Johnson County Estate Planning

Should You Add Someone to Your Bank Account?

“I know of someone who was joint account holder with his dad for many years, then later his dad then appointed him as power of attorney. How does that work? Is the son still a joint account holder?”

Adding another person to your bank account provides both of you with complete access to the account. A person can be a power of attorney and a joint account holder, but the two are very different roles, explains the article “What are my rights when someone adds me to a bank account?” from Lehigh Valley Live.

A joint account is a bank or investment account shared by two individuals, although more than two people may be on an account. They have equal access to funds, as well as equal responsibilities for any fees or expenses associated with the account. If there are transactions, depending upon the rules of the institution, all owners may be required to sign documents. The key is how the account is titled. That’s the controlling factor in determining how the assets in the account are divided, if one of the owners dies. There are several different types of joint ownership.

One is “Joint Tenants with Rights of Survivorship,” or JTWROS. If one of the account owners should die, the assets in the account go directly to the surviving account holder. These assets do not go through probate.

Then there’s “Tenants in Common,” or TIC. With TIC, each individual account owner has the right to designate a beneficiary for their portion of the assets upon their death. The assets might not be split 50/50. How the account is titled lets the account owners divide ownership however they want.

Another one: “Joint Tenants by the Entirety.” This describes a married couple who own real estate or a financial account as a legal entity with equal ownership. Neither person may transfer their half of the property during their lifetime or through a will or a trust. When one spouse dies, the entire account goes to the surviving spouse and it transfers without passing through probate.

In the example given at the start of the article, the establishment of a joint account gives both the father and son equal access to the account. If the father is unable to handle the account at any time in the future, for whatever reason, the son will be able to step in.

Power of Attorney or POA is a completely different thing. A POA is a legal document giving a person the authority to act on behalf of another person for a specific transaction or general legal and financial matters. Just as there are numerous types of joint ownership, there are numerous types of POA.

A general POA gives a person the power to act on behalf of the principal for all legal, property and financial matters, as long as the principal’s mental capacity is sound. The Durable POA gives authority to a person to act on behalf of the principal, even after the principal becomes mentally incapacitated. Special or limited power of attorney gives authority to act only for specific matters or transactions. A Springing Durable POA provides authority to act only under certain events or levels of incapacitation, which is defined in detail in the document.

You can be both a joint owner of an account and a power of attorney. These are two different ways to help a parent with financial and legal activities. An estate planning attorney can help create the POA that best fits the situation.

Reference: Lehigh Valley Live (June 10, 2021) “What are my rights when someone adds me to a bank account?”

Five Top Reasons to Add Beneficiaries to Investment Accounts

“Losing a loved one isn’t just an emotional burden—it also carries an administrative load. There are flower arrangements to pick, eulogies to write and a stream of paperwork to sort through.”

One way to show loved ones that you care, is by having an estate plan and communicating your wishes to them clearly, notes the article “Why You Should Add Beneficiaries to Your Investment Accounts Now” from The Street. That includes adding beneficiaries to your retirement and investment accounts. This simple step will help save heirs time, money and emotional stress at a time when they are likely to be overwhelmed with grief and paperwork.

They’ll retain more of your estate and get it faster too. When beneficiaries are assigned to investment and retirement accounts, the assets pass directly to them. If there are no beneficiaries, the asset may have to go through probate, the legal process of settling an estate when someone dies.

Probating an estate usually involves going to court, which is something your beneficiaries would probably prefer not to deal with during a challenging time. A typical probate case could last a year, sometimes longer, depending on where you live. During this time, your beneficiaries are not able to access their inheritance. Going to court also means court fees, attorney fees, lost time, and additional stress.

Let’s not leave out how much of a bite probate can take out of your estate. Depending on its complexity, probate can consume anywhere from 0.5% to 5% of the estate.

