Tag: Estate Planning

What Happens If I Die Without A Will?

If you don’t have a Last Will and Testament (or more simply known as a Will) in place yet, you’re not alone. I can anecdotally confirm this through my casual observations as a financial planner.

Not having a Will is a problem because it — along with other estate planning documents — is what’s used to inform the courts of how you want your estate divided when you die.

What’s Considered My Estate?

Your estate consists of all the property you own, including real estate, personal property, bank accounts, retirement accounts, and life insurance policies.

Each of these asset types is titled in order to inform the courts how they are legally owned — individually, with someone else, or held in trust — and helps determine how to distribute them at your death.

What Happens When I Die?

When you die, your estate will go into probate, which is a legal process where your property is transferred to your heirs according to how you requested it to in your legal documents. But what if you die without a Will? Or as legal people like to put it “intestate”. Then the court gets to decide how to divvy up your estate.

Every state has different succession rules they follow. To give you a general idea of how it works, here is what it looks like in Indiana.

I am not providing legal advice. This is purely a diagram of my understanding of Indiana’s intestate succession statutes.

You Need A Will. Seriously.

As you can see, things can get complicated in a hurry. Even a simple situation like just a spouse and kids becomes problematic because half of the estate is given to the children outright. As one of my attorney friends puts it, “It’s a freaking mess and a good example for why everyone needs a Will”.

I know thinking and talking about your eventual demise is depressing but seriously, if you haven’t done any estate planning yet, I highly encourage it.

There are numerous resources on the web that can help you draft the basic documents you’ll need, however, nothing beats sitting down with an attorney to craft them with you.

By hiring an estate planning attorney, you’ll be able to avoid the pitfalls and potential headaches of trying to do it yourself. 

When Should I Update My Estate Plan?

There are many different documents that can make up an estate plan. Some of these documents include last wills and testaments, a living will, a revocable living trust, power of attorney, and even a digital estate plan.

Having an estate plan can give you peace of mind that you’ve taken the necessary steps to protect your loved ones in the event that you pass away, or enable them if you aren’t able to take make decisions on your own anymore.

But the estate planning process isn’t a one-time thing. Life brings changes and your estate planning documents will need to change with it. If your plan isn’t revisited and revised, then it may not accomplish the goals that you want it to.

So when is it appropriate to update your estate plan?

When You Should Update Your Estate Plan

It may seem pretty obvious, but the best time to update your estate plan is when you have any major changes in your life.

Some common life events that can spur revisiting the documents include:

Marriage And Divorce

Whether you’ve just tied the knot or parted ways with your spouse, you should review your estate plan.

Make sure your new spouse is included in your estate plan or your ex-spouse is removed from it. Do this as soon as possible to ensure your finances are in line with your wishes.

If you pass away before your estate plan documents are updated, you risk your assets being distributed in a way that you wouldn’t want. For example, if you get a divorce and pass away before your will is updated, your ex-spouse may be entitled to some of your assets.

Children

One of the most common reasons for updating an estate plan is changes that occur within a family such as having a new baby, adding stepchildren, or your children simply getting older.

If you’ve remarried and had children from your first and second marriage, you will want to address this in your estate plan. This also goes for any stepchildren that you would like to include in the distribution of your estate since they’re usually not included by default.

If your children have reached the age of 18 or the age of majority in your state, they no longer need to have a guardian and this language can be removed from the documents. You may also wish to add your adult children as your personal representative or durable/health care power of attorney at that time.

Named Individual (Fiduciary) Changes

When you review your estate plan, you should check the people you’ve listed that are going to be responsible for making decisions on your behalf. These include:

The individual(s) named above as your Personal Representative (and successors) will handle the settlement of your estate after you pass away. The term “executor” is an older word for the same role.

The individual(s) named above as your Trustee (and successors) will handle your trust assets while you are disabled and after you pass away. Assets that are not inside your trust will be handled by your Power of Attorney (next section) while you are still living.

The individual(s) named above as your Attorney-In-Fact and Health Care Representative (and successors) will make financial and health care decisions for you while you are still alive but unable to make such decisions on your own. 

