsibility to maintain the property as well as the right to use it, rent it out, and make improvements to it.

When the life tenant dies, the house will not go through probate, since at the life tenant’s death the ownership will pass automatically to the holders of the remainder interest. Because the property is not included in the life tenant’s probate estate, it can avoid Medicaid estate recovery in states that have not expanded the definition of estate recovery to include non-probate assets. Even if the state does place a lien on the property to recoup Medicaid costs, the lien will be for the value of the life estate, not the full value of the property.

Although the property will not be included in the probate estate, it will be included in the taxable estate. Depending on the size of the estate and the state’s estate tax threshold, the property may be subject to estate taxation.

The life tenant cannot sell or mortgage the property without the agreement of the remaindermen. If the property is sold, the proceeds are divided up between the life tenant and the remaindermen. The shares are determined based on the life tenant’s age at the time — the older the life tenant, the smaller his or her share and the larger the share of the remaindermen.

Be aware that transferring your property and retaining a life estate can trigger a Medicaid ineligibility period if you apply for Medicaid within five years of the transfer. Purchasing a life estate should not result in a transfer penalty if you buy a life estate in someone else’s home, pay an appropriate amount for the property and live in the house for more than a year.

For example, an elderly man who can no longer live in his home might sell the home and use the proceeds to buy a home for himself and his son and daughter-in-law, with the father holding a life estate and the younger couple as the remaindermen. Alternatively, the father could purchase a life estate interest in the children’s existing home. Assuming the father lives in the home for more than a year and he paid a fair amount for the life estate, the purchase of the life estate should not be a disqualifying transfer for Medicaid. Just be aware that there may be some local variations on how this is applied, so check with your attorney.

To find out if a life estate is the right plan for you, contact your attorney.

Do Frequent Flier Miles Expire When You Do?

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Accumulated frequent flier miles can be valuable assets, but what happens to those miles after someone dies? Can a spouse or other heirs inherit them, or do the miles simply evaporate like a contrail?

Whether they can be inherited depends on the airline, and in most cases, airlines will point out in their terms and conditions that frequent flier miles are not, in fact, your property. Regardless, even if the airline’s official policy is “no,” with a little perseverance, there is always the chance that the answer could be “yes.”

Here’s a look at several major airlines’ current mileage transfer rules:

Alaska Airlines’ Memorial Miles

Alaska Airlines, according to travel website and blog The Points Guy, may require only a copy of a death certificate to transfer your deceased loved one’s miles to you – without a fee. Call 1-800-654-5669 to reach Alaska Airlines customer service.

Transferring Miles With American Airlines

While current AAdvantage members do have the ability to move their miles to another member’s account (with the payment of fees and certain limitations), American Airlines will not generally allow for accrued mileage credit to be “transferable by the member upon death.” That said, the airline’s regulations do seem to offer such transfers in certain cases: “American Airlines, in its sole discretion, may credit accrued mileage to persons specifically identified in … wills upon receipt of documentation satisfactory to American Airlines and upon payment of any applicable fees.”

If your deceased loved one was an AAdvantage member, it may be worth a visit to American Airlines’ Buy, Gift, and Transfer Miles webpage to learn more.

JetBlue’s Points Pooling

In 2018, JetBlue launched the Points Pooling program to its TrueBlue loyalty members. Two to seven TrueBlue members, regardless of whether they are family, can join a “pool” and each contribute their points to it. Any member of your pool can leave their unused points for the remaining members of their pool to redeem. In theory, this would allow you to inherit the points of a loved one who passes away.

United Airlines: MileagePlus

For United Airlines customers who are part of the MileagePlus Program, it may be possible to transfer accumulated United Airlines miles upon the death of an individual.

Similar to American, the following is outlined on the airline’s website: “In the event of the death … of a Member, United may, in its sole discretion, credit all or a portion of such Member’s accrued mileage to authorized persons upon receipt of documentation satisfactory to United and payment of applicable fees.”

Call United’s customer service line at 1-800-421-4655 for guidance on the airline’s Transfer Miles Program.