Removes one stress for loved ones. Having assets transfer directly to beneficiaries lessens what can be an intense burden for heirs, while they are grieving. Once the account provider is notified of the death of the account holder, the provider typically notifies beneficiaries. The beneficiaries have to provide the correct documentation, like a death certificate, but that’s a whole lot easier than going through probate. Obtaining death certificates is usually part of the executor’s responsibility and doesn’t cost very much.

Beneficiary designations override your last will and testament. By law, a beneficiary designation determines who receives assets, regardless of what is in your will. That’s why it’s so important to make sure your beneficiary designations are up to date. What happens if you neglect to update your beneficiaries on a life insurance policy purchased when your children were young? For instance, what if you are divorced from their father, but you forget to replace him as the policy beneficiary? In that case, your ex-spouse will receive the policy proceeds, no matter how many years you have been divorced.

It’s easy and relatively painless. Updating or establishing beneficiaries is one of the easiest parts of estate planning. Start by making a list of your accounts, which you should have anyway and contact the account custodian to find out who is listed as a beneficiary. If no one has been named, get directions on how to establish the beneficiary designation and if possible, name a secondary beneficiary.

If you have an IRA or a 401(k), your account will typically offer a beneficiary form within the account. If you have investment accounts, you’ll need to request a form from the custodian.

Special rules for retirement account beneficiaries. There are rules about leaving retirement plan assets to a spouse, so if you want to leave those assets to children or grandchildren, your spouse will have to sign off on that, with a waiver. Depending upon where you live, a spouse may be entitled to have of the assets in an IRA, even if other beneficiaries are listed, unless there is written consent.

Reference: The Street (June 12, 2020) “Why You Should Add Beneficiaries to Your Investment Accounts Now”

Surprising Ways Beneficiary Designations Can Damage an Estate Plan

“During the estate planning process, these beneficiary designations are reviewed to ensure that the beneficiaries are correct, and that the distribution of these assets conforms with the client’s intended estate plan.”

Naming a beneficiary on a non-retirement account can result in an unintended consequence—it can even topple an entire estate plan—reports The National Law Review in the article “Overuse of Beneficiary Designations: How They Can Derail a Client’s Estate Plan.” How is that possible?

In most cases, retirement accounts and life insurance policies pass to beneficiaries as a result of the beneficiary designation form that is completed when someone opens a retirement account or purchases a life insurance plan. Most people don’t even think about those designations again, until they embark on the estate planning process, when they are reviewed.

The beneficiary designations are carefully tailored to allow the asset to pass through to the heir, often via trusts that have been created to achieve a variety of benefits. The use of beneficiary designations also allows the asset to remain outside of the estate, avoiding probate after death.

Apart from the beneficiary designations on retirement accounts and life insurance policies, beneficiary designations are also available through checking and savings accounts, CDs, U.S. Savings Bonds or investment accounts. The problem occurs when these assets are not considered during the estate planning process, potentially defeating the tax planning and distribution plans created.

The most common way this happens, is when a well-meaning bank employee or financial advisor asks if the person would like to name a beneficiary and explains to the account holder how it will help their heirs avoid probate. However, if the estate planning lawyer, whose goal is to plan for the entire estate, is not informed of these beneficiary designations, there could be repercussions. Some of the unintended consequences include:

Loss of tax saving strategies. If the estate plan uses funding formulas to optimize tax savings by way of a credit shelter trust, marital trust or generation-skipping trust, the assets are not available to fund the trusts and the tax planning strategy may not work as intended.

Unintentional beneficiary exclusion. If all or a large portion of the assets pass directly to the beneficiaries, there may not be enough assets to satisfy bequests to other individuals or trust funds created by the estate plan.

Loss of creditor protection/asset management. Many estate plans are created with trusts intended to protect assets against creditor claims or to provide asset management for a beneficiary. If the assets pass directly to heirs, any protection created by the estate plan is lost.