Federal, State, and Tax Law Changes

The tax law is constantly changing so this is something you will need to take into account with estate planning. Take for example the SECURE Act, which went into effect on January 1, 2020. Many individuals who own IRAs and 401(k)s will need to make changes in their estate plans to address the impact of that legislation on inherited accounts.

Also, if you move from one state to another make sure your documents follow all local and state laws. You should review your plan documents with an estate planning attorney in your new state to ensure compliance with all the laws of that state.

review Your Estate Plan often

Understandably, trying to remember to review your estate plan when things change isn’t always easy. The truth is, most people don’t keep their estate plan up-to-date all the time.

For this reason, it is good practice to review your estate plan every 3 to 5 years or set aside a specific time each year to do a quick check-in, such as the new year or during tax time.

ABLE Account or Special Needs Trust

If you want to give assets to a loved one with a disability either during your lifetime or through your estate, you must plan carefully.

Otherwise, you could jeopardize their ability to qualify for public benefits (Supplemental Security Income and Medicaid).

While owning a house, car and other personal property does not negatively affect their benefits, most financial assets, including cash in the bank, will disqualify them from receiving benefits. And the current cap in order to qualify for public benefits is a mere $2,000!

Fortunately, there are ways you can leave assets to a family member with a disability while preserving their eligibility for Medicaid and other assistance.

SPECIAL NEEDS TRUST

A Special Needs Trust (SNT) is the most well-known strategy for helping a loved one with a disability while ensuring they continue to qualify for public benefits. This works because assets are left to the trust, not the disabled family member.

Within the trust document, you will appoint a trustee who will have complete discretion over the trust assets and will be in charge of spending money on your disabled family member’s behalf.

The trustee cannot give money directly to your loved one — that could interfere with eligibility for public benefits — but the trustee can spend trust assets to buy a wide variety of goods and services for them.

Special Needs Trust funds are commonly used to pay for personal care, vacations, home furnishings, out-of-pocket medical and dental expenses, education, recreation, vehicles, and physical rehabilitation.

529 ABLE ACCOUNTS

The ABLE Act was signed into law in 2014, creating 529 ABLE (529A) accounts to provide a tax-advantaged vehicle for saving assets for disabled individuals.

The accounts are sponsored by states, but there are no residency requirements to enroll. Some states offer tax deductions for contributions but amounts and rules vary.

ABLE accounts can be created and managed by the beneficiary, subject to capacity. If they need assistance, the account can be established and/or managed by their parents, conservator/guardian or agent under a power of attorney.

Money in the ABLE account (up to the first $100,000) will not be subject to the $2,000 personal asset limit that determines eligibility for public benefits.

Another major benefit of the 529A account is its taxation. Unlike a Special Needs Trust, money coming out of a 529A account is tax-free if it’s going toward a qualified disability expense.

Qualified disability expenses include basic living expenses, housing, education, transportation, employment training and support, and health care prevention and wellness — but does not include supplemental expenses such as vacations or personal grooming.

Something to be aware of is that if the money in the 529A is used for non-qualified disability expenses, the earnings portion of the withdrawal would be subject to regular income tax and a 10% penalty.

In those states that have adopted special state income tax benefits, non-qualified withdrawals might also incur additional state tax penalties.

Which to Choose?

One of the primary aims of the ABLE program was to provide a solution for disabled individuals who do not have the support structure and financial means to create a Special Needs Trust.

ABLE accounts are a less expensive alternative to a Special Needs Trust as the fees are nominal — generally limited to maintenance and charges by financial institutions.

There are also several circumstances in which an ABLE account may be particularly useful. For example, an ABLE account would allow an individual with disabilities to save unspent work earnings or Social Security benefits for a future purchase without violating the general rule that the recipient of SSI and Medicaid cannot accumulate more than $2,000.

However, for most individuals with disabilities, an ABLE account is not a substitute for comprehensive Special Needs Trust planning.

Since they each have their own nuances that seem to pair well the other, the 529A and Special Needs Trust should be used side-by-side for families with disabled children and adults.

