Tag Archives: Estate Planning

When Should You Update Your Estate Plan?

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My clients often ask me when they should update their estate plan. There are numerous life events that may require us to look at the plan and see if anything needs to be revised. Here is a short list of such events:

  • Serious or life threatening illness
  • Illness or death of a spouse
  • Contemplation of marriage or divorce (special attention to 2nd marriages)
  • Marriage or divorce of a child or grandchild or business partner
  • Birth, death or illness of parent, sibling, child or grandchild, or business partner
  • Disability of parent, sibling, child, grandchild, or a dependent or if a dependent  may require special considerations or a special needs trust
  • Significant change in the types or values of the assets you own
  • New business venture
  • Business has grown (or declined) significantly in the last few years
  • Change in business partners
  • Within 5 years of retirement
  • Within 5 years on contemplating sale of business
  • Job loss or business litigation
  • Changes to the federal or state estate tax code that impact your plan (Call me if you have questions about any such changes)

Key Points Regarding the Sale of Probate Property

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  • Must be a Personal Representative’s (PR) deed, not a Warranty deed.
  • Because the PR may have limited knowledge of the property, there should be a specific disclaimer to this effect and an “AS IS” provision included in the purchase agreement, no Statement of Condition should be signed, and the statutory disclosure should be properly waived as allowed under M.S. 513.60. However, the PR is obligated to disclose known conditions affecting the buyer’s use and enjoyment of the property.
  • The PR must be careful in warranting the status of the property taxes with respect to homestead. Depending upon the length of time the decedent has been dead and the occupancy of the homestead prior to death, the taxes may be classified as non-homestead.
  • County probate court may require “sale papers” be issued by the court before the sale can proceed.
    • The PR deed needs to be signed prior to, or on the certification date of the sale papers. This requires the PR to sign the deed prior to closing.
    • The county examiner of titles should be contacted before closing to determine what documents are needed and how long the process will take.
  • Seller’s attorney should review all closing documents well before closing.

Checklist for Descendants When a Family Member Passes Away

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  • Order certified copies of the Death Certificate. You will need them to transfer bank and other financial accounts, as well as to send to insurers and others who may be holding assets or benefits payable to the estate.
  • Notify Social Security of the death. If you are a spouse, or if you have minor children at home, check to see if any of you are eligible for benefits.
  • If the deceased was a member of the military, notify the Veterans Benefits Administration of the death and check for possible death benefits.
  • Notify all insurance companies and pension/retirement companies.
  • Inform any other federal/state/county entitlement or welfare programs.
  • Have all mail forwarded to the Personal Representative, if necessary.
  • Notify the employer and all former employers of deceased; determine possible pension benefits from each.
  • Notify banks and other institutions where the deceased had loans or other accounts.
  • Cancel phone, cell phone, cable/satellite, internet, or any other unnecessary monthly expenses. Do not cancel utilities required to keep a home operational (heat/electric/water), but do set the thermostat to a more economical level.
  • If a credit card or other charge account of the deceased was in the names of both of you, you are liable for the bills. Remove the deceased’s name from the account if you wish to continue using it; close the account if you don’t want to use it. If the account was in the deceased’s name only, close the account. You may not be responsible for these bills. In Minnesota, a spouse is responsible only for the “family necessary” bills, including medical bills, on the account of the deceased spouse.
  • If there was any jointly owned real estate, file an Affidavit of Identity and Survivorship with the County Recorder, along with a certified copy of the Death Certificate, to remove the deceased’s name from that real estate.
  • If necessary, file health care claims to pay expenses of the last illness.
  • If the deceased owned $75,000 or more worth of property in his or her name alone, you must check with a probate attorney. If the deceased left a Will, the personal representative named in the Will can do this.
  • Consider putting your telephone listing in your name alone or make it a non-published listing.
  • Check for double indemnities. If the deceased died in an accidental death, his or her estate might be eligible to collect above and beyond the standard life insurance benefit if the policy carried an accidental death clause. The deceased also may have carried additional accidental insurance if he or she purchased airline tickets on a major credit card or was a member of an auto or travel club.
  • Change car or recreational vehicle titles by contacting the motor vehicles registration office.
  • Don’t feel like you have to do all of this yourself. Friends and family are usually more than willing to pitch in during times of need. Your attorney can help you with the process too.

Five Common Mistakes in Estate Planning

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The estate planning process can be difficult to navigate on your own. The process involves the coordination of the various assets of an individual into a cohesive, comprehensive plan to provide for family members. It requires you to analyze all assets whether held individually, jointly, and those that pass by beneficiary designations to come up with an effective overall and integrated strategy to deal with these assets. Often, assets are incorrectly titled and need to be retitled and beneficiary designations for life insurance and retirement plans need to be changed to obtain better results. An estate planning attorney should be addressing all of these issues with each client.

