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Timing is everything…

When a crisis happens we go into survival mode.  We gather necessary supplies and hunker down. But if we failed to plan for that crisis, then those supplies and a place to hunker down may not be there.  I see so many times on social media,  individuals asking for prayers for their family or friends who are dealing with a tragedy.  I feel for them on so many levels.  I have experienced tragedy in my life and so I can empathize.  I also know the grieving process is difficult and there is no set of rules or guidelines for how to handle it.  But the prevailing thought I have is, “I hope they had a plan in place for their loved ones.”  Call it occupational hazard.

I have a family member in the hospital now and I feel helpless.  I can only give advice after the fact now.  I can only hope and pray that the outcome is one that allows for another day to be available to get a plan in place.  Fortunately this family member is doing well and I know with her strength of spirit that she will pull through.  She has a loving and supportive family that won’t allow her to give up the fight; not that she ever would.

So, if you’re reading this post, just know that it comes from a good place.  It’s not to criticize or shame anyone.  It’s not to drive business.  It’s my way of venting.  Procrastination is such a weapon against us in all aspects of our lives.  Let tomorrow actually be the day that you take the next step towards the fulfillment of your goals.  Whatever they may be.

Update:  On Friday, March 4th, surrounded by family, our beloved Aunt was called home.

Hold a Family Meeting to Explain Your Estate Plan

Parents are often reluctant to share their estate plans with their adult children.  Some may feel it is a private matter, only to be unveiled after their death.  Many are afraid of creating relationship problems within the family, for example if one child is chosen to be a trustee or executor over the others or if inheritances are not equal. But explaining your decisions now to your family, in a general way, will avoid surprises later and make it more likely that they will accept them.

Holding a family meeting is a good way to do this.  Ask your estate planning attorney and financial advisor to be there.  They will be able to explain how your plan will work and why these decisions were made, as well as answer any questions.  This will also introduce your advisors to your family members so they will be more comfortable working together in your absence.

Choose a date and time that is convenient for everyone and a place that is appropriate.  The room should encourage discussion but also convey the seriousness of the meeting.  Your attorney or financial advisor will probably have access to a meeting room; a family room that accommodates everyone can also work.  Limit the meeting to adults; arrange for childcare if necessary. Have a beginning and ending time.

Make a list of topics you want to cover.  No specific financial information or values of assets need to be disclosed at this time.  This meeting should be a general explanation of what you have planned and why, in order to prepare family members for what they can expect and may need to do if you become disabled or die.  Allow for and encourage questions and discussion.

Expect there to be some anxiety as the meeting begins, as these are often sensitive issues.  There may be challenges with second marriages and blended families.  Or there may be a child that you do not feel is financially ready to handle an inheritance.  If trusts are involved, explain why they are being used.  If charitable giving is part of your plan, explain how this is in keeping with your values.

It is important to give your children some idea of the size of any inheritance they may receive.  With people living longer and long-term care expenses often lasting for years, there may be little to pass on.  If they are expecting a large inheritance, it would be better to give them a realistic picture now rather than later.  At the same time, it is helpful to prepare a child if a sizeable inheritance is coming their way so they don’t go on a spending spree, fall prey to a scam, or be afraid to use the money at all.

Always remember, this is YOUR estate plan, but your family is affected by it and preparing them for the outcome will better maintain family harmony.

Gifts to Your Children or Grandchildren- What Could Go Wrong?!

Parents have asked me many times over the years about setting up bank accounts for their kids and setting money aside for them for their future. Their goal, of course, is to create a pot of gold for hard times, something their kid or grandkid can rely on when the going gets tough.

What a nice thing to do, right?Wrong. If I had a buzzer, I’d use it. There are few hard and fast rules in estate planning, but this is one. Never, ever allow a child to own assets or be a direct beneficiary of anything. Ever.

How could you know that if you put money into a bank account, you lose all control over that on your child’s 18th birthday (in some states 21st birthday)? First, you’d have to know that these accounts are called custodial accounts. They’re also known as UTMA accounts, which stands for “Uniform Transfers to Minors Act.” Sometimes, people refer to it as “Uniform Gifts to Minors Act” or UGMA.

These are accounts owned by the child, but are taken care of by an adult custodian. The custodian has absolutely no legal ownership over the assets at all, they’re just taking care of it until a child reaches 18 when the child can take over. The key point is that the child owns the money personally.

Imagine this. Grandma and Grandpa are loaded. They’ve been saving all their lives and are just tickled to be able to leave a very valuable legacy behind. Their estate planner has told them to gift assets out of their estate every year using the $14,000 annual unlimited gift tax exclusion amount to reduce their taxable estate or simply to be kind. They think, “Great! I can help out my kids by setting aside money for my grandchildren’s education, first wedding, or first business, or whatever.”

They open up an account for each of their grandchildren and put $14,000 in each account for 18 years. That’s $252,000 in contributions. When you add compound interest and adjusted for inflation, your child could end up with as much as $553,000 at 5% interest, more if average return is higher. Wow! I’d love to have been that grandchild!

