Estate Planning, Part 1: The Basics

Estate Planning, Part 1: The Basics Image

With the next three blogs, we will review the basics of Estate Planning. 

We understand that many people look at their checking and savings accounts and decide they really don’t have an estate, but those people are wrong. Your estate is more than just money in the bank. It includes your home, your business, retirement and investment accounts, life insurance policies and your personal belongings – it all adds up! 

But, the goal of an estate plan is broader than divvying up the money when you die. 

Broadly speaking the goal of the estate plan is to give you peace of mind and to preserve family harmony after you die. We can help in three ways:

1.Take steps now to make sure your wishes are understood and honored if you become incapacitated.

2.Create a plan that will quickly and cheaply transfer your wealth when you die to the people you have decided should inherit it. 

3.Protect your beneficiaries (your loved ones) from themselves and outsiders.

Today, we will talk about incapacity.

No one thinks about a time when they may be incapacitated. But, people fall down the stairs or suffer strokes every day and become incapacitated for a few days, years or the rest of their lives. Planning today for this possibility means that you can control what happens with your finances and property AND you can plan what type of medical care you want to receive if you cannot speak for yourself. 

If you fail to plan and you become incapacitated, your family will have to go to court and the court will decide who will manage your affairs by creating a guardianship. The court may appoint your spouse, your brother or your crazy Aunt Inez!

There are a host of reasons to avoid this court procedure:

1.It’s time consuming.

2.It’s expensive.

3.It’s cumbersome.

4.It creates delays.

5.It’s emotionally trying for your family members.

6.It creates a public record.

7.It opens the door to abuse.

You can avoid a court-appointed guardianship with two legal documents: a Durable Power of Attorney for Asset management and a Health Care Power of Attorney.

A Durable Power of Attorney for Asset Management gives another person full or limited legal authority to make financial decisions for you if you are incapacitated and unable to make such decisions. The authority ends when you recover or when you die.

A Health Care Power of Attorney gives someone you select the authority to make health-care decisions for you when you are unable to make them for yourself. This is often called a Living Will or Advanced Health-Care Directive. 

Without at it, medical decisions can be delayed and conflicts can arise. Costs and guilt mount up.

A word of caution, standard forms which are handed out in workshops and seminars are often inadequate for a variety of reasons. For example, these forms are often in checklist format, saying if A happens to me, then B is the right thing to do.  It might say, if I cannot eat, do not feed me with a feeding tube. But, this example does not speak to difficulty swallowing. Difficulty swallowing can be addressed with physical therapy, but can be interpreted as unable to eat. Appointing someone to speak for you is more useful to health care providers and may be what you really want.

Online forms are similarly inadequate, and if the Power of Attorney is not properly designed for financial or health care needs, it may not only be ineffective, it can be counterproductive. An experienced, elder law attorney like those on our staff can help you create documents that meet your personal needs and give clear direction to your loved ones and other professionals. 

ESTATE PLANNING 101 – part 2

TRANSFER OF WEALTH

This is part 2 of a three-part series of blogs on the basics of Estate Planning. Broadly speaking, the goal of an estate plan is to give you peace of mind and to preserve family harmony after you die. We can help in three ways:

1.Take steps now to make sure your wishes are understood and honored if you become incapacitated

2.Create a plan that will quickly and cheaply transfer your wealth when you die to the people you have decided should inherit it. 

3.Protect your beneficiaries from themselves and outsiders.

Last time we talked about incapacity. Today, we will talk about transferring your wealth and property to your loved ones by sharing common mistakes.

Mistake #1: No Wealth Transfer Strategy at All

A thoughtful plan to transfer your home, property, money and valuables when you die is one of the greatest gifts you can leave your family. A well-designed plan can be tailored to distribute the things you actually own (your assets), it can account for your unique family situation and it can streamline the transfer of your assets so they pass quickly and cheaply to your loved ones.

A trust can accomplish those goals. Your assets are transferred out of your name and placed in a trust which includes specific instructions on how to distribute your property when you die. The trust can provide special rules to protect a family member who has a disability so that public benefits are not lost. It also does not require probate – the very public legal process of transferring ownership from the dead to the living.

Probate actually makes it easy for creditors to file claims against an estate because a notice of death is published in the newspaper. To file a claim, true or false, a creditor only needs to file a single-page claim form. 

The required period of time to leave an estate open is at least eight months. That is the statutory claim period. If a house or other real estate passes through probate and it is sold while the claim period is open, then the proceeds cannot be distrusted to the heirs, hence the phrase, “tied up in probate.”