The following are some of the common mistakes in estate planning:

1. FAILURE TO DRAFT A WILL

The failure to draft a will results in the following problems:

  • State determines who gets your property. The rules of intestate succession of the state of residence of the decedent will determine who receives your property.
  • State determines the Personal Representative of your estate (executor/executrix). Without a will, you have given up the right to name the person you want to administer your estate.
  • State will determine who will be the guardian of your minor children. A will allows you to name a guardian for your minor children.
  • Increased risk of estate litigation. Having a well drafted will can help avoid costly, time consuming, and often bitter litigation between family members. This is especially the case in second marriages.

It is never a good idea to delay getting a will in place because you are waiting for “the right time.” Wills can be easily changed, so it’s better to get one in place right away and modify it when you need to.

2. OWNING JOINT ASSETS OR HOLDING TOO MANY ASSETS JOINTLY

While holding assets in joint tenancy (with rights of survivorship) can be an effective estate planning tool, there are some serious drawbacks to this approach:

  • Holding property jointly does not completely avoid probate for married couples. It only delays it until the second spouse dies.
  • In a second marriage, since the property transfers to the spouse as sole owner, your second spouse may not provide for your children from your first marriage.
  • Owning too many assets jointly will not allow the married couple to utilize each of their unified credits for estate taxes.

3. LEAVING ALL YOUR ASSETS TO YOUR SPOUSE

The federal estate tax laws are constantly changing. Although it may seem like a good idea to leave everything to your spouse, that may not be wise from a tax perspective. For 2020 there is a federal exemption of $11.58 million for any decedent, but in Minnesota, there is a Minnesota Estate Tax exemption of $3,000,000, so any estate over that amount may be subject to the Minnesota Estate Tax.

For example:  Husband has an estate of $3 million in his name alone and wife owns $1 million in her name alone. Husband dies in 2020 with a will that gives everything to his spouse. He pays no federal or state estate taxes because his bequest to his wife is at or below both the Minnesota and federal exemption rules. If the wife dies later in 2020, with an estate now worth $4 million when the exemption in Minnesota is $3 million, the wife’s estate has a Minnesota estate tax issue: The excess $1 million is taxable. Her Minnesota estate tax rate may be anywhere between 13-16%, which could trigger an estate tax debt of $130,000 to $160,000. This tax debt is due to the state within 9 months of death regardless of whether the estate has yet been settled. This means it may be an out of pocket expense for the heirs until the estate can be settled and the heirs can be reimbursed. That can be an immense financial burden on her heirs. Had the couple utilized a qualified trust plan in their estate plan, they could have avoided or minimized their tax exposure. Minimally, they could have planned for this tax and provided certain assets to be immediately available to the heirs upon the wife’s death in order to pay this tax. Lastly, a simple life insurance policy with a death benefit at or above the estate tax amount that is due can be an easy way of providing your heirs with the money they will need to pay the estate tax debt. That brings me to my next common mistake.

4. FAILURE TO OWN LIFE INSURANCE PROPERLY

Improperly named beneficiaries on a life insurance policy is a common mistake. Where a second marriage is involved and the new spouse is named beneficiary, these proceeds may never end up benefiting your children from your first marriage. When a husband and wife die simultaneously and small children are named as contingent beneficiaries of the life insurance proceeds, a court will have to appoint someone to administer the policy proceeds, triggering a costly and lengthy conservatorship. The person the court appoints may not be the person you and your spouse would have chosen. Even if you have a trust in place in to protect your children and intend to use the life insurance proceeds to fund the trust, unless the beneficiary designations are completed properly, these proceeds will never go into the trust as you had intended.

From an estate tax perspective, people are surprised that life insurance owned by an individual is included in their taxable estate at death. This may result in estate taxes being paid on insurance proceeds at death. To avoid estate taxes, often times an irrevocable life insurance trust is utilized to own such policies to remove them from the taxable estate.

5. FAILURE TO FUND YOUR TRUST

All good planning can be undone by poor execution. If you have created a trust to protect your family, you must move the proper assets into the trust and/or update your beneficiary designations on your IRA’s and life insurance, etc. to make sure that the assets will transfer to the trust as intended. Otherwise, your assets will be transferred as if you had no plan at all. The trust is merely an empty bucket until you put something in it. If the assets are not going in the trust until after you die, then the beneficiary settings on those assets are critical in order for your trust to work properly.

Without proper planning, there are numerous other mistakes that can happen with your estate plan. Your estate plan must be tailored to your family’s needs. Sound estate planning brings together a person’s diverse assets to fit into an integrated and comprehensive estate plan that may include wills, trusts and other documents. Do not hesitate to call me to help you develop your estate plan.