Estate Planning Weekly

It's that time of year and you can smell taxes in the air. I am seeing and hearing all sorts of news right now about how everyone is getting smaller tax refunds. This isn't necessarily a bad thing. While taxes are on everyone's mind, I'd like to explore how taxes affect estate plans.

Is your tax refund smaller this year? Don't use that as a measure of good or bad.

You need to need to look at your actual tax liability...how much did you actually pay in taxes. If you paid less this year, congratulations. I can hear everyone right now, "but my refund is smaller."

That is great - your refund is a return of a no-interest loan that you made to the government. Loaning out money for free is no fun. Plus, that means you had more money in your pocket with every paycheck in 2018.

The good news is that 99% of everyone reading this will never have to pay the Federal Estate Tax as it is currently structured. The current Federal Estate Tax Exemption is $11.4 million. That means not one dollar is taxed until your estate is over $11.4 million.

Further, if you are married, when you die your unused exemption can be ported over to your spouse. This allows them to use their exemption and your leftover exemption when they die. 

Oregon is a totally different animal. The Oregon Estate Tax Exemption amount is only $1 million. That means anything in your estate over $1 million (that you don't leave to your spouse) will incur Oregon Estate Tax. 

Further, the Oregon Estate Tax Exemption is not portable. Rather, it is a use it or lose it exemption. 

Buy creating an Estate Plan that takes the Estate Tax into account, you can substantially reduce your Estate Tax burden. You may not be able to reduce it to zero, but you can make sure that you don't pay more than your fair share.

If you'd like to learn more about Taxes & Estate Planning or have any other Estate Planning questions, please schedule a complimentary Estate Planning Strategy Session.

Considering your healthcare decisions in advance is an important part of creating an Estate Plan. The three healthcare documents that most people are concerned with are the POLST, Advanced Directive, and Healthcare Power of Attorney.

The POLST, or Provider Orders for Life-Sustaining Treatment) is a medical order not a legal documents. Not everyone needs a POLST. This document is prepared with a physician, and sets forth whether you would want extraordinary measures taken to save you life. These measures include CPR.

Physicians will often start a POLST dialog with patients that are in declining health...this is not an order for everyone.

An Advance Directive gives instructions for care for serious conditions when you are unable to make decisions on your own. Every adult should have an Advance Directive. In Oregon, Advance Directives take a form set forth in the Oregon Statutes.

Effective January 1, 2019, Oregon has a new Advance Directive form. If you already have an Advance Directive it will still work, just know that if you fill out a new one it will look a little different.

This document appoints your healthcare agents and gives them instructions related to feeding tubes and other artificial life-support measures. It allows you to refuse those artificial measures, state that you want them, or that you only want them on the advice of your physician.

Like the Advance Directive, this document also appoints your healthcare agent. However, the Healthcare Power of Attorney gives your agent many more powers related to your healthcare decisions. 

Some additional powers are: management of pain medications, coordinating in-home care, and coordinating your general medical treatment. The Healthcare Power of Attorney shines when you are not in an end of life situation, but are unable to make decisions for yourself.

The Estate Plans that I prepare include an Advance Directive and Healthcare Power of Attorney (I call it an Advance Directive Addendum). These are important choices that every adult needs to make.

If you'd like to learn more about Healthcare & Estate Planning or have any other Estate Planning questions, please schedule a complimentary Estate Planning Strategy Session.

Not everyone is ready to handle inheriting a lump sum of money. This is especially true of young people that don't have the life experience to appreciate the value of money and haven't acquired the skills to manage money. Many inheritances disappear in the matter of a couple of years or even in a matter of months.

Anyone inheriting money can look up a year later and realize that the money is gone and they don't know where it went. This is especially true for younger people. I knew a young man that received over $250,000.00 on his eighteenth birthday. Within 18 months it was all gone and he had nothing to show for it. The money went to a car that was totaled, to computers that were old tech within a year, to parties, to trips, etc. In the end all he had to show was some debt.

Even if you are leaving a small inheritance you can make sure that when it is used there is recognition of where it came from. We call this an "I Love You Trust." Basically, it is a trust that allow the beneficiary complete access to the money. However, when they spend money from the trust they know where it came from. So even if the beneficiary is very well off, when the use the trust money for a family vacation they know that mom and dad did that for them. Much better than mixing it in with their checking account and not knowing what it was used for.

On the other extreme, if there is a beneficiary that could never handle and inheritance on there own, a trust can be put on lockdown. This type of trust would only give the beneficiary access if an independent trustee agreed. 