That’s a LOT of money to be receiving at age 18, isn’t it? And guess what? If it’s in any kind of account under the child’s name with a custodian, you as the parent can’t do anything to prevent your child from taking title to that asset on their 18th birthday. Not. One. Thing. Remember, your child is the owner of a custodial account.

Here’s the problem. Children are under the legal “disability” of minority until they reach 18 when suddenly, Abracadabra! they aren’t legally disabled anymore. Because the child owns the account, you have no choice but to turn the account over when the child is no longer legally disabled.

In the meantime, your job is to manage that money better than you manage your own. That means if you mess up and lose it, your child can sue you later on for breach of fiduciary duty. If you put that money in a family business that goes belly up, you’re liable for that loss. If you invest in a stock that goes bankrupt, you’re responsible to your child. Even if you were the one who gave them the money in the first place.

I know, right?!

Why on earth, then would you allow yourself to be at risk of a lawsuit from your own child for a gift you or your parents gave them, when there is a much better way to give to your children?

Here’s the right way to do it:

Set up an irrevocable trust with you as your child’s trustee. Make sure it’s a lifetime asset protection trust and provides for use, enjoyment, and/or distribution according to a schedule and terms that you decide well in advance.

Let’s call this trust a “Gifting Trust”.  Your child’s trust can be funded by gifts from you or your parents, or anyone who would like to make a gift to them. It can be made to be “intentionally defective” for the purposes of income tax so that you can pay the income tax at your rate (or your child’s when they’re adults), not at a trust rate, which is much less burdensome.

The principal and income can be invested or used for your child’s “health, education, maintenance and support.” These are standards that help protect the assets from your child’s creditors in the future. When you die or are incapacitated, you will have named a successor trustee of your choice.

Because of the rules you put into the trust agreement allowing you to invest aggressively, you are at much less risk of a lawsuit from your child because their interest is not as an owner, but as a beneficiary. You still have to do a decent job of managing it, but you will have made sure that the trust absolves you from investment mistakes that are made in good faith.

You can choose to allow your child to become their own trustee at some far distant point in the future—like when their in their 30s. Or you can decide someone else will always be their trustee. Either way, you’ve just avoided entirely the problem of making a child an owner of things they’re not allowed to manage.

The Gifting Trust is a much better way to gift. If you or your parents are committed to creating a pot of gold for your kids or grandkids, see an estate planning attorney who’s familiar with the best practices for trusts, kids, and money.

Family Values and History Are Still the Best Inheritance

If you are concerned that your children’s inheritance is being reduced by the collapse of the housing and investment markets, rising medical costs, a sluggish economy and a longer-than-expected lifetime, you needn’t be. According to a recent study, family values, traditions and history still mean more than money as an inheritance.

These results are from the 2012 Allianz Life American Legacies Pulse Study* which surveyed baby boomers (age 47 to 66) and “elders” (age 72 and older). Allianz Life conducted a similar study in 2005. Interestingly, despite the financial crises that occurred between 2005 and 2012, the results were strikingly similar, with a high percentage of both boomers (86%) and elders (74%) agreeing that family stories, values and life lessons are the most important part of a family’s legacy.

In addition, in both studies, only four percent of boomers said that an inheritance is “owed” to them. By contrast, the number of elders who felt an inheritance is owed to their children dropped from 22% in 2005 to 14% in 2012; this may be a result of their concern about having to use more of their savings for living expenses, compounded by loss of savings from lower market values.

While the size of the financial inheritance is not seen as important, planning is. A high percentage of both groups (82-84%) emphasized having instructions in place in the event a parent were to become terminally ill or permanently unconscious. Both have strong desires to avoid family conflicts when it comes to estate planning and legacy issues. Younger people also believe that keeping family possessions is important.

Elders also want to impress upon their children the importance of personal responsibility. About three-fourths of elders surveyed have obtained some professional assistance with estate planning and have initiated discussions with their children about end-of-life and inheritance issues. By contrast, only about a quarter of the boomers have planned their estates and less than half have had discussions with their own children about these issues. That may be partly due to boomers being less frugal in general than their parents, or that they simply feel they have plenty of time left to plan.

