Newsletter Category: Client Focused Newsletter

For over a quarter of a century, the National Safety Council has recognized June as National Safety Month. An objective of National Safety Month is to raise public awareness of the top safety and health risks in the United States. One of the lesser known but considerable risks Americans and their loved ones face are the financial and emotional repercussions that can accompany incapacity or death. A revocable living trust is a legal tool that can keep you and your loved ones safe from the costs, uncertainty, and confusion that may result upon your incapacity or death.
 
A Revocable Living Trust Protects You
Like every person, you are at constant risk of suffering a disastrous accident or illness that may render you incapable of caring for yourself or your loved ones. Your incapacity could be temporary, or it could last until your eventual death. The total cost of incapacity, which may include lost wages and the cost of required medical care (if your incapacity requires assistance with the activities of daily living such as bathing, eating or dressing), is difficult to calculate. However, it can quickly become very costly: the average cost of assisted living in the United States in 2020 was $4,300 per month.[1]
 
A revocable living trust protects you by providing instructions for how you and your loved ones are to be financially supported during your incapacity. A revocable living trust also allows you to choose who will handle your finances when you are unable to handle them yourself. Further, there is no better time than now to put a revocable living trust in place because the trust is revocable, which means that you can change your mind at any time and alter your trust as your life circumstances change, as long as you have mental capacity.
 
A Revocable Living Trust Protects Your Loved Ones
A revocable living trust also protects your loved ones. It provides specific instructions for what you want to have happen upon your incapacity or death, which means your loved one will not be left guessing what you would have wanted, or worse, have to look to state law to determine who should be given the authority to handle your financial and end-of-life affairs.
 
Estate administration fees vary widely by state, but they too can be very costly. In California, for example, where probate attorney and executor fees are set by law, the attorney and executor fees to probate a home worth $800,000 could be as much as $38,000.[2] A revocable living trust, however, can avoid probate and the associated probate fees.
 
Another benefit of revocable living trusts is that they can remain private. Without the instructions contained in a revocable living trust, family members are often forced to resort to public court processes, which means that the court and other nosy individuals may be prying into your very private matters.
 
Further, a revocable living trust can provide basic marital deduction planning to maximize the use of your and your spouse’s estate tax exemptions so that your loved ones do not face a large estate tax burden after your death. Finally, using a revocable living trust allows you to protect the money you leave to your loved ones from your beneficiary’s creditors.
 
A Revocable Living Trust Must Be Properly Funded to Work
In order for a revocable living trust to work, it must be properly funded, which means that your property must be owned by the trust, or for certain types of property, the trust must be named as the beneficiary. If your revocable living trust is not properly funded, then a probate may be needed. For this reason, June is a great time to review any communications you have received from your attorney about the accounts and property that need to be owned by the trust or that need their beneficiary designations changed to name the trust.
 
Because the instructions contained in a revocable living trust are so vital, it is important that you review them each year to ensure that they still reflect your wishes and your situation. If you need to make any changes, please contact us, as we would be happy to help update your revocable living trust so that it works for you and your loved ones during incapacity and at your death.

[2] California Probate Fees 2020, Velasco Law Group Blog (Feb. 14, 2020), https://www.velascolawgroup.com/california-probate-attorneys-fees-and-court-costs/#:~:text=Statutory%20probate%20fees%20under%20%C2%A7,2%25%20of%20the%20next%20%24800%2C000.

The month of May means not only the end of the school year and the beginning of summer but also the beginning of the busiest moving season of the year. That’s why May is National Moving Month. There is a lot to think about when moving: along with organizing and packing up all of your belongings, there is also starting and stopping utilities, mail forwarding, updating voter registration, and so on. While the ever-growing number of items on your moving to-do list may be overwhelming, it is important not to overlook two essential items that should be added to your moving checklist: (1) locating your important documents and (2) meeting with your advisor team.
 
Locating Your Important Documents
 
In all of the chaos of moving boxes and packing tape, it is easy for things to get lost in the shuffle or even thrown out during a move. Yet certain important documents, such as birth certificates, social security cards, passports, financial statements and estate planning documents, should not be packed up and put on the moving truck along with your dishes and shoes. Keep these important documents safe and accessible during your move and ensure that they do not get thrown out by accident.
 
One idea is to purchase a portable file box with an attached lid and a secure latch. You might consider purchasing a brightly colored one so that it is easily identifiable. Then, place this file box in a secure and easily accessible location. If you are moving locally, a logical place might be at a family member’s or friend’s home. If you are moving a longer distance, that place might be the trunk of your car.
 
It is also wise to have electronic backup copies of all of your important documents. This could take the form of taking pictures of your documents and saving them to your smartphone, a password-protected removable flash or external hard drive, or storing them in the cloud. Then you will at least have a copy of these important documents in case you cannot locate the original.
 
By adding this simple step to your moving checklist, you will save yourself a lot of time and headache when, for example, you are not having to run around searching through unpacked boxes for your children’s birth certificates so that you can register them for their new school.
 
Meeting with Your Advisor Team
 
Along with contacting the moving company, it is also a good idea to reach out to your team of advisors during a move. For example, one of the pressing questions associated with a move is how much it will cost. Although the final calculation of cost will depend on factors such as the size of your home, the distance you are moving, and your willingness to take on DIY projects, your financial advisor can help you set a moving budget that aligns with your long-term financial goals.
 
If you are moving to a new state, it is also advisable to contact your estate planning attorney. In general, a will or trust created in one state should be valid in your new home state. However, some documents, such as a financial or medical power of attorney, can be state-specific. Because estate planning laws vary by state, it is highly recommended that you have your estate planning documents reviewed to ensure their validity in your new state. Your attorney can review your documents or connect you with an attorney in your new state who can review them for you.
 