Estate administration issues. If a large portion of the assets pass to beneficiaries directly, the administration of the estate—that means taxes, debts, and expenses—may be complicated by a lack of funds under the control of the executor and/or the fiduciary. If estate tax is due, the beneficiary of an account may be held liable for paying the proportionate share of any taxes.

Before adding a beneficiary designation to a non-retirement account, or changing a bank account to a POD (Payable on Death), speak with your estate planning attorney to ensure that the plan you put into place will work if you make these changes. When you review your estate plan, review beneficiary designations. The wrong step here could have a major impact for your heirs.

Reference: The National Law Review (Feb. 28, 2020) “Overuse of Beneficiary Designations: How They Can Derail a Client’s Estate Plan”

When Selecting Beneficiaries Gets Overlooked

“If you’ve ever spent time working through your estate plan with a professional, you know how important it is to select and update your beneficiaries. Failing to do so can result in costly mistakes—for you and your loved ones.”

Here’s one way to mess up your estate plan: naming beneficiaries not by name, but by the generic term “children.” If yours is a blended family, your stepchildren may be out of luck, according to the article “Five mistakes to avoid when naming beneficiaries” from Delco Times. In many states, stepchildren aren’t recognized if the word “children” is used. Use your beneficiaries’ full names.

Here are more mistakes that people make about beneficiaries:

Failing to name a beneficiary on every account. The great thing about beneficiary designations as that they do not go through probate and beneficiaries receive assets directly from the custodian of the account. However, if you fail to name a beneficiary, the asset, whether life insurance proceeds or the entire balance of a 401(k) account will go to your estate, and then it will need to go through probate.  For retirement accounts, your heirs will also lose the ability to stretch withdrawals over their lifetime.

Failing to name a contingency beneficiary. What if the first person passes away before you and there’s no contingency beneficiary named? The asset goes through probate, as if there were no beneficiary named at all.  If both people die at the same time, all of the funds must go through probate.

Neglecting to review beneficiary selections on a regular basis. Beneficiary designations override a will, so it’s very important to keep them current. Every few years, review the accounts that you own and see what your beneficiary designation choices are. This is especially necessary, if you have been divorced, widowed or remarried. If you fail to take your ex-spouse off an insurance policy, for instance, there’s little that can be done when you die—even if you put your wishes that a new spouse or children receive the proceeds in your will. If the dispute goes to court, your new spouse or children won’t be likely to win, no matter what your intentions may have been.

Not communicating with your partner and family members. Talking with family members and loved ones about your wishes for your legacy and asset distribution is an important way to let them know what to expect when you die. It’s not an easy conversation, but it will be helpful to all. Knowing you have a plan will alleviate them from the worry of the unknown. There’s no need to talk specific dollar amounts, unless you want to. Instead, give them a high-level overview of what your intentions are.

Some families find these conversations easier in the presence of an objective third party, like your estate planning attorney. If your estate plan includes trusts or any complex planning strategies, a family meeting provides a means of explaining the plan and the processes involved.

Reference: Delco Times (October 6, 2019) “Five mistakes to avoid when naming beneficiaries”

Have Your Will Done? That’s Not An Estate Plan

“Every adult should have a will in order to determine property distribution after death. However, a will is limited in what it can do. Too often, a will cannot accomplish what you need or even expect it to do.”

A last will and testament is an important part of an estate plan, and every adult should have one. However, there is only so much that a will can do, according to the article “Estate planning involves more than a will” from The News-Enterprise.

First, let’s look at what a will does. During your lifetime, you have the right to transfer property. If you have a Power of Attorney, or POA, it gives someone you name the authority to transfer your property or manage your affairs, while you are alive. In most states, this document expires upon your death.

When you die, a will is used to transfer your property, according to your wishes. If you do not have a will, the court must determine who receives the property, as determined by your state’s law. However, only certain property passes through a will.

