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Biggest estate planning mistake: not having an estate plan

estate planning

Each state has its own laws for distributing property when a person dies without an estate plan. These generally involve leaving a percentage of the decedent’s assets to family members, based on kinship. If the decedent and their partner are unmarried, no matter how long they have been together, the partner receives nothing. Spouses and biological children typically receive a share. This may leave the surviving spouse without enough money to live on. If the children are minors, the court will control their inheritance and when they reach the age of majority, the children receive the entire inheritance.

 Why  is it important to have an estate plan ? By the time you reach your thirties, it’s likely you’ve accumulated some assets—maybe a home, a car, a savings account and some cryptocurrency. However, if you are like most millennials, even though you know you should have a will, you probably don’t. A recent article, “5 Reasons Estate Planning Is So Important” from The Baltic Times, reports a staggering 68% of millennials don’t have will or an estate plan. If you own anything, you need an estate plan. Here’s why.

A kindness to your family. A family can have great relationships. However, when someone dies and everyone thinks they have a right to the estate, fights can begin. Even if you’ve shared holidays throughout your lives, a court battle will put an end to your traditions. If there are divorced members of the family, it can become even more complicated.

A RI Estate Planning attorney can draft an estate plan to prevent these disputes before they begin. It gives you time to discuss your plans with beneficiaries. If you have difficult family members, you may want to have a conversation in your estate planning attorney’s office. The presence of an estate planning attorney often puts family members on notice: you’re serious about this and are not going to be manipulated.

Protection for beneficiaries. Not everyone wants their immediate family to be their beneficiaries. Let’s say someone is separated but not divorced. They want to be sure their children or other family members inherit. However, without a will, the spouse will still be first in line from a next-of-kin standpoint. An estate plan directs who you want to get your property.

There are other documents in estate plans, including trusts, to further protect assets. A trust can allow you to leave property for minor children in a trust and determine exactly when you want them to receive the assets. That may be over their lifetimes, or when they reach certain milestones.

Minimize taxes for the estate and beneficiaries. Certain states have estate taxes and inheritance taxes. Even if the value of your estate doesn’t reach current federal estate tax exemption levels ($12.06 million for individuals in 2022), there may be other estate taxes you could avoid or minimize through estate planning.

Intestacy statute law. If you don’t have a will, the state has one for you, but you may not like it. Each state has what’s called “intestacy” statutes which direct how estates should be distributed when people don’t have wills. If you didn’t want your immediate family to inherit your property, it won’t matter if you don’t have a will. The partner or close friend who may be your family of choice won’t have any ability to challenge the law.

Peace of mind for you and your loved ones. Creating an estate plan establishes a legally enforceable blueprint of what you want to happen to your assets. If you have minor children, an estate plan is used to name the guardian you want to raise your children. Your estate plan also names who you want to make decisions for you if you become incapacitated through a Power of Attorney, and who may make healthcare decisions for you—Health Care Power of Attorney.

Once you have your estate plan done, you’ll find a worry you didn’t even know you had has lifted. You’ve done the right thing to protect yourself and your loved ones. It’s a good feeling to know that you’ve taken care of those you love.

WHAT EXACTLY IS AN ESTATE PLAN, AND WHAT SHOULD IT CONTAIN?

An estate plan is a collection of legal documents that gives you control over what happens to you, your assets and any dependents you may have if you become disabled or when you die. The plan can include a will, power of attorney forms, trusts and more.

KRDO’s recent article entitled “An estate plan is the best way to plan for the worst. Here’s how to create one” says that having an estate plan is like carrying the umbrella for the inevitable rainy day.

A will. This is a written statement of who should get a deceased person’s assets. A will can also name who will assume guardianship of minor children. The requirements for a will to be deemed valid vary state to state. You should consult with an experienced estate planning attorney to make certain that yours is legally binding. Without a will, state intestacy laws govern who receives your assets.

Power of attorney. A health care power of attorney form grants permission for someone else to make decisions on your behalf if you are unable to do so. The financial power of attorney names a person to manage your finances should you be unable to yourself.

Trusts. A trust is an agreement to hold assets for the benefit of another person. Parents create trusts to ensure their assets are properly allocated to their children. Without a trust, the children might inherit all the money at once.