Between those two extremes are lots and lots of options for allow different levels of access to the trust assets.

After you have read this post, go to your favorite search engine and search "wasting inheritance" or "wasted inheritance." You will see scores personal stories from people that wasted their inheritances. You don't even have to click on the links, the search result summary should be enough to paint the picture for you.

If you'd like to learn more about protecting the inheritance you leave, let's talk about it, just schedule a complimentary Strategy Session with me. 

Whether you know it or not...whether you want it or not...you have an estate plan even if you've never signed one. In Oregon, (really in every state) our legislature created and the governor signed an "estate plan for all." Unless you do something to change it, that estate plan created by the State will decide who gets your stuff when you are gone.

When you die without an estate plan, you are said to die intestate. In that case (which happens all the time), the laws of the state kick in and dictate who will get your assets. You can read the Oregon Law by clicking here. Basically the State has set up a hierarchy of who will get your assets. It doesn't matter if you never had a relationship with the person, if they are the correct relative they will inherit from your estate.

Without and estate plan, a judge will decide who will raise your minor children. You have no say in the matter after you are dead. Often times more than one family member will petition the court for custody of children. I have been involved in those cases and they can get very ugly.

Often times there can't even be an agreement on temporary custody while the court is deciding. In those cases the children often end up in foster care while the court case is open.

There is no need to leave these decisions to the State. Creating a estate plan is not that hard, and doing so will ensure that your wishes are cared out...that your children are raised by the people you choose...and that the likelihood of a fight in your family is very low.

If you'd like to learn more about why you should have your own estate plan, please schedule a complimentary Strategy Session with me. 

As they say..."there is more than one way to skin..." The same is true with leaving assets to your children. There are good ways, traditional ways, ugly ways and everything in between. Here are four of the most common ways to leave assets to your children.

Leaving money to your children outright is the most basic way possible. You have cash, the cash is handed to your children. You have a house, the house is retitled in the child's name. However, if your children are minors they cannot inherit outright and a conservator will need to be appointed by a court. Stay tuned for a future episode explaining the magical vanishing 18 year olds inheritance.

With this method, the assets are left to your children in a trust, but they are give full right to withdraw those assets for any reason. This method, much like outright distribution above, does not provide any way to make sure your child's inheritance with last.

This method is also left in trust, but with varying degrees of protection from waste. You can set it up so the child will get the income from the trust every year. You could give them access to the principal of the trust, but only with the approval of an independent distribution Trustee. There is also the method of allowing your children to withdraw a certain percentage of the trust assets at they reach certain ages - such as 25% at 30 years old, 50 at 40 years old and 100% at 50 years old.

This allows your children to with draw on an annual basis a stated amount or percentage of the trust assets. Something like 5% or $5,000.00

Any combination of the four methods above. How you leave your assets to your children is very flexible. Often blending these methods together is the only way to reach your desired goal - this is one of the benefits of working with an estate planning attorney.

If you'd like to learn more about leaving assets to your children, please schedule a complimentary Strategy Session with me. 

Retirement accounts are often very misunderstood. Dealing with how to incorporate them in your estate plan can seem very difficult. Here is some basics, but you really need to speak to a professional about your particular circumstances. 

You have your Trust and now you are working on funding it. Your attorney (or online service) told you to put all of your accounts in the name of your Trust. Hold on, don't do that with your retirement accounts. Retirement accounts are treated differently when it comes to taxes; they are also exempt for most collection actions. If you change the ownership of your retirement accounts that will trigger a tax and you'll loose that collection exemption. If someone tells you to change the name on your retirement accounts...get a second opinion before you do anything.

If you're married, 9 times out of 10 your should name your spouse as the primary beneficiary. Inheritance of a retirement by a spouse retains the exemption as if they were the original owner of the account. Of course you might be that 1 out of 10...seek professional advice before you make a final decision.

If you are single, see the contingent beneficary section below.

When a non-spouse inherits a retirement account it looses the exemption protections unless you live in a handful of states (Oregon is not one of them). The general best practices it to leave make sure you name each person or organization you want to get part of your retirement account separately - don't name only one person and expect them to share. If you are interested in protecting your retirement accounts from creditors, then there are ways to name a trust to do just that. However, you must name the trust in a specific way and should get the advice of a professional.

If you'd like to learn more about incorporating your retirement accounts into your estate plan, please schedule a complimentary Strategy Session with me. 

Most people think of Estate Planning solely as an end of life tool. That is an essential part of Estate Planning, but there are more. I like to think of the end of life portion as the pinnacle of a pyramid. At the base there is getting an understanding of your estate; things and people. As we move up the pyramid there is healthcare, incapacity, and how your life is maintained.

