ESTATE PLANNING: Planning for your children's education

Recently a fellow attorney in Indiana penned a thought provoking post on planning for your children’s education.  I enjoyed it, and I share it below with you.  The author is Chris Yugo writing a column for The Times in northwestern Indiana.

I just finished reading a book by Michael Schumacher called the "Mighty Fitz: The Sinking of the Edmund Fitzgerald."

As the title implies, the book chronicles the story of the Edmund Fitzgerald, a huge ore caring vessel that sank in Lake Superior in 1975. Except for what I learned from the Gordon Lightfoot song, "The Wreck of the Edmund Fitzgerald," I really knew very little about the ship and its sinking.

Although you might imagine that book about a shipwreck would end with the ship's sinking, the book actually picked up from there to discuss the investigation and how the families of the men who were lost came to terms with the tragedy.

One thing that caught my attention was a section dealing with the children of the sailors. In particular, it discussed how Eugene "Red" O'Brien, a wheelsman, encouraged his son to attend college and get an education by establishing a trust for his education. According to his son John, "It made me stay in college because it was my job. I was getting paid. Here was my dad, a guy with limited education, working on the lakes. Yet he had the insight to do these things"

The book didn't go into too much detail about the terms but according to John, he received a monthly stipend as long as he remained in school.

The great thing is each of you can do the same thing to encourage your children and grandchildren to attend school. Now some of you might be saying, "I'm having trouble just keeping the mortgage current. There is no way for me to establish a trust fund."

In today's economic environment, I certainly understand that. However, you can still plan now without actually setting anything aside. You can set up a trust for your loved one's education within your will. A trust established within a will is a testamentary trust.

By using a testamentary trust, you don't have to fund it until your death. At that time, it can be funded with the savings account or the proceeds from the sale of the home or from life insurance or retirement accounts. If the funds are available at your death, the trust will fund. If the funds aren't available at your death, then the trust won't fund and you haven't lost anything.

Since you create the trust, you can choose the terms. For example, you can restrict the funds to only be used to pay for tuition, fees and books or it can pay any legitimate educational expense including room and board and perhaps a living allowance. You can make the terms as restrictive or unrestrictive as you please. So be creative.

I'm pretty sure Red didn't plan on being lost at sea. However, he did have the foresight to plan, which enabled his son to get an education. Even if you don't work the ore carriers on the Great Lakes, you should still have a plan.

Please note:   Opinions are solely the columnist's, and his information is meant to be general in nature. Specific legal, tax, or insurance questions should be referred to your attorney, accountant or estate-planning specialist.

Remember, I am the attorney who is available to address specific issues related to planning for your children’s education and other estate planning matters.  Please call me or post a request to meet in the COMMENT section of this blog post. 

 

It doesn't have to have monetary value to be important to your estate

SmartBusiness recently highlighted the fundamentals of a “well-thought-out estate plan,” with topics that everyone should consider – whether prince or pauper.

One of their interesting points was that if you are working with an estate planning attorney, most likely the important areas are going to be properly addressed, including the impact of pending changes in estate taxes. However, I’ve found that many people overlook making arrangements for their personal effects, including jewelry, art work and collectibles. They simply assume that their loved ones will be able to agree on how to divide it all up. In my experience, these things are what people argue over the most.

Not long ago, there was a case involving two brothers who litigated for three years over the ‘stuff’ left in their mom’s house. They ended up spending over $50,000 on attorney’s fees fighting over items that were appraised for only $5,000. To avoid this happening in your family, draft a Memorandum of Understanding and attach it to your will. The Memorandum can be very simple, but it should also be very specific in detailing your wishes. Hold a family meeting to identify what your children want, and incorporate that into the memo.

As your circumstances change and evolve over the years, your plans need to be kept current. Don’t forget about external factors such as tax law changes and fluctuations in the value of real estate.

Few people sit down, annually, and take stock of their estates. But if you do, millions of dollars can be saved and much heartache can be avoided.

If you have questions, let’s meet and talk.  My goal is to provide you with helpful information for creating, implementing, and updating your estate plan to serve your wishes.  And our mutual goal will be creating an estate plan that will succeed when it is called upon to take you and your loved ones through life’s inevitable transitions.