Delta SkyMiles

Looking to transfer miles from a deceased Delta SkyMiles member into your name?

If you have the login details for their account, you may be able to make the transfer online via Delta’s website. Consider opening your own SkyMiles account first to simplify the process. Note that Delta charges 1¢ for each mile transferred, plus a $30 processing fee. Taxes may also apply. Miles can be transferred in 1,000-mile increments, and the maximum that can be transferred from one SkyMiles account to another is 150,000 miles per year.

Even if you have only the name of the individual and their SkyMiles number, you may still consider calling Delta’s SkyMiles customer service number at 800-323-2323 to ask for help.

Southwest Airlines

The account of a Southwest Airlines’ Rapid Rewards member who dies will become inactive and the points will be unavailable, according to the airline. In fact, its site explicitly states: “Points may not be transferred to a Member’s estate or as part of a settlement, inheritance, or will.”

Plan Ahead for Your Own Loved Ones

If you are part of an airline loyalty program and have accumulated a substantial number of miles, you may want to give your loved ones the details they need to access your frequent flier accounts so that they can log in directly in the event of your death.

Or, ask your estate planning attorney about how to go about adding into your will your wishes for passing those miles along to someone, should your preferred airline allow it.

How You Can Help Your Loved Ones by Planning Your Funeral Arrangements

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When an individual passes away without a funeral plan, responsibility for arranging the funeral often falls on the deceased’s close family members, such as surviving spouses and children. Planning your own funeral arrangements can assist your loved ones in an emotionally challenging time, while also protecting them from incurring extraneous costs.

According to the National Funeral Directors Association, in 2021, the average cost of a full-service burial was $7,848, and the average cost of full-service cremation was $6,971. When an individual dies without having outlined a funeral plan, surviving family members may be unsure of their loved one’s wishes. As a result, they may choose more expensive funeral options or feel pressure to overspend to demonstrate their love. Yet you can shield your family from these costs by prearranging the funeral and, in some cases, prepaying for funeral arrangements. (Always do your research before prepaying.)

Without a plan in place, grieving family members often face time constraints in making decisions. For instance, they may not have time to visit multiple funeral homes and compare their values after their loved one’s death. Often, they choose the first funeral home they see rather than exploring various options to find the best fit and value.

When individuals prearrange their funerals, they have time to research funeral homes and carefully decide the details of their end-of-life arrangements, ensuring that the services will follow their wishes.

Beyond choosing the funeral home, planning such arrangements ahead of time can include:

  • Deciding what happens to the remains, including burial or cremation
  • Determining the burial location, such as next to a loved one
  • Letting loved ones know where to spread or keep ashes
  • Deciding whether to donate organs or remains to scientific research
  • Selecting the type of funeral or memorial service (For instance, a traditional funeral ceremony may be held in a religious institution and include viewing and burial, whereas direct burials happen soon after death and do not include a viewing)

How to plan your funeral arrangements

Often, planning funeral arrangements entails writing down your wishes in detail. You may wish to give your family members copies of your written wishes. Additionally, people with a reasonable idea of where they will pass away can prepay a funeral home for services, ensuring family members do not need to take on the cost.

Advance directives can document your desires regarding end-of-life care and what happens to your remains after death. You can choose a person to act as your healthcare agent and help you with healthcare decisions. Although your agent’s authority often terminates upon your death, you may provide your agent with your funeral wishes, along with the power to oversee the arrangements.

Wills may contain sections describing desired funeral arrangements. However, wills are not the best place for funeral arrangements, as family members often read wills after the funeral. Instead, a separate document, such as a prepaid funeral or burial contract, can describe funeral arrangements and end-of-life wishes.

Deciding funeral arrangements in advance and providing instructions to your loved ones makes your wishes clear, avoiding arguments within your family and giving them more peace of mind after you pass away.

Four Provisions People Often Forget to Include in Their Estate Plan

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Even if you’ve created an estate plan, are you sure you included everything you need to? There are certain provisions that people often forget to put in a will or estate plan that can have a big impact on a family.