Individually owned property that does not have a designated beneficiary must be transferred though the process of probate. This includes real property, like a house or  land, if there is no right of survivorship provision within the deed. The deed to the property determines the type of ownership each person has.

Couples who purchase property after they are married, usually own the property with the right of survivorship. This means that the surviving owner continues to own the property without it going through probate.

However, when deeds do not have this provision, each owner owns only a portion of the property. When one owner dies, the remaining owner’s portion must be passed through probate to the beneficiaries of the decedent.

Assets that do have a designated beneficiary do not pass through probate, but are paid directly to the beneficiary. These are usually life insurance policies, retirement accounts, investment and/or bank accounts. Your will does not control these assets.

Beneficiaries through the will only receive whatever property is left over, after all reasonable expenses and debts are paid.

If you wish to ensure that beneficiaries receive assets over time, that can be done through a trust. The trust can be the beneficiary of a payable-on-death account. A revocable trust avoids property going through the probate process and can be established with your directions for distribution.

A will is a good start to an estate plan, but it is not the whole plan. Speak with an estate planning attorney about your situation and they will be able to create a plan that addresses distribution of your assets, as well as protect you from incapacity.

Reference: The News-Enterprise (September 30, 2019) “Estate planning involves more than a will”

Better to Organize Papers before Someone Dies

Handling the decedent’s final affairs.

When a family member passes away, there are some important papers and information that must be gathered. The smart way to address the issue is to gather the papers beforehand and have assistance from an estate planning attorney, according to The Balance in “Important Papers to Locate After Someone Dies.”

Asset Information:

• Account statements, including bank accounts, investments and retirement accounts.
• Life insurance policies. You may be required to show the original documents.
• Beneficiary designations. This could include payable on death accounts and transfer on death accounts.
• Real estate deeds
• Titles for cars and boats
• Stock and bond certificates–if held in certificate forms.

Business Documents:

• Corporate, LLC or partnership documents
• Account statements
• Contracts
• Business licenses
• Income tax returns

Contracts:

• Pre- or post-nuptial agreements and amendments, if any
• Loans
• Leases

Bills:

• Utilities, cell phone, credit card, storage unit bills
• Property tax and mortgage bills
• Lines of credit or any outstanding loans
• Medical bills
• Funeral bills

Estate Planning Documents:

• Last will and testament, plus codicil(s), if any
• Revocable living trust and amendment(s), if any
• Legacy letter, if there is one

Tax Returns

• Income tax returns – federal and state for the last three years
• Gift tax returns -federal and state

Death Certificates –

• You’ll need to order several from the funeral home

In addition to these documents, locate the decedent’s Social Security card and Medicare or Medicaid information.

Reference: The Balance (Jan. 1, 2019) “Important Papers to Locate After Someone Dies”

Second-Marriage Couples Face Estate Planning Challenges

In today’s world it is not at all unusually to have a blended family.

Blended families often face special challenges when it comes to estate planning. Those issues are best approached openly, according to JD Supra in “Seven Estate Planning Considerations For Blended Families.”

Spouses can leave their assets separately and have their own revocable trust. When the first spouse dies, a trust can be established so the surviving spouse has income and even principal. The surviving spouse should not be the only trustee, which would avoid the situation described.

Consider giving children a bequest after the first death. That way, if the surviving spouse needs to use all the funds, at least the biological children will receive something.

Make a joint trust irrevocable upon the first spouse’s death. If spouses sign a joint trust, then draft the trust, so that it becomes irrevocable on the first death.

Give thought to having separate bank and/or investment accounts and name children as beneficiaries, if you want them to inherit your assets. If assets are owned separately, there is a better chance of avoiding a lopsided inheritance or some children being disinherited.

Talk about your funeral plans. Do you want to be buried with your deceased first husband? Where do you want to be buried? Do you want the kids to decide? Avoid a lot of heartbreak by discussing this, as difficult as it may be.