If you are married, your out-of-state move may have additional estate planning implications if you are moving to or from a community property state. Currently, there are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, there is a presumption that property acquired during the marriage is owned equally. On the other hand, property acquired by gift or inheritance or that is brought into the marriage by one spouse is separate property. Moving from a community property state to a noncommunity property state (i.e., a common law state) or from a common law state to a community property state raises questions about whether community property remains or becomes community property. For example, if a couple acquires a home in California during their marriage and then moves to Nebraska and purchases a new home in Nebraska with the proceeds from the sale of their home in California, is the new Nebraska home community property? Your estate planning attorney can help answer these questions for you and advise you about the steps you should take to preserve certain tax benefits that may be available to you.
 
There is a lot to think about when moving, but locating and safekeeping your important documents and meeting with your adviser team are two essential items that should be added to that moving checklist. If you are moving soon, please reach out to us so that we can help ensure your move goes smoothly.

When it comes to death and what to do with a deceased’s remains, most people think of only two options: burial or cremation. However, these options are not particularly environmentally friendly. Burial, which is arguably the worst option from an environmental standpoint, uses an estimated 100,000 tons of steel, 1.5 million tons of concrete, 77,000 trees and 4.3 million gallons of embalming fluid every year.[1] Some of that 4.3 million gallons of carcinogenic embalming fluid likely leaks into the earth, polluting our water and soil. Cremation, often considered the greener option, is not much better. Some estimate that one cremation uses about as much gas and electricity as a 500-mile road trip and gives off around 250 pounds of carbon dioxide.[2] If you are more environmentally minded, here are some nontraditional, eco-friendly burial ideas. An added benefit is that many of these environmentally friendly ideas are also less expensive than the traditional options.
 
Aquamation
 
Aquamation (also known as water cremation or alkaline hydrolysis) is a water-based alternative to traditional cremation. The process, which has been legalized in about twenty states, uses a solution of water and potassium hydroxide or sodium hydroxide, which is heated to approximately 350 degrees Fahrenheit. At the end of the process, only the bone matter is left, which can be dried and crushed and given to the deceased’s family to do with as they please. Desmond Tutu, the Anglican archbishop, anti-apartheid leader, and environmental advocate, requested aquamation instead of cremation by fire likely because he knew that aquamation uses an estimated 90 percent less energy than cremation by fire. After the aquamation process was complete, his ashes were interred in St. George’s Cathedral in Cape Town, South Africa.
 
Mushroom Burial Suit
 
Actor Luke Perry, probably best known for his role as Dylan McKay on the Beverly Hills, 90210 TV series, was buried in a specially made biodegradable mushroom suit after his organs were donated. While this may sound like a quirky celebrity antic, the creator of the mushroom burial suit says the mushroom spores that line this special suit are trained to consume dead human tissue. Human remains contain toxins that are released into the atmosphere during cremation or through other methods of burial. Mushrooms can absorb and purify these toxins, resulting in a cleaner earth. After breaking down human tissue, the mushrooms conduct the nutrients from the body to fungi in the soil that then pass these nutrients on to trees.
 
Green Burial
 
If being buried in a mushroom suit is not your preferred method, you may want to consider a green burial. A green burial is similar to a normal burial except no embalming fluids or toxic chemicals of any kind are used. Rather than using a gas-guzzling machine to dig the grave, the green burial ground staff—or even your loved ones themselves—dig the grave by hand. To allow the body to decompose in a natural way, no cement burial vault is used, and only caskets made from biodegradable materials, such as wicker, are used. Alternatively, the casket can be eliminated altogether, and the body can simply be buried in a cloth shroud. Many green burial grounds are used as animal and plant conservation sites.
 
Sea Burial
           
If you love the ocean, a sea burial may be perfect for you. Sea burials may be a more familiar eco-friendly option, as this method has been used for centuries by Vikings, pirates, and sailors. Today, sea burials may take the form of using a water-soluble urn or submerging a modified casket down to the ocean floor. More environmentally conscious sea burials may use natural burial shrouds or mix the person’s ashes with an eco-friendly concrete that is used to construct artificial reefs that foster aquatic life.
 
Recomposition
 
Recomposition, or body composting, is the process of converting human bodies into soil using natural means. The body is placed in a container with a mixture of wood chips, straw, and other organic materials that are then exposed to heat and oxygen to accelerate the decaying process. After about thirty days, the remains decompose into about a cubic yard of soil, which your loved ones can use in their gardens. Unfortunately, if you want to return to Mother Earth in this way, body composting is currently legal in only three states: Colorado, Oregon, and Washington. However, more states are considering legalizing the process, and body composting may soon gain in popularity.
 
Making burial decisions after your passing can be an emotionally stressful experience for your family members who are left behind. These nontraditional methods may not be the first thing your family considers, so if you want your remains disposed of in a more environmentally friendly way, it is important to have an experienced attorney prepare your estate plan and make this preference known in your plan. We can help you create a comprehensive burial plan in advance that will reduce emotional stress for your grieving family members at the time of your death.

[2] Id.

We all plan for “just-in-case” scenarios. When packing for our week-long vacation, we throw in a rain jacket even though the weather forecast is sunny—just in case. When planning for the future, it is also important to consider what will happen just in case one of your loved ones becomes disabled.
 
We tend to think that disability is something that affects other people. But approximately 61 million adults in the United States live with a disability—that is one in four adults.[1] And more than one in four twenty-year-olds will become disabled before reaching retirement age.[2] Disability is unpredictable, and accidents or serious physical or mental conditions, such as cancer or mental illness, can happen to anyone at any age.
 