Every client I work with completes an Estate Planning Inventory and Assessment. This includes who you are, who your beneficiaries are, who your decision makers are, what your have (your assets), and your wishes. Completing this Inventory and Assessment gives you a complete picture of the current status of your Estate.

Whether medical, physical, or mental incapacity, an Estate Plan provides for how you and your things are managed when you can't manage them. This includes appointment of healthcare decision makers, financial decision makers, and instructions to those decision makers.

Setting forth the explicit directions on who will get what. Also, how taxes should be paid, the process by which your estate is administered (Private or Public), guardians for minor, etc.

If you'd like to learn more about estate planning, please schedule a complimentary Strategy Session with me. 

As parents we all worry in the back of our heads about our children being cared for after we are gone. Hopefully we all get to see our children grow into adulthood and never have to worry about guardians and leaving money to minor children. As the saying goes, "hope for the best, plan for the worst."

In most states a person under the age of 18 cannot directly inherit money & property and be in control of it. Rather, the laws require that a third party be appointed to manage and care for the minor's assets. 

This third party can be a custodian or a trustee depending on the type of Estate Plan involved. 

In the event you have a Will based Estate Plan, or no Estate Plan at all, the third party will mostly likely be referred to as a custodian. You can name a custodian in your Will. If you have no Will a judge will appoint a custodian. In either case, the custodian must be approved and appointed by a judge.

In the event that you have a Trust based Estate Plan, you can leave your children's inheritance to them in a Trust and select the Trustee for that Trust. Absent some unforeseen turn of events, there is no need for a judge to get involved. 

Also, the people you choose as guardians for your children can, and often should, be different than the person you name as Trustee or Custodian. That way your children can have the best of both world after losing everything; the right people raising them and the right people looking after their inheritance. 

If you'd like to learn more about leaving money and property to minors, please schedule a complimentary Strategy Session with me. 

A couple that I worked with this year was surprised to learn that they need a Will to go along with their Trust based Estate Plan.

This couple came to me with a Will based Estate Plan that they had for years. These was nothing wrong with their plan when it was setup. However, as time passes, circumstances change as to your Estate Planning needs.

After learning about their current circumstances, we all agreed that a Trust based Estate Plan was right for them.

When they came in for their signing cermony, we reviewed their Trust and other documents. The couple was surprised that switching form a Will based to Trust based Estate Plan would require them to still have Will.

REASON #1 - You pass away before your Trust is fully funded. 

This can happed if you pass away before you have time to fund your Trust, or if there is a mistake/oversight and an asset is properly funded into your Trust.

In this case, your Pour-Over Will directs that you are leaving your probate assets (those not funded into your Trust) to your Trust. Once the Probate is complete, all of your assets are then handled pursuant to the terms of your Trust.

REASON #2 - Your Trust is invalid for some reason.​

It doesn't happen often, but there is always a change that your Trust can be found to be invalid. 

It could be an error in executing your Trust, or due to an heir challenging your Trust in Court.

No matter the reason, if your Trust is invalid that you assets will need to go through Probate. In this case, your Pour-Over Will directs your Personal Representative to setup a new Trust with the same goals, heirs and wishes as your invalid Trust. Then all of your assets are left to the new Trust and your assets will go where you wanted them to go in the first place.

As you've heard me say in the past, a goal of having a Trust is to avoid Probate. That means that our goal is to never use your Pour-Over Will.

Despite our goal, we never want to put all of our eggs in one basket and having the Pour-Over Will is an insurance policy for your Estate Plan.

If you have any questions, or want to learn more about Estate Planning, please schedule a complimentary Estate Planning Strategy Session.

Just last week I met with a client with three children. They wanted to leave the home they had built to all three of their children. 

This can, and often is a bad idea. When you leave a single piece of real property to more than one person, conflicts can often arises. Most likely they will take ownership as tenants in common...meaning that each of them owns a undivided interest in the whole property.

The conflict comes in determining how the real property will be used. Who gets to live there? Who pays the property taxes? How much is reasonable to pay the owner managing the property. 

I often advise my clients to choose one person to inherit the each piece of real property and offset the value of the real property with other assets to other beneficiaries. 

If it is a must that the property must stay in the family, there are solutions to set down rules for the use and enjoyment of real property. Those solutions are often expensive. If its important that to you that you leave real property to more than one person, then the expense is well worth it.

If you have any questions about leaving real property to your heirs, or any other estate planning questions, schedule a complimentary estate planning strategy session.