1. Alternate Beneficiaries

One of the most important things your estate plan should include is at least one alternative beneficiary in case the named beneficiary does not outlive you or is unable to claim under the will. If a will names a beneficiary who isn’t able to take possession of the property, your assets may pass as though you didn’t have a will at all. This means state law will determine who gets your property, not you. By providing an alternative beneficiary, you can make sure that the property goes where you want it to go.

2. Personal Possessions and Family Heirlooms

Not all heirlooms are worth a lot of money, but they may contain sentimental value. It is a good idea to be clear about which family members should get which items. You can write a list directly into your will, but this makes it difficult if you want to add items or delete items. A personal property memorandum is a separate document that details which friends and family members get what personal property. In some states, if the document is referenced in the will, it is legally binding. Even if the document is not legally binding, it is helpful to leave instructions for your heirs to avoid confusion and bickering.

3. Digital Assets

More and more, we are conducting business online. What happens to these online assets and accounts after you die? There are some steps you can take to help your family deal with your digital property. You should make a list of all of your online accounts, including e-mail, financial accounts, social media accounts, and anywhere else you conduct business online. Include your username and password for each account. Also, include access information for your digital devices, including smartphones and computers. And then you need to make sure the agent under your durable power of attorney and the personal representative named in your will have authority to deal with your online accounts.

4. Pets

Pets are beloved members of the family, but they can’t take care of themselves after you are gone. While you can’t leave property directly to a pet, you can name a caretaker in your will and leave that person money to care for the pet. Don’t forget to name an alternative beneficiary as well. If you want more security, in some states, you can set up a pet trust. With a pet trust, the trustee makes payments on a regular basis to your pet’s caregiver and pays for your pet’s needs as they come up.

Contact your attorney to make sure your will and estate plan takes care of all your needs.

How Long Should I Hold on to Important Documents?

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It is hard to know what documents to trash and when. Before you know it, your spare room, office, basement, or garage is overflowing with boxes of papers that all seem important. Trying to weed through the mess and figure out what to toss? Keep reading.

Which Documents Should I Keep?

There are some documents that you will want to hang on to forever and some that you should keep for a few years. Consider the following examples:

Documents You Should Always Have

These following documents should always be available, and you should properly store them to ensure you can grab them when you need them:

  • Birth certificates
  • Death certificates
  • Marriage license
  • Social Security card (Lost yours? Now you can request a replacement online.)
  • Your current insurance policies (life, health, etc.)
  • The newest version of your estate planning documents

Documents You Should Only Keep Temporarily

Some documents lose importance as time goes by. However, it would help if you hung on to the following documents for a few years (typically, between five and seven years):

  • Papers related to charitable donations
  • Tax returns
  • Credit card statements
  • Cancelled checks
  • Bank statements

Why Is It Important to Keep Some Documents?

Should you pass away, it is crucial to have kept certain documents because the probate court may request them after your death. Maintaining important documents will help your family close your estate.

Other reasons to hold on to paperwork depend on your situation. For example, some people find themselves a party to a lawsuit. If that happens to you, you may need to produce documents, and it will be much easier if you can readily access the important ones.

Digital Storage

Digitally storing your documents can significantly cut down on the clutter. Before you start digitizing your essential documents, you want to have a plan. Sit down, look at all your documents, and determine whether they are necessary. Use a critical eye as you decide what to keep. The next step is scanning each document into your computer, on to an external hard drive, or on a flash drive.

Some important considerations when digitizing your files include keeping up to date with current technology and password-protecting your sensitive information. As technology advances, make sure that you advance with it. The last thing you want is to be unable to open your files. Always encrypt or password-protect your information. It is the best way to protect yourself against hackers and identity thieves.

How Community Property Affects Estate and Tax Planning

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In most states, spouses can purchase and own property separately from one another. However, in certain states – called community property states – if one spouse purchases property, it is considered the property of both spouses. How marital property is owned has implications for both estate and tax planning.

There are currently nine community property states. They are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. A few other states (for example, Alaska) allow couples to opt into community property arrangements.