As helpful as it would be when planning, no one has a crystal ball to see into the future. We do not know when we will pass away, and we do not know what position a beneficiary will be in at the time of our death. So even if you do not currently have a loved one who is disabled, it is critical not to overlook the question of what will happen if your loved one becomes disabled at a future time.
 
If a loved one becomes disabled, they may need to rely on financial assistance from government programs such as Medicaid or Social Security Disability Insurance. Unfortunately, a monetary gift or inheritance from you may disqualify this loved one from receiving these public benefits. In this situation, your well-meaning gift could become more of a curse than a blessing.
 
Standby Supplemental Needs Trust
To avoid the possibility that a disabled loved one will lose government benefits because they have too much money, you may want to consider setting up a standby supplemental needs trust as part of your estate plan. The terms of a supplemental needs trust provide that the trust’s money and property are only available to supplement the government benefits a beneficiary may be receiving. Therefore, the trust’s money and property are not included as available resources when determining a beneficiary’s eligibility for government needs-based benefits. A “standby” supplemental needs trust does just what its name implies: the supplemental needs trust is not created automatically but is on standby and comes into existence only if a beneficiary is disabled at the time of your death or, depending on the applicable state’s eligibility rules, becomes disabled at a later date but before the trust has been fully distributed. If the disabled beneficiary is receiving public assistance at the time of your death, the inheritance the beneficiary receives from you in a supplemental needs trust will not disqualify them from the public assistance benefits they are receiving but instead can be used to supplement the benefits they are receiving from the government and enhance the beneficiary’s life.
 
Since no one knows what the future holds, nearly every estate plan could benefit from including standby supplemental needs trust provisions. If the standby supplemental needs trust is not needed at the time of your death, then the trust will not come into existence. But it does not hurt to include it—just in case.

[2] The Faces and Facts of Disability, SSA.gov, https://www.ssa.gov/disabilityfacts/facts.html (last visited Feb. 2, 2022).

February 21 is the day on which we celebrate several US presidents who made noteworthy contributions to our country. As with any discussion that involves politics, a discussion about US presidents risks generating a variety of opinions about which reasonable minds can disagree. However, politics is not the focus of this month’s newsletter. Instead, our aim is to examine a few of the important lessons we can learn from the estate planning of some of our country’s most famous political leaders.
 
George Washington
Washington was arguably the most universally beloved and revered US president. Volumes have been written about this man and what he accomplished during his life. One significant achievement that few people know about is the care Washington took to ensure that his final affairs were in order and that those who relied on him were cared for to the best of his ability. Washington’s last will and testament, widely available online in its entirety, shows that he thought carefully about his final affairs and those who depended upon him; he also remembered many individuals by making very thoughtful decisions and gifts of items of personal property or specific bequests.[1]
 
It is worth mentioning that Washington had a rather nontraditional family situation and had to carefully consider how his estate should be distributed among his loved ones. At age twenty-six, Washington married a widow, Martha Custis, who had two children of her own from her previous marriage, whom they raised together. After his stepson, John Custis, died during the war from an infection, Martha and George Washington raised John’s two youngest children as their own.[2] As a result of his blended family, Washington carefully crafted the language of his will to provide very specific bequests to each of his surviving family members to ensure that they were well cared for long after he was gone.
 
Washington provides an excellent example in the level of thought and care with which he crafted his estate planning. Even if we do not have the wealth that Washington died with, we can still be very deliberate and thoughtful when it comes to how much, and to whom, we leave our wealth and meaningful items of personal property. By spending sufficient time and effort to think about and memorialize how we want to leave our possessions to our loved ones, we can leave a real legacy that has the potential to benefit generations.
 
Thomas Jefferson
While equally as famous as George Washington, Thomas Jefferson’s financial situation was far less favorable than Washington’s upon his death. Despite being a brilliant intellectual and the principal author of the Declaration of Independence, Jefferson nevertheless struggled to manage his financial affairs during life. In addition, he was saddled with both debts inherited from his family and that he had assumed by cosigning on a loan for a friend who died prematurely. When Jefferson passed away, he still had significant debts that his family had to repay. Because Jefferson had valuable real property but very little liquid cash with which to pay his debts, his executor ultimately had to sell the family land at depressed market prices to raise enough cash to pay his debts.[3] The unfortunate result of these circumstances was that very little of Jefferson’s property was able to be passed down within the family. 
 
Many families today face similar problems with illiquid or insolvent estates. This issue arises most often when a business or farm owner has significant wealth tied up in their business or land but little cash in reserve to settle debts or pay transfer taxes at death. This can cause the families left behind to feel intense pressure to sell the business or the land at significantly less than they might otherwise be able to sell it for under better conditions to raise the cash necessary in order to pay the debts or taxes that will shortly come due.
 
Life insurance is an important estate planning tool often used to provide sufficient cash to pay a deceased individual’s debts or transfer taxes. With the proper type and amount of life insurance, and by using certain estate planning tools such as irrevocable life insurance trusts, an individual can prevent a “land rich, cash poor” situation like that experienced by Thomas Jefferson’s family.
 
Abraham Lincoln
Another well-known and beloved US president—a lawyer, no less—very surprisingly died without a will or any other type of estate planning in place. Lincoln, like so many of us, quite possibly believed that he had many more years to address this important task. His tragic murder at the hands of a political malcontent plunged Lincoln’s family into a confusing and completely unfamiliar situation as they attempted to settle his affairs with no knowledge of where to begin. His oldest son, Robert, reached out to US Supreme Court Justice David Davis to take charge of Lincoln’s affairs.[4] Justice Davis generously stepped away from his duties on the court to assist the Lincoln family with the local court process for settling Lincoln’s estate. His estate was divided between his wife and his living sons, most likely according to the default laws of the jurisdiction. However, it remains unclear whether this is how Lincoln would have wanted to see his property divided.
 