 

 

 

Hiring a caregiver is trickier than you think

Recently my estate planning colleague in Hawaii, Scott Makuakane, posted these helpful comments on engaging caregiver(s) for those needing such services.  As with so many things in today’s world, it is not as simple as it seems.  I share this information with you as a “heads up” for when such a need may arise within your family. 

If you are hiring a caregiver for yourself or another loved one, you may be tempted to try to make the process as simple as possible by treating the caregiver as a "private contractor."  You tell the person "I will pay you so much an hour, and you deal with the IRS and the State when it comes time to pay taxes."  After all, taking on the responsibilities of withholding taxes (and then paying the taxing authorities), buying Worker's Compensation insurance, paying Social Security and Medicare tax, and all the rest, may seem daunting if you have never done it before.  Be aware, however, that the IRS and the State when it comes time to pay taxes."  After all, taking on the responsibilities of withholding taxes (and then paying the taxing authorities), buying Worker's Compensation insurance, paying Social Security and Medicare tax, and all the rest, may seem daunting if you have never done it before.  Be aware, however, that the IRS and the State will probably take the position that the caregiver is an employee, that you are an employer, and that all of the legal obligations that attach to those labels are applicable to your situation.

IRS Publication 926 gives very helpful guidance to those hiring household employees, including caregivers.  You would do well to go through that publication and consider all of the questions it poses, several of which might never occur to you.  For example, can your prospective caregiver legally work in the U.S.?  How do you verify that, and what records must you keep to prove that you satisfied your obligation to verify the caregiver's status?  On that subject, you can find all of the information and forms you will need at the U.S. Citizenship and Immigration Services website.

Depending on your budget and the number of caregivers you will need, it may make sense to look into local employment or caregiver agencies.  This simplifies your job, because you can contract with the agency, and the agency will be the caregiver's employer and will deal with all of the details of being an employer.  You will pay a premium for this kind of service (in other words, you will have to pay significantly more per hour for the caregiver's services if you deal with an agency than if you dealt directly with the caregiver), but the agency's experience and employment expertise may make the extra cost seem like a bargain.

Another set of issues arises if you opt to be the employer of a caregiver, and then your employee is injured on the job.  If you have made sure to carry the right kinds of insurance, you will be fine.  However, the consequences of failing to do so can be financially disastrous.  An agency will probably carry Worker's Compensation insurance, but you should be sure to talk with your personal insurance professional to find out if there is anything else you should do to protect yourself through your homeowner's and umbrella policies.

The bottom line is that you should not hire a caregiver without carefully considering your legal responsibilities and potential liabilities, and making sure they are addressed.  Ask your trusted advisors--your CPA, your lawyer, and your insurance professional--for guidance, and check out the resources cited above.  You will be glad you did.

I would hope you would give me a call prior to your engaging a caregiver.  A few precautions can be very beneficial for the longer run…..and likely protect your estate.  Please call me, or email me, or post a request to meet in the COMMENT portion of this blog. 

FINAL INSTRUCTIONS

Recently one of my estate planning colleagues, addressed the importance of "Final Instructions".  This type of information is similar to an instruction manual that steps us through arrangements that we should address in advance of the inevitability of our passing.  We rarely get an instruction manual at birth, but we surely can leave one before our departure from life.  My thanks for this post goes to Ellen Gay Moser who practices estate planning in the state of Illinois.

Your “instruction manual” for your children or survivors should begin with the basics.  First, do you have a Trust and Will?  If so, have you written instructions for your kids (survivors) to follow at your death or disability? 

In regards to your estate, are you concerned about probate and taxes? If so, you have done a good job to provide for your heirs and save unnecessary costs, fees, and taxes. If not, you  may be leaving your kids  with no clues as to what to do and no instructions  for them to follow.  It's a well known habit that when all else fails, we read the instructions. But if we are left with no clues or instructions, what do we do? We waste a lot of time and money that tends to diminish your estate.