Community property is property acquired by a husband and wife during marriage. In community property states, property held in only one spouse’s name can still be community property. For example, the paycheck that a spouse brings home every week is community property even though only one spouse’s name is on the check. If that check is used to buy an asset, then that asset is community property, regardless of whose name is on the account or the asset.

Property that is not community property is property that one spouse brings to the marriage, inherits, or is gifted. A spouse can turn separate property into community property by putting an asset owned by one spouse into both spouses’ names.

Depending on the state, partners may be able to change whether property is separate or community via pre-nuptial agreement, post-nuptial agreement, or exceptions in the law. Changing community property into separate property may be appropriate in second marriages or when one spouse is bringing significant separate property into the marriage. For example, if, at the time of the marriage, one spouse receives significant income from owning a business, the spouses may decide that it is appropriate that the business remain that spouse’s separate property and the income from that property will remain that spouse’s separate property.

One advantage of community property is with regard to capital gains taxes. If one spouse dies, the cost basis of the community property gets “stepped up.” The current value of the property becomes the cost basis. This means that if, for example, the couples’ house was purchased years ago for $150,000 and it is now worth $600,000. The surviving spouse will receive a step up from the original cost basis from $150,000 to $600,000. If the spouse sells the property right away, he or she will not owe any capital gains taxes. In non-community property states, if one spouse dies, only the deceased spouse’s interest (usually 50 percent of the value) is stepped up.

When estate planning in a community property state, it is important to fully review assets to determine which assets are community property and which are separate property. A surviving spouse in a community property state is entitled by law to half of the community property, regardless of what the spouses may have wanted to do with the property (such as pass it on to children). Community property can be a factor even in non-community property states if the couple owns property in a community property state.

If spouses move from one type of state to another, it is especially important that they have their estate plan reviewed by an attorney in the new state to make sure the plan still does what they want.

Using a Roth IRA as an Estate Planning Tool

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A Roth IRA does not have to be used as just a retirement plan; it can also be a way to transfer assets tax-free to the next generation.

Unlike a traditional IRA, contributions to a Roth IRA are taxed, which means that the distributions are tax-free. Also, unlike a traditional IRA, you are also not required to take any distributions on a Roth IRA, regardless of your age. If you don’t need the money for retirement, you can leave all of it in the IRA to grow tax-free and eventually pass on to your heirs.

If your spouse is the beneficiary on your Roth IRA, your spouse can become the owner of the account. Your spouse can either put the IRA in his or her name or roll it over into a new IRA, and the IRS will treat the IRA as if your spouse had always owned it. Just like you, your spouse does not need to take any distributions from the IRA if they are not needed.

The rules for a child or grandchild (or other non-spouse) who inherits an IRA are different than those for a spouse. They must withdraw all of the assets in the inherited account within 10 years. There are no required distributions during those 10 years, but it must all be distributed by the 10th year.

Certain non-spouse beneficiaries are treated like spouses, which means they can treat the IRA as their own:

  • Disabled or chronically ill individuals
  • Individuals who are not more than 10 years younger than the account owner
  • Minor children. Once the child reaches the age of majority, he or she has 10 years to withdraw the money from the account.

The benefit of a Roth IRA for your heirs is that the assets will be distributed tax-free. As long as you opened and began making contributions to the Roth IRA more than five years before you died, the distributions will not be taxed when the beneficiary takes distributions.

Another consideration is that money you leave your heirs in a Roth IRA does not go through the probate process. This can make it easier for your beneficiaries to access the funds quickly. But make sure that you name a beneficiary on your account. If no beneficiary is named, the account will go to your estate and will then have to go through probate. Also, be sure to regularly check that your beneficiary designations are up to date.

Leaving your heirs a tax-free Roth IRA may not always be the best plan. In figuring out the best type of IRA to leave to your beneficiaries, you need to consider whether your beneficiary’s tax rate will be higher or lower than your tax rate when you fund the IRA. In general, if your beneficiary’s tax rate is higher than your tax rate, then you should leave your beneficiary a Roth IRA. Because the funds in a Roth IRA are taxed before they are put into the IRA, it makes sense to fund it when your tax rate is lower. On the other hand, if your beneficiary’s tax rate is lower than your tax rate, a traditional IRA might make more sense. That way, you won’t pay the taxes at your higher rate; instead, your beneficiary will pay at their lower tax rate.