A key lesson is that no one knows when they will pass away. Even someone as important and well-versed in the law as Abraham Lincoln was caught unprepared for his untimely demise, sadly leaving others to guess what his wishes would have been with respect to his property. The family undoubtedly experienced significant distress and frustration as a result of not having a clear understanding or plan in place for handling Lincoln’s final affairs. Had Lincoln put some basic planning such as a will or a trust in place prior to his death, perhaps he could have helped ease his family through a very challenging time when he was no longer available to them.
 
Learning from These Presidents
There is a great deal more that could be discussed and learned from the experiences of these and other US presidents as it relates to estate planning. We hope these lessons will help you think about your own estate planning and what you might want to do differently going forward. Give us a call if this newsletter has prompted you to consider any changes you may need to make in your own planning. We would be more than happy to visit with you and discuss your thoughts. Until then, Happy President’s Day!

[4] Danielle and Andy Mayoras, Are You Better Prepared Than Lincoln Was? (Dec. 4, 2012), Forbes, https://www.forbes.com/sites/trialandheirs/2012/12/04/are-you-better-prepared-than-abraham-lincoln-was/?sh=44bb9da21cca.

Not only is January the first month of a new year, it is also a time when many celebrate Hunt for Happiness Week (January 16-22, 2022). Happiness is something that humanity, in large part, has spent a tremendous amount of effort pursuing throughout history. Early on, happiness likely came from simple victories such as having a full belly, surviving another day, or simply staying warm. Over time, with the progress of civilization, happiness may have come from more complex sources such as art and literature, family and romantic relationships, religious worship, access to a wider variety of food and drink, education, and novel experiences. For many people, a lifetime is spent accumulating wealth in the effort to find happiness. But does the mere accumulation of wealth guarantee happiness? It depends on who you ask, of course. But most people will agree that happiness can be found from a variety of sources beyond total dollars reflected on a balance sheet.

When it comes to finding happiness for both you and your loved ones, consider how your estate planning might play a role in that process. The following steps can help ensure that the effort you put into your estate planning will contribute to your and your family’s happiness rather than diminish it. 

Step 1: Identify what makes you happy and prioritize it.

Rather than simply assuming that property or cash will bring continuing happiness to not just you but also your family when you are gone, it is important to think about how you can use your money and property to generate happiness. Here are some examples:

• Is there a hobby that you and your loved ones enjoy that you could more easily engage in as a result of the availability of money? Perhaps you and your children have enjoyed hunting or fishing trips together over the years. Maybe you and your loved ones have a love of live theater or musical performances that has brought you joy over the years as you have shared such experiences. 

• Were your international travel experiences something that you will never forget and that you would like to help your loved ones experience as well?

• Was your education a source of joy and satisfaction over the years that you would like your loved ones to be able to experience?

• Is there a special vacation location or property that has many happy memories associated with it?

Whatever experiences and activities have brought you happiness throughout your life, the first step is to identify them and determine whether or not you would like to make them a priority in your estate planning. 

Step 2: Review your important documents to see if they reflect your priorities.

Once you have identified your priorities, you should review your important estate documents, such as life insurance and retirement account beneficiary designations, wills, trusts, pay-on-death designations on accounts, and the deeds and titles on your property. Do you understand how your accounts and property will be transferred or paid out when you die? If so, will that process realistically result in your accounts and property supporting the priorities that you have identified in Step 1? Or does your current plan risk allowing the accounts and property to be used or spent on things other than your priorities? If so, are you comfortable with that potential result? 

Step 3: Contact your advisor team to make necessary changes or additions to your planning.

If you are not comfortable with the way that your current plan meets your priorities, then it is crucial that you do not delay in addressing these issues with your professional advisors, such as your attorney and financial planner. Your attorney can help you craft provisions in your will or living trust that will set aside a sum of money to fund education for successive generations, travel, hunting trips, family reunions, or other experiences that create happy memories you would like to pass on. Further, in order for you to protect your property from being squandered on material possessions or expenses that bring little happiness to your loved ones, you may need to change beneficiary designations on life insurance, retirement accounts, or cash accounts to be payable to a trust, or make other protective arrangements that can help you achieve your priorities. 

It is only with careful planning that you can turn something as mundane and inanimate as money and property into experiences and opportunities that can bring true and lasting happiness to you and your loved ones. With proper direction from you, your advisors have the tools to help you effectively meet this worthwhile goal. Such efforts will undoubtedly increase the likelihood that you and your loved ones will find the happiness and satisfaction in life that is readily available to those who diligently seek it.

Imagine the following scenario: For years, you have worked with a valued professional advisor who has become a close friend, maybe even closer than some of your family members. You know her family, attend church with her, and know her to be a model citizen who contributes significant value to your community. This professional has suffered some truly unfortunate life circumstances with the loss of her spouse and children in a recent car accident, and the more you and your spouse discuss whom to leave your estate to, the more your professional advisor’s name comes up. Perhaps you have no children of your own and you are no longer close with anyone in your own family. You would rather see your property pass to someone whom you know and care for than to just another charity that may not properly use the funds you leave to them. Working with your estate planning attorney, you and your spouse decide to leave a significant share of your estate to this professional advisor, but as a surprise. Surely, this will be a much appreciated gift for this advisor for whom you feel such affinity.
 