Name a spouse and children as co-attorneys. If everyone works well and plays together, this could give everyone a voice in important decisions. You want to strengthen a family, not fracture it.

Communicate, often. This is not a one-time conversation and should not be swept under the rug.

Check beneficiary designations. These are the forgotten distant cousins of estate planning. People create accounts, name beneficiaries and then often forget about them.

Blended families are always a work in progress and the better you can plan ahead for the death of one of the spouses, the more likely the family will remain a cohesive unit after one parent dies.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may include a blended family.

Reference: JD Supra (Nov. 14, 2018) “Seven Estate Planning Considerations For Blended Families”

Thinking Retirement? Start with a Will

Sometimes even having a will is not enough.

Most people do not want their finances released to the public. However, if they are not careful with their estate plan, their financial world will become an open book, according to the Robb Report in “Rest in Wealth: The Ins and Outs of Estate Planning.”

An example in the article is the actor James Gandolfini had a will, but never established a trust. When he died unexpectedly five years ago, his personal finances were an open book and we know that he left $200,000 to his assistant, $500,000 to his nieces and some of his friends were left $50,000, while others were left $200,000. He gave his son his clothing and jewelry, and his wife received the rest of his personal items.

That’s the sort of thing you probably wouldn’t want people to know, especially if you are a famous actor. If you were the recipient of any of those large gifts, and your name was public knowledge, you better believe that your phone will be buzzing with calls from people you haven’t even thought of in years.

Only 60% of Americans have a will. If you’ve got a collection of cars, an amazing wine cellar or a handful of expensive watches and no will, then the state is going to decide who will get what. It won’t matter what you wanted.

 If you have minor children and no will, the court selects a guardian. The guardian doesn’t work for free. That money comes from your children’s inheritance. If, like Aretha, you have a special needs child, your inheritance could cause the child to lose any state-funded support, like Medicaid.

Even if you’re not a multi-million-dollar artist, you need a will.

However, that’s just for starters. You also need a power of attorney and a health-care proxy. You may need a revocable trust. You may need a Special Needs Trust. There are many different tools available to protect you, protect your family, and transfer wealth efficiently (read: less taxes) across generations. It takes time to set up, and there are costs associated with having an estate plan created.

Once the plan is created, you have to tidy up the details too, like funding trusts, retitling assets, checking your named beneficiaries and other details.

Reference: Robb Report (Nov. 10, 2018) “Rest in Wealth: The Ins and Outs of Estate Planning”

What are the Legal Steps when a Spouse Passes Away?

Protection for you and your heirs is important.

When a spouse passes away, it is likely to be difficult to concentrate. However, it is important to focus on the needs of the surviving spouse, according to The Legal Intelligencer’s article “Estate Planning for Surviving Spouses: What to Do ASAP.”

The first thing that needs to happen is to make sure that the surviving spouse is protected for his or her lifetime. The surviving spouse needs to have his or her will and any estate planning documents reviewed. Some documents are intended for the benefit of the surviving spouse during his or her lifetime, while others are concerned more with the treatment of heirs.

One couple changed the beneficiaries on their retirement plans to name each other and opened joint checking and savings accounts and a brokerage accounts when they married. Since he had two children from a prior marriage, they were left as the beneficiaries on his insurance policies. Over the course of time, their original plan no longer worked. They knew they needed new trusts and healthcare proxies. When the husband became seriously ill, they knew it was time to act.

Here’s what they had to do, and what the surviving spouse needs to do:

Durable Powers of Attorney authorizes a named individual to act on your behalf for financial matters during your lifetime. Most spouses will name each other, so that one spouse can sign for and make decisions on behalf of the other. Have this in place before anything happens; when something happens, it is too late.

When a spouse dies, the surviving spouse must act quickly to name someone else to replace the decedent. The spouse must decide whether they want the person to act as power of attorney at any time, or only if/when the surviving spouse becomes incapacitated. If there is no power of attorney and the spouse becomes incapacitated, it will take a court order to appoint someone to have this power.