To determine if a Roth IRA should be a part of your estate plan, consult with your attorney.

Can My Family Inherit My Season Tickets?

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Sports fans with season tickets may want their families to enjoy the tickets after they are gone, but passing on these tickets may not be simple.

Getting season tickets to your favorite sport is not always an easy task. Season tickets for some teams can cost a lot of money and require time on a waitlist. It makes sense that you may want family or friends to be able to take advantage of tickets that are still usable after you pass away. However, most teams place limits on how you can transfer the tickets both before and after death.

A season ticket is a contract between the purchaser and the team, so the team can put any restrictions it wishes in the contract. This includes setting limits on when and how the tickets can be transferred to someone else. Teams may explicitly state that the tickets cannot be transferred by will or trust, allow transfers only to a spouse or close family members, or require that ticket holders follow certain procedures in order to transfer the tickets.

For example, some teams have a form that you will need to fill out, designating a beneficiary to inherit your tickets. Other teams state that only a spouse can use a deceased fan’s season tickets. Still others allow transfers only to a parent, spouse, child, or sibling. If there is no surviving family member who can take over the tickets, the tickets go back to the team.

Note that some teams require fans to purchase a seat license before buying season tickets. This means the fan pays a large fee to buy a license for particular seats and then has the right to buy season tickets for those seats. A seat license, unlike season tickets, is transferable via a will or trust.

If you own season tickets, be sure to include them in your estate planning. Your attorney can determine the best way to transfer the tickets.

Why Small Business Owners Need an Estate Plan

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Running a small business can keep you busy, but it should not keep you from creating an estate plan. Not having a plan in place can cause problems for your business and your family after you are gone.

While an estate plan is important for everyone, it is especially important for small business owners. Planning allows you to dictate what will happen with your business after you die or are no longer able to manage it. It can help you avoid excess taxes and debts and facilitate your business’s continued success.

Before sitting down to start the estate planning process, you should think about your goals for the business. What do you want to have happen if you die or become incapacitated? Should the business continue with current partners or be sold to new owners? Should your family take over? Should the business be shut down? Consider your family dynamics when thinking about these questions. Once you have come up with your goals, you can create a plan to meet them.

The basic building blocks of any estate plan include a will, power of attorney, and medical directives. The will allows you to direct who will receive your property at your death while the power of attorney and medical directives dictate who can act in your place for financial and health care purposes.

Following are some additional things a small business owner should consider as part of an estate plan:

  • Tax Planning. If your business is not a separate entity, you may want to consider ways to minimize estate taxes. The current estate tax exemption ($12.06 million in 2022) is so high that most estates do not pay any estate tax. However, a small business could put an estate over the limit. Also, the fact that the estate tax exemption is set to be cut in half in 2026 and that states have their own estate taxes means that tax planning is important. You may want to put your business assets into a trust or a separate business entity like a limited liability company to lower your estate tax burden.
  • Trust. A trust can be useful not only to reduce estate taxes, but also to ensure the continued running of your business if you die or become incapacitated. Because a trust passes outside of probate, the assets in the trust can be transferred immediately to the person you want to run the business without waiting for the whole estate to go through probate. In addition, if you become incapacitated, the trustee can continue to run your business without court involvement.
  • Buy-Sell Agreement. If you own your business with others, a buy-sell agreement can be very useful. Buy-sell agreements are used if one of the owners dies, leaves the company, or becomes incapacitated. It specifies who can buy an owner’s share of the business, under what conditions, and for what price.
  • Life Insurance. When you own a business, life insurance takes on new importance. A life insurance policy can ensure that your family continues to receive an income in the event of your death. It can also provide funds to keep the business running and be used to fund a buy-sell agreement.

Your estate planning attorney can help you come up with a plan to meet the needs of your business.