What Could Go Wrong?
As professional advisors, we often spend hours with our clients, becoming familiar with some of the most personal details of their lives. Being a good listener and helping our clients achieve their financial and tax planning goals can create a natural closeness and high personal regard between clients and advisors. For individuals in similar circumstances to the fictional scenario described above, naming a trusted advisor who is also a friend as a beneficiary of your will, trust, insurance policy, or retirement account can feel very natural and desirable. So why would a professional advisor ever refuse such a generous gesture from you?
 
For advisors from certain professional backgrounds, deciding whether they can accept such a gift is easy because their professional licensing organization has already decided it for them.
 
FINRA Registered Investment Advisors
For example, professionals who are registered with and regulated by the Financial Industry Regulatory Authority (FINRA) are subject to FINRA Rule 3241. This rule requires any person registered with FINRA to decline being named as a beneficiary of a client’s estate or receipt of a bequest (gift at death) except under very limited circumstances. Those limited circumstances include being a member of the client’s immediate family (as defined in the rules) or seeking and obtaining written approval from the member firm with which the registered advisor is associated to accept such a gift or bequest. The rule is fairly straightforward and leaves very little room for differing interpretations. In general, a registered investment advisor cannot accept such a gift from or otherwise be a beneficiary of a client’s estate as in the scenario described above.
 
Attorneys
State bar association rules of professional conduct govern the ethical and professional responsibilities of members of the legal profession and are frequently adapted from the American Bar Association’s Model Rules. Under these rules, attorneys are also generally prohibited from being named as a beneficiary in a client’s will or trust document that the attorney prepared.[1] For example, the Model Rules specifically prohibit a lawyer from “preparing on behalf of a client an instrument giving the lawyer or a person related to the lawyer any gift unless the lawyer or other recipient of the gift is related to the client.”[2]
 
Accountants
Certified public accountants (CPAs) are also subject to rules that dissuade accounting professionals from accepting gifts or bequests from clients unless it can be clearly shown that such gifts do not impact the CPA’s ability to exercise independent judgment.[3]
 
As the above-referenced professional rules of conduct demonstrate, in an estate planning context, the general principle is that a professional should seek to avoid profiting from the death of a client. Of course, there is nothing wrong with a professional continuing to offer the services that they provide in the normal course of business to the executor of the deceased client’s estate or the trustee of their trust. But where a professional obtains a windfall from a client through a gift, bequest, or beneficiary designation that is clearly not compensation for services rendered, a professional should very carefully consider the wisdom of accepting such a gift.
 
If one of your relatives or another professional advisor were to learn of such a gift, there could be an assumption of impropriety or that your professional advisor has violated their fiduciary obligation to you by seeking to exploit the relationship of trust for improper financial gain. Accusations of undue influence or questions surrounding your mental capacity to make such gifts may arise. And even if it can be proven that your professional advisor did not in fact engage in any pressure tactics or take advantage of their position of trust, there could nevertheless be significant controversy, professional complaints filed, or even litigation against your professional advisor to get to the bottom of the situation or force some form of a financial settlement with the advisor.
 
Beyond that, even innocently naming your advisor as a beneficiary of your accounts and property could jeopardize your advisor’s professional licensure in their chosen profession, as well as significantly damage the public’s perception of the ethical conduct of other members of that profession.
 
Professional advisors with clients who want to leave them gifts or bequests from their estates should almost always politely decline, explaining the practical and ethical reasons why accepting such gifts could be counterproductive to the client, the professional advisor, and the profession in general. The advisor should then have a thoughtful discussion with the client about naming an appropriate alternative to the advisor. The professional could also help the client identify alternative charitable organizations that they may find attractive in lieu of the gift to the advisor.
 
Whatever you ultimately decide, your professional advisor will likely be able to sleep much better at night knowing that a disgruntled family member will not someday file a FINRA or other ethical complaint against them long after you have passed away and the money is spent. Furthermore, helping your professional advisor maintain the integrity and ethical standards of their profession will undoubtedly pay dividends from a professional and reputational perspective that far outweigh the financial benefits of accepting even a generous gift from you.

[3] See AICPA Code of Pro. Conduct § 1.240.020 (AICPA, 2014).

In the words of George R. R. Martin’s fictional characters from the noble house Stark, “Winter is coming.”
 
Along with this change of seasons comes a change in driving conditions in much of North America—slippery roads, rain, snow, less sunlight during the morning and evening commutes, and a variety of other hazards. Unfortunately, with an increase in such hazards comes an increase in the likelihood of being involved in a motor vehicle accident. But few of us have ever really considered what should be done if we are actually involved in a fender bender.
 
While certainly no two car accidents are the same, there are some general guidelines that you should follow as soon as possible after an accident.
 
First, check yourself and your passengers for any injuries. Ask everyone if they are okay before anything else. If it becomes apparent that someone, including yourself, is injured, call 911 and report the accident and the fact that there may be injuries so emergency dispatchers can send appropriate first responder help. When safety and health are at risk, your first priority should be ensuring that everyone involved can get the medical help they need as quickly as possible. If you are injured and cannot make the 911 call yourself, ask anyone you can communicate with to get medical help.
 
Next, if you and all involved appear to be safe and uninjured and you are not at risk of further danger from nearby traffic, find a safe location to move your vehicles to. If the accident involves someone else, exchange contact and insurance information with the other driver. This will ensure that you can get in touch with the other party to the accident if your insurance company or the police need to get involved to resolve any issues that arise or process insurance claims.
 
Also, even when accidents result in what appears to be only minor damage, it is still advisable in most cases to have the local police respond before the other driver leaves the scene. When it is time to file a claim with your insurance company (or respond to claims from the other driver about damages you may have caused), it is important to have a police report detailing the damages and who law enforcement determines was at fault. This will help you avoid being unfairly stuck with the liability for repairs or medical injuries that arise later (such as back and neck injuries).
 