Life events — like turning 18 and going to college, getting married, changing careers, or moving states — often trigger estate planning. Pregnancy is also a good time to begin the process. Work with an experienced estate planning attorney to ensure that your documents are legally correct. In addition to updating an estate plan after a major life change, you should review your plan very few years.

What about loved ones with disabilities?

Parents in Rhode Island with children who have special needs know they play a pivotal role in their child’s medical, social, emotional and mental health. They also face the challenges of figuring out government assistance programs like Medicaid and how these and other programs provide much-needed help throughout a child’s life. Another important way that parents of children with special needs help is with the creation of a Rhode Island special needs trust, as explained in the article “Special Needs Trust (SNT): What It Is and How It Works” from Forbes.

A special needs trust is used to hold assets in an account to be used to support an individual with special needs. The funds belong to the trust and not the individual, so they are not factored into their eligibility for government benefits.

SNTs are typically set up by a parent, grandparent, or guardian. The person who sets up the account, called the “grantor,” funds the account, as may any other individuals who wish to provide for the child.

The grantor names a trustee, or a third party, who administers the trust. The trustee is a fiduciary and must act in the best interest of the beneficiary. Funds are to be distributed in accordance with the directions in the trust. The trustee will be responsible for distributing funds, following government benefit rules and requirements, and managing tax obligations, among other things.

Parents are often the trustees, although others, like siblings or close relatives, may also be trustees. Parents who are both grantor and trustee generally name a successor trustee to take over after they die, become incapacitated or resign from their role.

A person who may not be able to support themselves due to a medical condition or a disability can gain financial security from an SNT.

Someone with special needs is likely to rely on means-tested government benefits, like Supplemental Security Income (SSI) or Medicaid. These benefits are only available to people with limited income or assets. Anyone receiving SSI, for example, may not have more than $2,000 of countable resources.

A parent who wishes to provide support after they die must plan in advance, so their bequest does not result in the person losing their benefits. This could happen if money is left through anything except a special needs trust. An estate planning attorney will know how to structure the parent’s estate plan to protect the individual with special needs and their government benefits.

Assets in an SNT can be used for a wide variety of expenses, including out-of-pocket medical or dental expenses, personal care givers, rehab services, education, vacations, and other permissible uses.

There is a lot of complexity involved with creating a special needs trust. For one, there are several different kinds of SNTs. You’ll want to select the one best suited for your family. Laws about means-tested benefits vary across states, so you’ll need to work with an estate planning attorney familiar with the laws of your state.

A well-drafted estate plan, incorporating a special needs trust, will provide your loved one with the resources to maintain as much normalcy as possible as they adjust to life without their parents.

An estate plan can take little time to draft, perhaps a week or two with an attorney, who will work with you every step of the way. Don’t put this important task off

What happens after the death of a Spouse or loved one?

Kiplinger’s recent article entitled “A Checklist for What to Do (and NOT Do) After Someone Dies” provides some worthwhile information to help you if you are faced with a death in the family and must organize the next steps.

Contact the funeral home. You need to make arrangements and ask them for 10 additional copies of the death certificate.

Call your attorney. They can help with the process.

Contact Social Security. Your Social Security benefits may change after a spouse’s passing, so you’ll need to notify them.

Cancel their health insurance. If insurance is provided by the spouse’s former employer, you will need to contact them.

Contact the spouse’s pension company (if applicable). Depending on the pension plan option originally selected by your spouse, you may be eligible to get payments.

Contact the life insurance company and file a claim. This is a very easy process. Do this right away to receive the proceeds of the policy.

If your spouse one was a veteran, contact the Department of Veterans Affairs. Check with the VA to see if there are any benefits payable to you.

Notify all your financial institutions. Contact banks to change account names; credit cards to remove spouse or close accounts; mortgage companies, insurance companies and all other important bills to change them to the surviving spouse’s name only.

Contact your CPA. You will need to discuss taxes for this year.

Contact your financial adviser. You will need to change account titles, file beneficiary paperwork for IRAs, 401k(s) and other retirement accounts.

Retitle assets. Assets like real estate or cars in the spouse’s name should be retitled.

Prepare and probate the estate. If the estate doesn’t qualify for simplified procedures, then the assets must go through probate. Ask an attorney to help you.

Contact our Rhode Island Estate Planning Attorney today or Book a call with us.

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