Archive for Estate Planning

RULES OF THUMB FOR ESTATE PLANNING Recommended by Paul Ferraresi

I found this great article on estate needs by Russell W. Hall in the Bellaire Buzz, July 2017

To save you a phone call, I’m going to share my rules of thumb.

College students don’t need wills; they just need to give their parents a medical power of attorney. Free ones are available at texasprobate.com/consumer-forms/disability-planning-forms/.

College grads need a will and business and medical powers of attorney. Use a real lawyer, one that explains beneficiary designations. The first day on the job, HR is going to have the new hire designate beneficiaries that may control life insurance and retirement benefits for the rest of the employee’s life. Get it right.

Newlyweds need new will and powers of attorney. If children are even remotely possible, include contingent trusts. Update all beneficiaries according to the attorney’s instructions. Never designate minor children as contingent beneficiaries.

How much are you worth dead? If as much as $1 million per child, it’s time for new wills, with lifetime generation-skipping transfer tax planned trusts for descendants.

Are you married and worth $5 million? Add tax-planned trusts for the surviving spouse. If not, and one spouse is not a U.S. citizen, do it anyway.

Are you asset rich, but cash poor? This happens to entrepreneurs and real estate investors. Children cannot eat real estate. An irrevocable life insurance trust might be the ticket to add liquidity. For normal people, it’s overkill.

Do you have more money than you need? Give it away. This is where the family limited partnership comes in. If you own the general partner, typically a limited liability company, you can maintain control even while you give the kids the other 99 percent. Five million dollars in assets is a reasonable minimum to form a family limited partnership.

Finally when disability is imminent, or at least feared, consider a revocable intervivos trust, so-called living trust. Asset management is easier than with powers of attorney.

Insurance You Should Have by Paul Ferraresi

Most people try to buy the least amount of insurance in all areas hoping to save on premiums. But penny wise may be pound foolish…

Here is a short article written by Russell Hall. I suggest you share this with friends and family.

Most discussions of insurance and estate planning focus on the value of life insurance to your heirs. Not this one. Instead, let’s consider insurance to protect your income and assets now, and to shield your executor later.

What happens if you’re in a car accident with serious injuries or death – and it’s your fault? Expect to be sued, and to pay a large judgment. Every driver is at risk of losing bank accounts, stocks, bonds, mutual funds, rental property, and other non-exempt assets to a lawsuit.

In Texas, you may keep your homestead, pension, retirement accounts, annuities, and life insurance. However, cash distributions are not exempt, and may go to the alert creditor. You may have substantial non-exempt assets, but what good are they if you cannot spend them?

As a rule of thumb, carry liability insurance equal to your non-exempt assets plus five to ten years of income. Suppose you have a home, an IRA, a modest checking account, and $300,000 in CDs. The home and IRA are exempt from creditors’ claims. The CDs are not. That suggests at least $300,000 in liability insurance. If Social Security and IRA income total $50,000 a year, another $250,000 to $500,000 in liability insurance is indicated. Even someone of modest means may want $500,000 to $1 million in liability insurance.

The typical automobile or homeowners’ policy offers no more than $500,000 in coverage. However, our agent can often provide an inexpensive umbrella policy from the same carrier with limits of $1 to $5 million, which is more than enough for most people.

Suppose you stop driving, pay off the mortgage, and die, judgment-free, without any liability insurance. Who cares at that point? Your executor should. An executor is a fiduciary with the most dangerous, thankless task known to law. They must collect all your assets, pay all your debts, distribute the remainder to your beneficiaries and make no mistakes. As one summarized it, “Whatever happens, it’s the executor’s fault.”

Both liability and property insurance will go a long way to protect the executor, and, ultimately, your heirs. New executors should review the estate with an insurance agent. Existing policies may be adequate. If not, the executor may obtain insurance at the estate’s expense. Better though, that you yourself review your insurance, and develop a plan to protect yourself in retirement. Doing so minimizes everyone’s risk, and leaves one less task to be done when you’re gone.

Power of Attorney by Paul E. Ferraresi

Powers of Attorney (POA) have become useful for disability planning. This tool is useful when someone cannot manage their own finances.

Unfortunately, most people do not keep their POA up to date. Yes, someone that they have granted the “power” to may have died, or, they themselves become mentally incompetent.

Another issue is that when one may become mentally incompetent, then, the POA tool is ended. To correct this make sure you have a “Durable Power of Attorney” (DPOA).

Keep in mind each state has its own rules and regulations on DPOA so check it out before proceeding.

As a backup and in conjunction with a DPOA, consider establishing a Revocable Living Trust for the management of all your assets.

As always we are here to guide you in all your financial planning needs.

Picking An Executor

If you make a Will, you get to pick your own executor. After you die, the executor’s job is to probate your Will, collect assets, pay debts, and distribute the remainder to the beneficiaries. The job is typically done within a year or two, depending when the final income tax return is filed.

It’s a tough job, but not an impossible one. Few executors can do it all, but they’re allowed to hire help. The executor usually uses an attorney for probate, and often a C.P.A. for tax returns and an accounting for the beneficiaries.

Most people name their spouse as executor. If the kids are old enough, they name the kids as alternates, one at a time, in birth order. If the kids are too young, they name family friends or close relatives as alternates.

Medicaid and other government-benefit recipients should not be named executor or trustee if that might destroy eligibility. If you don’t know any responsible, qualified adults, you can name a corporate executor. They charge more, but can be worth it, either as sole executor, or as a co-executor with a spouse or child.

A named executor is not required to serve. It’s okay to name your 70-year old father, because he’s allowed to step aside for someone younger. Most Wills allow compensation. Most executors refuse it. Testators tend not to name anyone who needs the money.

These are just a few things to consider. Each state has different rules so get legal help before doing anything.

Medical Power of Attorney

Most people do not think about a Medical Power of Attorney (MPOA) until it is too late. Recently a wife asked her husband, “When you get dementia, do you still want a flu shot”?

If someone has a MPOA why do they have to ask anything. **Each state has its own rules for MPOA. Check with your personal attorney. This is an example under Texas Law Chapter 166, Subchapter D of the Texas Health and Safety Code. The MPOA appoints someone to make medical decisions when you can’t. Your medical agent has no authority until the attending physician certifies in writing that you are incompetent. You may still object to your agent’s decision to give or withhold treatment. You are in charge as long as you can communicate.

Your medical agent is supposed to make the decision you prefer, not the one he or she prefers.

The American Bar Association offers a Tool Kit for Health Care Advance Planning. Tool #7, The Proxy Quiz for Family or Physician is the one to take. To get a copy start at eepurl.com/8YXVb. Take the quiz with your spouse (or your agent). You may find similarity in some of your wishes, or it may need more discussion. Start on it today. Do not wait until after the fact.