Additionally, it is important to contact your car insurance company as soon as possible. You may want to contact them even before getting out of the car. The insurance company can provide you with crucial advice and guidance at a very stressful time to make sure that you do not make mistakes in dealing with the other driver that could have significant consequences when it comes to liability. Many people mistakenly believe that it is better not to report minor accidents to your insurer in an effort to prevent their premiums from increasing. However, this can be a dangerous approach. Failing to report an accident and allowing the insurance company to immediately get involved to mitigate possible claims for damages could lead to much larger claims against you personally and could result in your insurance company refusing to cover such claims due to your failure to report in a timely manner.
 
How Car Accidents Can Impact Your Estate Planning
 
Healthcare decision-making. In the event of an accident where you become unable to speak or make decisions for yourself as the result of an injury, you will need to have someone who can speak to doctors and medical providers on your behalf. If you have planned in advance, a medical power of attorney will allow someone you have chosen previously (your healthcare agent) to speak with doctors and arrange for treatment until you regain consciousness. If you do not have a medical power of attorney in place, decision-making authority could be unclear and might result in delays in receiving certain types of medical treatment. Thus, it is important that you not only have a medical power of attorney in place and signed, but also that you inform those closest to you about where to obtain a copy of it should you need to be rushed to a hospital in the event of an accident.
 
Adequate insurance coverage. Many people do not realize that carrying adequate insurance coverage is one of the most effective ways to protect themselves from lawsuits that would place their savings and property at risk. Ensuring that you carry adequate car insurance is one of the simplest ways to ward off a lawsuit. Beyond increasing your insurance limits on your car insurance, you may also want to discuss with your insurance broker whether it would make sense for you to purchase an umbrella insurance policy. Umbrella policies act as a form of backup insurance to your car insurance policy. Essentially, if you are involved in a car accident where the damages you caused exceed the limits of your car insurance policy, an umbrella insurance policy can step in and cover such excess liability. With both policies in place, you are providing a large enough pool of insurance money that your insurance companies will have a much greater ability to settle any lawsuit against you as a result of the car accident before it ends up in court where the plaintiff could seek payment from you directly.
 
As part of your estate planning, you should meet with your insurance advisor to discuss the limits of your car insurance and any umbrella policy that you may already have (or intend to purchase) and the types of protections that they provide. Adequate insurance can go a long way toward protecting your accounts and property from loss to a lawsuit as a result of a car accident.
 
Be Careful of Fraudulent Transfers
After a car accident where there are significant property damages and medical injuries, it can be tempting to take steps to protect what you own if you fear that a lawsuit may result from the accident. But it is important to resist the temptation to begin transferring your property and accounts to friends or family in an effort to hide what you own. In many states, taking such steps after an accident has occurred in which you are liable is considered to be a fraudulent transfer that can be ignored by the courts.[1] In other words, even though you may have made an otherwise legal gift or transfer of your accounts and property to someone else, the courts are likely to allow the party in a successful lawsuit against you to go after and seize the property that you have transferred to someone else in an effort to avoid having it used to pay the judgement against you. Furthermore, you could be liable for additional damages for causing the prevailing party in the lawsuit to expend extra effort and expense to pursue the fraudulently transferred property.
 
No, Revocable Trusts Do Not Protect Your Property from Lawsuits
Another very common misconception is that if you create a revocable living trust for estate planning purposes, you have also protected your assets from lawsuits and creditors. Unfortunately, this is simply not the case. While it is possible to design a revocable living trust that will protect your assets after you have died from the creditors and lawsuits of your named beneficiaries of your trust (usually your loved ones), revocable trusts in general offer no protection against your own creditors or lawsuits filed against you. This is because you have complete control over the property placed in your revocable trust. And because you retain the power to revoke the trust, a judge can order you to revoke the trust and use the trust property to pay your creditors and lawsuit judgements.
 
That being said, there are certain types of irrevocable trusts and other asset protection strategies that, if designed properly, can greatly enhance the level of protection you can obtain for your property. However, you should explore these with the assistance of an experienced asset protection and estate planning attorney to ensure proper creation and implementation.
 
When it comes to protecting your accounts and property, the time for taking the necessary steps is well before an accident occurs. Doing so will help you maximize the amount of asset protection that is available to you through purchasing insurance or designing estate planning features that have a much better chance of warding off successful lawsuits in the event of an accident.
 
We hope that we have given you some things to consider and encouraged you to revisit some aspects of your estate planning. Protecting your hard-earned accounts and property is a worthwhile investment of time and effort. But remember, the time to do so is before an accident occurs. If you are not sure where to start, give us a call. We would be happy to help you take the next step in preparing for the perils that winter can bring.

[1] To date, twenty-four states have enacted or introduced model legislation referred to as the Uniform Voidable Transactions Act (Formerly Uniform Fraudulent Transfer Act). The full text is available on the website of the Uniform Law Commission at https://www.uniformlaws.org/committees/community-home?CommunityKey=64ee1ccc-a3ae-4a5e-a18f-a5ba8206bf49.

Next week is Estate Planning Awareness Week (October 18–24, 2021). To that end, this month’s newsletter is geared toward helping you become aware of and better understand common estate planning myths. Left unaddressed, these myths can create serious trouble for your loved ones, often leading to intrafamily conflict, permanently damaged relationships, and lengthy and expensive court battles.
 
Myth #1: I did my estate plan a couple of years ago. I’m good!
If you have worked on your estate plan with an experienced estate planning attorney within the last few years, then you are way ahead of most people, and you should give yourself a pat on the back. Way to go!
 