For example, a carefully drafted SNT can authorize the trustee to transfer money into the beneficiary’s ABLE account to maximize the benefits of both tools simultaneously.

Obviously, when trying to decide whether to establish a Special Needs Trust or an ABLE account, you should consult a special needs planning attorney about the suitability of these savings tools based on your own circumstances.

For help finding a special needs planning attorney, visit https://www.specialneedsalliance.org/find-an-attorney.


Dealing With Loss and Having a Plan

As a financial planner, I’ve seen grief come from a variety of situations: the death of a loved one, separation from a spouse, loss of a job, changing jobs, a serious illness, and even the death of a pet.

When dealing with the death of a spouse specifically, the grieving process takes time and there is no “normal” time frame for grieving.

Whatever your grief experience, it’s important to be patient with yourself and allow the process to happen naturally. And while there is no right or wrong way to grieve, there are healthy ways to cope with the challenges of the loss.

Get support and take care of yourself

One of the most important factors in recovering from the loss of a spouse is having the support of other people.

You should lean on the people who care about you, even if you take pride in being strong and self-sufficient. Embrace loved ones, rather than avoiding them, and accept the assistance that’s offered.

When you’re grieving, it’s more important than ever to take care of yourself. Combat stress and fatigue by getting enough sleep, eating right, and exercising.

You can try to suppress your grief, but you can’t avoid it forever. In order to heal, you have to acknowledge the pain. Trying to avoid feelings of sadness and loss only prolongs the grieving process.

If you find yourself turning to unhealthy ways to cope with the pain, you should contact a therapist for professional help.

Have a plan

I have found that having a plan in place greatly reduces the amount of stress in the event of a loss of a loved one, resulting in more time available to grieve and less time worrying about stressful decisions.

My goal as a financial planner is to develop a comprehensive financial plan that covers all aspects of a client’s life, and I make sure that they are prepared for a sudden life-changing event such as the loss of a spouse.

If you don’t have an expert to assist in creating a plan, you will want to make sure you have at least the basics in place before the death of yourself or a loved one.

Below are some common things you will want to consider before and after a loss.

Before:

  • Use a password management system – Begin using a secure password system to manage your various online accounts, email, and other online services. A summary of these services can be accessed at this link: Password Managers.
    If you are not comfortable with online technology tools, ensure your various passwords are complex, secured, and accessible to family members. This will also help ensure that you or your family is not locked out of access to important accounts and services online in the event of death or disability. 
  • Create an estate plan – Contact a trusted estate-planning attorney to help you draft the documents needed to ensure your wishes are carried out in the event of your death, and that you are well cared for in the event of your disability. 
  • Plan your funeral – Your family will be in a fragile state emotionally when you pass away. It may be difficult for them to negotiate funeral costs at that time. Solve this issue by planning your funeral today. You can even prepay for your funeral if you want. Visit a local funeral home to discuss it.

After:

  • Get multiple copies of the death certificate – You should go to the city clerk’s office and get certified copies of the death certificate. It is best practice to get numerous copies because of the various institutions that require them in order to release funds or close accounts.
  • Decide what to do with life insurance proceeds – If you work with a Certified Financial Planner (CFP), you should have a general idea of what you will use the money for and where to hold it. But many times it can be overwhelming to receive a large check in the mail. You could deposit it in a checking or savings account, but remember, your FDIC coverage is now only $250,000 per institution.
  • Notify Social Security –  The agency can put the deceased person on the Social Security Master Death Index. This prevents would-be fraudsters from collecting the loved one’s Social Security payments. It also helps stop identity thieves from opening accounts in the name of the deceased individual, because the person’s credit reports will be flagged.
  • Transfer accounts – You’ll want to transfer accounts from your loved one’s name into your own. This not only covers bills such as the power, electricity, and water, but also financial accounts such as bank accounts, IRAs, 401(k)s, etc. Since every state has different mandates, be sure to check what type of legal filings, if any, are necessary in the state in which a family member has died, as well as any state where the individual owned property. Your CFP and estate attorney will be incredibly valuable during this transition.