Health care proxies are used to make medical decisions, if the person is not able to communicate their wishes. If the decedent was named as the health care agent, then the person named as the alternate agent will become the healthcare agent.

The surviving spouse needs to look at these papers, see who the alternate agent is and see if they still want to have that person in the role.

Health care proxies are often given to physicians or hospitals, so if you want to make a change, make sure that a copy of your health care proxy is given to anyone who might have the old health care proxy on file.

Strict rules today require that anyone who wants access to your health care information needs to have a HIPAA release form signed by you. It is useful when you are still able to communicate with doctors but want to have someone you trust able to speak with your doctors and have access to your medical information.

Wills and trusts need to be reviewed when a spouse has passed. Is the estate plan still the right fit? Are there children or stepchildren who are having financial issues or a divorce that would make an inheritance a problem? The surviving spouse may want to direct that property be distributed in a different matter. A trust where the surviving spouse is a trustee would be better, for example, if a child has an opioid addition.

Beneficiary designations need to be reviewed for life insurance, retirement accounts, brokerage and bank accounts. They may be in the surviving spouse’s name or are accounts that the spouse inherited from the decedent. If the spouse inherits retirement funds, retirement beneficiary forms need to be reviewed, because the alternate beneficiary on the decedent’s form is no longer applicable.

Your estate planning attorney can guide you through the process of making sure the basic needs of the widowed person are handled.

Reference: The Legal Intelligencer (Sep. 18, 2018) “Estate Planning for Surviving Spouses: What to Do ASAP.”

Empty Nest Can Have a Major Impact on Your Finances

It can be the best of times and it can be the worst of times.

When the kids head off to college, you will find that the move will have an impact on your finances and how you handle those changes may well have an impact on your future, according to The Cross Timbers Gazette in “Financial Considerations for Empty Nesters.”

Suddenly all that cash on hand that used to go toward allowances, lunch money, shopping for clothes, gas money and your kid’s cell phone bill, is staying in your bank account. It’s tempting to do some “catch up” spending and indulge yourself in all the things you’ve put off, waiting until the kids were grown. However, this is a unique opportunity to bolster retirement savings and build up (or build back) the emergency cushion that so many of us forget we need—until there’s an emergency.

There’s always the temptation to help the kids out, as they set off on their new lives as independent adults. That’s a great thing to do if you and your retirement accounts can afford it. Consider putting a time limit on any continuing support, like paying a monthly phone bill or a credit card bill.

In some instances, kids never become completely financially independent. If you are in a position to fund them, that’s great. If they have disabilities that limit their earnings abilities, you may want to look into what social service programs are in your area that may help with finding safe and affordable housing, social programs and other services. 

Make sure your estate planning attorney and your financial advisor are aware of your plans, if they include continuing to support your children. This may impact your estate plan and investment choices.

Now, have some fun. It’s time to focus on you and your spouse. Make a budget and figure out how much you can reasonably afford to spend on a special vacation or to fix up the spare room.

If you haven’t updated your will, since the last presidential election, put this on your “before the holidays” list. There have been many changes to tax laws and your life may have experienced some changes as well. Review your estate plan with your estate planning attorney to be sure you aren’t missing any opportunities to minimize taxes or maximize your planned giving legacy.

This is also the time to check on your beneficiary designations. If the last time you looked at them was when your now adult children were small, you definitely need to make a complete list of all of your accounts that have beneficiary designations and make sure they are up to date. If you haven’t checked them since before you were last married, it’s time.

Now that the kids are grown, it’s a good time to revisit your power of attorney and medical directives. If your child is responsible enough, you may want to name your child as your power of attorney. Accidents happen, and we never know when we might become incapacitated.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances, including the impact of that nest emptying out.

Reference: The Cross Timbers Gazette (Sep. 10, 2018) “Financial Considerations for Empty Nesters”