However, life moves quickly, and even a couple of years can make a significant impact on the effectiveness of your estate plan to help you achieve your goals:

• Children can get married and have children of their own.

• People who you have named in your estate planning documents can move out of state, making them unable to handle those responsibilities when called upon.

• Your relationships with your chosen fiduciaries or beneficiaries can change or become complicated.

• Your beneficiaries can develop harmful addictions, marry financially exploitative spouses, or run into financial difficulties of their own.

• Your spouse could die or you could get divorced.

• The amount and types of property that you own can change.

• Changes in the law can cause your estate plan to have unintended tax or other consequences. 

Any one of the above circumstances may be a good reason to meet with your estate planning lawyer again to determine whether changes should be made to your estate plan. In many cases, even a quick phone call to discuss any changes with your lawyer is advisable.
 
It is also essential to understand that some estate planning documents like your power of attorney or healthcare directive can, over time, become less effective from the perspective of certain financial institutions, business entities, or healthcare providers. If your circumstances change, it can be beneficial to review, update, and reexecute your estate planning documents. This will keep these documents relevant and effective when they need to be used.
 
Beyond the considerations above, a well-rounded estate plan requires a number of steps to ensure that the estate plan will work effectively when needed.
 
First, if you have a trust, have you funded it? Funding your trust means you have coordinated the ownership and beneficiary designations of your accounts and property to work with the trust. For real estate, a deed must have been recorded with the proper government recorder’s office. Most bank and brokerage accounts should be titled in the name of the trust if you want your trustee to control those accounts should something happen to you.
 
Second, have you checked the beneficiary designations on your retirement accounts and insurance policies to make sure they name the correct people or your trust? Life insurance policies should usually name the trust as beneficiary. Retirement plans may name a trust as a beneficiary, but be careful! Naming a trust as the beneficiary of an individual retirement account or 401(k) has significant tax consequences and may not be advisable in many situations. Speak with your tax advisor before changing the beneficiary designations on your retirement accounts.
 
Third, have you shared copies of your medical power of attorney and healthcare directive with your doctor and local hospital? Doing so can alleviate family members’ worries about digging through your documents should you have a healthcare issue in the future.
 
Fourth, in many states, a financial power of attorney document that names an agent to act on your behalf must be accompanied by a signed acceptance document from the agent before it can be used. Has this step been taken? If not, your estate plan may not be complete.
 
Fifth, writing things down does not guarantee that misunderstandings will not arise among your loved ones or beneficiaries. In addition to the important work of documenting your wishes, you should talk with your loved ones to help them understand the kind of plan you have put in place as well as the roles you want them to fulfill. Having open, honest communication with those individuals involved in your estate plan will minimize the chances for miscommunication and hurt feelings.
 
Myth #2: Avoiding taxes is the only reason to create an estate plan.
It can be easy to dismiss the need for an estate plan considering today’s historically high estate tax exemption ($11.7 million per person in 2021). Most Americans do not need to worry about estate taxes.[1] However, tax avoidance is only one of many goals of estate planning, and in many cases it is not the most important goal. For example, planning for the orderly passing of your treasured heirlooms to avoid family discord may be far more important than tax planning in the long run. Alternatively, you may have children who are struggling financially or with substance abuse challenges, are in a rocky marriage, or work in high-liability professions. As a result, it may be crucial for you to ensure that whatever inheritance is left to those children is protected from loss to lawsuits, creditors, or divorcing spouses.
 
Myth #3: My spouse will get everything when I die.
This is another myth that is partially true but can lead to unfortunate conflicts and misunderstandings among family members. Under most state laws, if you are married and pass away, your spouse will inherit your property. Default laws that exist to divide up a deceased person’s property if they have never made a will or a trust (called intestacy laws) typically allow the surviving spouse to inherit 100 percent of the deceased spouse’s property. But in many states, if the surviving spouse is not the biological parent of one or more of the deceased spouse’s children, then those children will typically have a right to some percentage of their deceased parent’s property. In many states, that can be as much as 50 percent.[2] As a result, your spouse could get a very unpleasant surprise shortly after the funeral from your children from another relationship when they demand their share of the estate.
 
Myth #4: A will avoids probate.
An all-too-common misconception is that having a will helps you avoid probate. This is simply not true—in fact, the opposite is true. For a will to be effective after your death, it must be submitted to the court to prove its validity. Only after the probate court has verified that the will is valid can the individual named in the will (the executor or personal representative) distribute the decedent’s money and property during the probate process. People often confuse the benefits of a will with those of a trust. Trusts can avoid probate, but only if the trustmaker names the trust as owner of the accounts and property during the trustmaker’s life or as the beneficiary of the accounts and property upon the trustmaker’s death.
 
What You Can Do to Be Prepared
Understanding these myths can help you identify those areas of your estate plan that may need attention. Taking these essential steps to ensure that your estate plan is complete is crucial to its success. As your estate planning professionals, we are here to help you think through these challenges, avoid mistakes, and complete the necessary paperwork. Give us a call today so we can help you take these important steps in your estate planning.

[2] For example, in Florida, the amount in this example that would go to the decedent’s children from another marriage would be as much as 50 percent (see Fla. Stat. § 732.102(3) (2021)).

In late May of this year, the U.S. Treasury released a publication detailing a number of the proposed tax code changes that the Biden administration would like to usher through Congress in an ambitious effort to modernize the US tax system to meet its citizens’ needs. While reasonable minds may differ strongly on the best way to stimulate the US economy and create wealth and security for the American people, one thing is certain: the need for individuals to engage in careful estate and tax planning to avoid paying more tax than necessary is not going away.
 