If you have a Trust,  then you  likely already have an instruction manual  stating your goals as to who gets what and when they get it. The duties of your Successor Trustee are set forth in your  Trust document and it is his/her fiduciary responsibility to abide by the law and the Trust. The Trustee must collect and manage assets, pay your debts and taxes and seek advice of counsel. Your goals to protect your loved ones can be carried out, if you state your goals loud and clear in your Trust.

Your “Final Instructions” may include specific distributions of special stuff /memorabilia/heirlooms/investments/etc  to go to certain people. Instructions will  often  include tax planning for married couples, disability planning when you become unable to manage your financial affairs prior to death, and who you want to be in charge of your property when you die or are disabled. Provisions may be made in your trust for protecting your children from predators and special instructions will protect your disabled children.

Do you have a plan to protect your children in the event your surviving spouse remarries? Do you care if a child is disinherited? Do you want to protect a spendthrift? If you plan your Will and Trust with lots of “baby sitter” instructions, your children may be protected for life, and your grandchildren too.    At the minimum,  Final Instructions are important to avoid the consequences of doing nothing.  I encourage you to take the time now to meet with an estate planning attorney such as myself to create or review your Final instructions. 

Give me a call, send me an email, or leave a comment on this posting, so I can respond in a helpful manner with information or to set a meeting discuss your  manual for “Final Instructions.”

Three Classic Estate Planning Blunders

As we push our way through Tax Month, we are reminded of the importance of the basics of estate planning.  My estate planning colleague in Hawaii, Scott Makuakane, recently posted the following article to revisit three areas we should avoid in estate planning. His article reflects the practical experience that comes his practicing estate planning and trust law in Hawaii since 1983.

 

Three Classic Estate Planning Blunders

Too often, estate plans fail.  Here are the three most common reasons.

1.   FAILURE TO PLAN.  You have heard that failing to plan is planning to fail, and it is true.  People procrastinate with their estate plans for a variety of reasons, one of them being the refusal of some of us to accept our own mortality.  Not to rub it in, but passing into the Great Beyond is not an “if,” but a “when.”  It will make a tremendous difference to your loved ones, your pets, and your favorite charities, if you have made a plan for what happens to your stuff (everything you own) when you assume room temperature. 

Your estate plan should also take into the account the possibility of your becoming incapacitated someday.  This is an issue that has become more and more important as advances in medical science have made it possible for us to live longer lives.  Unfortunately, medical science is still working hard to find the causes, and come up with solutions, to the various forms of dementia.  Although we live longer today than in years past, a growing number of us ends up needing long-term care.  It is absolutely critical to plan for how you and your loved ones will deal with the issues of long-term care, not the least of those issues being how you will pay for it.

2.   FAILURE TO IMPLEMENT.  Having a plan is great, but failing to implement your plan renders it all but worthless.  One of the primary ways people fail to implement their plans is to neglect to transfer their assets into the right “buckets.”  If you have a revocable living trust, it should probably hold most, if not all, of your assets.  Yet many people die with assets in their own names, which, in turn, results in costly and time-consuming probate proceedings that could easily have been avoided with some simple asset transfers. 

3.   FAILURE TO UPDATE.  Once you have set your course with your estate plan, you have to remember that even the best of plans will require course corrections.  Your health will change.  Your stuff will change.  The law will change.  The list of people you like and trust will change.  It is important for your estate plan to change so you can be sure that it will work as intended.  The best way to do this is through a regular discipline of reviewing your estate plan and updating it when necessary.

I’m here to help you avoid all three of these “blunder” traps.  If I can help, please contact me or leave a “comment” on this blog post.  As a trained estate planning professional, my goal is to guide and support you through the estate planning process. 

 

 

Financial Parenting Tips

Every parent is challenged to prepare their children for living meaningful lives and managing their affairs responsibly.  Here are a few parental tips to help set the tone for your children and their approach to handling the money you provide.

My thanks to my WealthCounsel colleague, Wayne Ball, for turning my attention to these financial planning tips first shared by his legal colleague in Little Rock, Arkansas -  Dee Davenport of Delta Trust.

·       Make money meaningful:  Good financial parenting could begin with an allowance that is tied to the completion of specific chores.  It’s important to teach children that money is the result of performance or effort.  It must be earned.