Mistake #2: Failure to Understand and Plan for Administrative Fees and Taxes

Death taxes apply to the transfer of your property when you die. Gift taxes apply to the transfer of your property while you are alive. These two taxes interface. Since 2000, these taxes have changed significantly. For example, Delaware abolished estate and inheritance taxes in 1999, then reimposed the estate tax in 2009 and then abolished it again in 2018. Congress just changed the exemption for estate and gift taxes but the exemption reverts back to its current level in 2025. Certain exemptions allow you to transfer property in your estate or as a gift without paying taxes. These taxes, which change annually, are a top priority for us when we provide estate and gift tax planning for clients and during our periodic reviews.

While Delaware abolished estate taxes, it did not abolish the probate fee charged by the counties when one dies. That is currently 1.75%. Additional administrative fees and costs are significant, depending upon the size of your estate.

Because of the complexity of legal issues related to estate and gift taxation, you should use an estate planning lawyer like the experts here at Estate & Elder Law Services to help you with your estate plan. 

 

 

ESTATE PLANNING 101 – part 3

PROTECTION

This is part 3 of a three-part series of blogs on the basics of Estate Planning. Broadly speaking, the goal of the estate plan is to give you peace of mind and to preserve family harmony after you die. We can help in three ways:

1.Take steps now to make sure your wishes are understood and honored if you become incapacitated

2.Create a plan that will quickly and cheaply transfer your wealth when you die to the people you have decided should inherit it. 

3.Protect your beneficiaries from themselves and outsiders.

In the last two blogs we talked about incapacity and planning. Today, we will talk about how to protect your loved ones from common mistakes.

Mistake #1: Thinking Children -- Minor and Adult -- Don’t Need Inheritance Protection

Adult children come with the same flaws as anyone else. As you plan to pass along your wealth to your children, it is important to acknowledge their strengths and weaknesses. Here are some things to keep in mind:

1.18-year-old adults often don’t manage sudden wealth very well, for that matter, most of us don’t.

2.Couples who are happy today, may divorce in the future. Don’t assume you know how well your child’s marriage is going.

3.One of your children will likely face creditor problems or legal problems. 

4.A child who has a substance abuse or gambling problem might use an inheritance irresponsibly.

5.A child with special needs, needs special attention. The rules governing public benefits are complex.

There can be real consequences of simply dividing everything up evenly when you die. A well-crafted trust can provide your children access to some of their inheritance, but hold back some until a certain age or demonstration of maturity or resolution of gambling or addiction. A trust can ensure your grandchildren receive their inheritance, even if their parents divorce. Property in a trust can be protected from bankruptcy, personal injury claims, the IRS and creditors. And, trusts for people with special-needs can help your child have a comfortable life after you die.

Mistake #2: Failure to Consider Blended Family Issues

We see many potential clients who are dealing with unintended problems that result from remarriage. Here are some examples.

1.Your second spouse leaves your money to his/her children.

2.Your second spouse is a spendthrift and effectively disinherits your children by spending everything.

3.Your surviving spouse is victimized by a gold digger who decimates your estate – leaving nothing to your children.

Again, a well-crafted trust can make certain your assets go to your current spouse and children, instead of a new spouse or friend and his/her children. A trust can provide for the distribution of income and principal to your spouse while setting aside money for your children, regardless of whether your spouse remarries and has more children or step-children.

Mistake #3: Failing to Plan for Personal Property

Ironically, we see more family squabbles over trinkets than treasures. Children have sentimental attachments to items that may seem every-day and ordinary like Mom’s favorite Christmas decoration or Dad’s weird pipe. We recommend that decisions about these sentimental items be made together and a list of who gets what be written down in a personal property memo that is included with the Will or Trust. It may make sense to discuss this with family members.

Mistake #5: Joint Property with non-spouse or second spouse

When you add someone’s name to your property you lose control over it. You need permission to sell or mortgage it. If the joint owner is sued, a judgement may be lodged against the joint property. If the joint owner gets divorced, the ex-spouse may claim the property. If you die, the joint owner gets the property – regardless of your Will or wishes.  

Example: Mother promises the dining room set to her daughter. Mother dies, Father remarries and holds everything jointly with his new wife. Father dies and Step-Mother gets everything. Step-Mother dies, leaving everything to her children and Mother’s dining room set goes to Step-Mother’s child– a person Mother never knew. 

Mistake #6: Believing Estate Planning is a one-time event

Estate Planning is a life-long event because you change, your family changes and the laws change. It is always important to update, update, update.

Over more than three decades, we have helped thousands of Delawareans create Estate Plans which meet their personal needs. Let us help you, too.