Archive for Estate Planning

Sign these Important Papers

Most Americans, regardless of age, avoid thinking about sickness or death with the hope that it will never happen. None the less one need to be practical in their thinking. Here are some important papers you must have completed.

Advance directive: A living will, a type of advanced directive, tells loved ones and medical personnel the treatment you want or don’t want should you be unable to speak for yourself due to accident or coma.

Durable power of Attorney for health care : Often included in an advanced directive designates your choice of who can make medical decisions for you when you cannot.( you may want to laminate this and put it in your wallet and/or hold it in an electronic storage that family members have access).

Will: With a Will you can head off potential family squabbles by spelling out who gets what. For those with asset values over $100,000 we always suggest a Living Trust that contains a Pour Over Will.

Durable Financial Power of Attorney: Not all of your assets can be in a Living Trust. If you are alive yet incapacitated, the only way a person chosen by you can access an IRA, pension or other financial account on your behalf is through this document. Many brokerage accounts have their own forms so better check with them to see if they are needed also.

This is just a start. In many cases you can get these forms online for a low fee. If you want to be certain you are doing it correctly in your state it is worthwhile to hire an attorney.

Administration and Probate

Everyone hates probate. Someone dies, someone else goes to court, and, after delays and expenses the assets are distributed. Why go through this unnecessary time and expense?

Probate assets include house, cars, bank accounts, timeshares, mineral interests, rental property and certified securities. Most banks and title companies will NOT allow transfer of these assets without a “letter” issued by the probate court.

On the other hand , non probate assets transfer immediately. All you need is a death certificate. No lawyer, no probate , no delays.

There are 3 simple ways to create non probate assets. First,, a single owner can list out a beneficiary. Examples are for life insurance, IRAs, brokerage accounts and internet bank accounts. Second, an account can be set up as joint ownership with right of survivorship. Each owner must agree and no owner can be removed without every other owner’s consent. This is a easy way to do things but has many pitfalls.
Third a Revocable Intervivos Trust, aka, Living Trust may be set up. Under this arrangement all your assets are owned by the trust which never dies until you say that it dies ( ends or terminates). You still have full access to all the assets. Thus there is NO need for Living or Death Probate since you do not have any assets in your name.

All of these methods can work. My favorite is a Living Trust for anyone with over $100,000 in assets. Get the book, “The Loving Trust” by Esperti and Peterson for a great down to earth explanation of all 3 above listed methods.

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.