This IRS publication,[1] sometimes referred to as the Green Book, outlines a number of key proposals that—if ultimately passed—have the potential to significantly shake up the estate planning world as we know it today by sidelining a number of tried and true estate planning strategies while potentially increasing the frequency of use and usefulness of others.
 
As some commentators have observed, any direction to reduce the estate and gift tax exemption amount from its current historically high level of approximately $11.7 million per taxpayer is noticeably absent from these proposals.[2] Although there is certainly no guarantee that such a proposal will not be made in the future, we can nevertheless focus for now on what we do know about the law as written today and what steps we can take to address the coming changes.
 
One of the first things to understand is that, even with no action whatsoever by Congress, estate tax laws passed under the Trump administration will expire and reset to the prior laws in 2026. This reset will restore the estate and gift tax exemption amount to $5 million, as it was in 2016 (though it will be indexed for inflation, resulting in an exemption amount of approximately $6.6 million in 2026). Again, this is the law as it stands today; without further action from Congress, it will remain the law.
 
It is therefore important to consider the average rates of return on your current investments, compounded annually, to determine what kind of return on your investments you can expect within the next five to ten years. Using a basic calculator or spreadsheet, many of our clients and their advisors are surprised to see that, even with a moderately healthy return of approximately 7 percent annually, their net worth could easily double in ten to twelve years. If the estate tax exemption amount is halved in 2026 and increases only with inflation at a rate of approximately 2.5 percent per year, you could very quickly find yourself at risk of paying significant estate taxes (currently at a 40 percent rate) if you are still in the mindset of having an $11.7 million estate tax exemption ($23.4 million for married couples) available when either you or your spouse passes away in the next one to two decades.
 
What should we be doing now?
Given the current uncertainty, trying to predict the future and determine which strategies will best accommodate your tax and estate planning goals can be frustrating. This is particularly true when we consider some of the other Green Book proposals:

• Raising the top income tax rates

• Taxing capital gains as ordinary income for people who earn more than $1 million per year

• Treating any transfers of appreciated property (including gifts and inheritances) as a sale of the property, thus triggering capital gains taxes on the property, instead of allowing the traditional carryover basis for gifted property or stepped-up basis for property inherited at the death of the property owner

• Limitations on deferral benefits for like-kind exchanges of real estate

You should still consider certain strategies, however, because these changes have not yet been implemented and may ultimately never be enacted. For example, the following strategies are still effective tools under current tax law, and if you implement them now, you could realize significant tax savings.
 
Grantor Retained Annuity Trust
A grantor retained annuity trust (GRAT) enables you to transfer appreciating accounts and property to chosen noncharitable beneficiaries (usually children or other family members) using little or none of your gift tax exemption (depending on the value of your retained interest in the trust). To accomplish this, you would transfer some of your property to the GRAT and retain the right to receive an annuity. After a specified period of time, the noncharitable beneficiaries will receive the amount remaining in the trust.
 
Installment Sales to an Intentionally Defective Grantor Trust
Another useful strategy that can still be used today is to gift seed capital (usually cash) to an intentionally defective grantor trust (IDGT) and then sell appreciating or income-producing property to the IDGT. The IDGT makes installment payments back to you over a period of time. If the account or property increases in value over the period of the sale, the accounts or property in the trust will appreciate outside your taxable estate and will therefore avoid estate taxes. Additionally, because you will pay income taxes on the income generated and accumulated in the trust, which is an indirect (nontaxable) gift to the trust (and, therefore, to its beneficiaries), the trust itself does not have to pay income taxes on the income that it retains.
 
Spousal Lifetime Access Trust
A spousal lifetime access trust (SLAT) strategy calls for you to gift property to a trust created for the benefit of your spouse (and potentially other beneficiaries like children or grandchildren). An independent trustee can make discretionary distributions to those beneficiaries, which can benefit you indirectly, while an interested trustee should be limited to ascertainable standards when making distributions (i.e., health, education, maintenance, or support). This strategy allows you to use the currently high lifetime gift tax exemption amount by making gifts to your spouse; pay income taxes for the trust, which allows for indirect, nontaxable future gifts to the value of the trust for the trust beneficiaries; and still benefit indirectly from the trust through your spouse. Because the trust is designed to avoid using the marital deduction, the money and property in the SLAT will not be included in either your or your spouse’s gross estate for estate tax purposes.
 
Irrevocable Life Insurance Trust
Irrevocable life insurance trusts (ILITs) are still a tried-and-true method for leveraging life insurance to ease the burden placed on your estate if it will be subject to estate tax at your death. This type of trust is established by transferring an existing life insurance policy into the ILIT (or a new policy is purchased with money gifted to the trust). You would then make annual cash gifts to the ILIT to pay the premiums on the life insurance policy. At your death, the trust receives the insurance death benefit and distributes it according to the trust’s terms. Because the trust receives the death benefit and the premiums gifted to the trust are completed gifts, your estate would not include any of the trust’s value. This strategy can be a powerful method of leveraging relatively small gift tax exemption usage to create both liquidity for your taxable estate as well as significant accounts or property outside the estate to benefit your beneficiaries.
 
We Are Here to Help You
You can still implement these strategies today to significantly benefit yourself and your loved ones. If you feel that you can benefit from a deeper understanding and exploration of these and other strategies, please let us know. We would love to sit down with you and discuss whether any of these strategies make sense for your particular situation. Call us today!

[2] Allyson Versprille & Ben Steverman, Biden Targets Two Weapons the Richest 0.1% Use to Avoid Taxes, Bloomberg Tax Daily Tax Report (June 28, 2021, 7:06 AM), https://news.bloombergtax.com/daily-tax-report/biden-targets-two-weapons-the-richest-0-1-use-to-avoid-taxes.