·       A sense of sharing: Give young children holiday gifts in three pieces: one piece to spend, one piece to save, and one piece to give to someone who is in need. Families report great results with this simple plan, and heirs remember the lessons learned and speak of them gratefully for a lifetime.

·       Give just enough:   The sage of Omaha, Warren Buffet says “Give your children enough so they can do anything, but not enough so they do nothing”. At the same time, mature children whose values are intact could do so much good in the world, not only for themselves and their families, but also for their communities.

·       Think long range:  Some of the most successful families have constructed “100 year plans” (four generations) to pass on both the family values and the family financial assets. Increasingly, families are engaging community members in their legacy development processes to assure the effectiveness of the gifts made.

These are just a few guidance tips for instilling many of the basic tenets of financial planning.  I hope you find one or more that you can incorporate into your parenting activities. 

For more formal estate planning strategies, I would enjoy meeting with you and sharing my experience and knowledge.  We can meet – just give me a call, or you can leave a comment on this post.

 

Estate planning for the rest of us

My WealthCounsel colleague, Suzann Beckett, offers an answer to one of the most often-asked questions I encounter in social gatherings. 

An acquaintance asked me about estate planning, not long ago. They weren't asking for professional advice, they were literally asking if I could explain what estate planning is, and how it might affect them. It's a good question, one that I wish more people knew the answer to.

First, it's worth knowing that estate planning is not limited to the DuPont's and Carnegie's among us. Admittedly, Bill Gates and Warren Buffet have amassed fortunes so large as to suggest that significant thought needs to go into the planning of their estates. But estate planning isn't just about money. It's also about security, philanthropy, and control of our own interests.

One aspect of estate planning includes our health care plans. Not only can estate planning help determine our eligibility for Medicaid benefits, it can also allow each of us to issue specific directives about our own future health care. Even if a health crisis leaves us unable to speak for ourselves at some point, our prior planning can provide documentation of our wishes, which enables us to maintain control of our own destiny, even if we are temporarily or permanently incapacitated.

In fact, our estate planning can extend to the appointment of a specific person to act as our health care representative, as well as our desire to donate organs upon your death. It isn't just about our money and holdings. It is in a very real sense about us, as people.

Yes, estate planning allows us to make decisions while  in our prime that will come into play even after we are gone (see my previous post about Ben Franklin). And more importantly your decisions are legally binding on those who may, or may not agree with our wishes. Remember, this is your own estate and your own life you are planning to protect.

Beyond health care, estate planning allows us to designate who speaks on our behalf should the need arise. Entering into a power of attorney allows us to appoint the person we trust most to oversee our personal business if we are unable to conduct our affairs ourselves. Many people assume that we must appoint our lawyer when we issue a power of attorney. And you certainly can do that if you wish to. But you can also give that authority to your spouse, or a child, or a close personal friend, or anyone else you wish. A power of attorney is yours to give, or revoke, at your discretion. Estate planning can help you enter into, or terminate a power of attorney, on your terms.

Perhaps the most commonly known aspect of estate planning is the drawing up of a will. But even that can be more far-reaching than most people realize. You have the opportunity to not only decide what happens to your holdings after your death, you also have the chance to establish a trust if you wish to, so that you can provide for the care of a family member, or another charitable cause that is important to you. Trusts can also be used to minimize a tax burden, in some cases. Estate planning can even allow an individual to develop a strategy to avoid probate on some holdings. A practice that allows a well planned execution of our wealth, no matter how big or small, that keeps it all in the family, for lack of a better term – rather than running the entire contents of our lives through the court system before it is distributed to our heirs, or whomever we wish it to go to.

The assumption that only the very wealthy have any need, or the even the option of engaging in estate planning, is incorrect. Almost anyone who has something of value to leave behind can benefit from estate planning. And even those who do not have significant wealth can benefit in terms of health care planning.

Each and every one of us has a unique situation to deal with as we walk through life. There is no blanket answer or master plan that will work for everyone under every possible circumstance. Perhaps the practice of estate planning would be more readily understood of we called it Individualized Planning, instead?

It's worth thinking about, at least.

Many valid issues are raised in this posting.  If you have questions related to any of the issues, please call me or leave a comment below, and I’ll get back to you.