Wondering how to ensure your family values, traditions and history are passed on to future generations? Here are some ideas to help you get started.
-Encourage elders to tell stories about their family and their own lives and experiences. Family gatherings when multiple generations are present are perfect, but one-on-one conversations work well, too. Videotape as much as possible to capture not only words, but also the storyteller’s personality and mannerisms. No need to have a formal interview; just put the camera on and let it roll. Don’t tape too long at a time, though; the storyteller could tire easily. If you don’t have video, assign someone to take notes and share the stories with other family members.
-Scrapbooking and photo albums are great ways to document family history by themes and occasions. Just be sure photos are identified with names, dates and places.
-Write your memoirs or autobiography, family history, or a collection of essays about your relatives or what life was like when you were growing up.
-Write letters to your children or young grandchildren about life lessons you would like them to learn from you.
-Share your faith and/or testimony with family members in person or in writing.
-Create a family medical history. Include date and location of births and deaths, cause of death, burial location, marriages and children, notable illnesses and medical conditions.
-Make an inventory of special family heirlooms and possessions. Take a photo of each and document its story. If you want a certain person to receive a certain item, include that in your estate plan. Better yet, if you can bear to part with it, go ahead and give it to that person now.
-Use the internet to share family history and traditions with other members of your family. Create a family website. Post stories or videos of your elder storytellers and old family photos. Document family reunions, marriages, births and passings.
Note: If you store information on your computer or online, be sure to provide access for someone else in the event something happens to you. Include specific information about where files or accounts are located and passwords that might be needed to access them.

Most importantly, talk with your parents or children about end-of-life issues (incapacity and health care directives, location of important financial documents, estate planning) and what is important to them and to you. Do this now, before illness or aging interfere and prevent you from having these discussions.

* 2012 Allianz Life American Legacies Pulse Study, sponsored by Allianz Life Insurance Co. of North American, surveyed 1,000 “boomers” (age 44-67) and 1,007 “elders” (age 72+). The online survey was conducted January 12-19, 2012. For more information about the survey, go to https://www.allianzlife.com/about/news_and_events/news_releases.aspx?articleID=106

New Year’s Solutions

Instead of blogging about New Year’s resolutions, I’m thinking the better topic is New Year’s solutions. Solutions to the never ending question of “why can’t I sleep at night.” This question means something different to everyone. For some, it could be time to address those nagging pains and buy a new mattress. For others, those nagging pains are as sign that there’s a serious problem that needs medical attention. The truth is our inability to get a full 8 hours stems from the fact that as a society, we have no inner peace.

Inner peace is not just a Buddhist or Hindi sentiment. Inner peace can refer to peace of mind, or being at peace. This peace may come from a strong sense of self, or religious or spiritual faith. Being at peace is usually the opposite of being stressed or anxious. Therein lies the problem. When are we not stressed or anxious? Time is against us more often than it is for us. Our burdens are heavy and we feel compelled to keep them to ourselves.

Here are a few solutions; and I will be trying a few.

Ask for help. Stop trying to be everything to everyone. Pick your biggest stressor and focus on that. Reduce your to do list by one item per day (maybe pick the one you didn’t do the last few times it was on your list). Use all your resources (time, money, energy, technology, people, etc.) Create a bedtime routine, waking up routine, and a coming home routine. Procrastinate less.

We all procrastinate, whether it’s on the big things, or the little things. For me, I often say, I’ll do that later when it comes to simple tasks. For the last week if I hear my inner voice say “I’ll do X later”, I make sure and do it now. It’s worked so far. That’s probably because I’ve only been implementing it on small tasks, but I’m going to try to get to the bigger things soon. Baby steps.

Is a Trust in a Will the Same as a Living Trust?

Many people hear or see the word “trust” in estate planning and think they are all the same. But there are different kinds of trusts for different purposes, and they perform differently.
For example, an irrevocable trust is frequently used in tax planning. Generally speaking, once an irrevocable trust is established, you cannot change it or remove assets that have been transferred into it. These include charitable trusts, life insurance trusts, asset protection trusts, grantor trusts, qualified personal residence trusts and others.

A testamentary trust is created after you die by a provision in your will. This is a “trust in a will.” It can be used in tax planning or to manage assets for minors or other beneficiaries. Common estate planning trusts used by married couples, like an A-B trust, or credit shelter trust, or QTIP trust, can be part of a testamentary trust. But because a testamentary trust is part of a will, it cannot go into effect until after you die and your will has been probated. It provides no protection or instructions in the event of your incapacity, and any provision you have made for others in your will cannot go into effect. If you have a trust in a will and become incapacitated, your family will probably have to go through the probate system twice—first, for a guardianship at the incapacity and then to probate your will after you die. Both processes are public, and can become expensive and time consuming.

A revocable living trust, known simply as a living trust, is now preferred over a will by many consumers and professionals. While it is similar to a will in that it has instructions for what you want to happen to your assets after you die, it also contains instructions in the event you become incapacitated. It becomes effective while you are living instead of only after you die. When you set up a living trust, you transfer ownership of your titled assets from your individual name to the name of your trust, which you control. (This is called funding your trust.) Technically you no longer own anything, so there is no reason for the courts to become involved when you die or if you become incapacitated. The concept is very simple, but this is what keeps you and your family out of the courts.

So, how do you know which kind of trust you have? You can read the document; it should say “revocable living trust” or “last will and testament” right up front. Or ask the attorney who prepared it for you.

Here’s the bottom line. If you did not transfer your assets to your trust, you either have a testamentary trust (trust in a will) or an unfunded living trust—neither will prevent court interference at incapacity or death. If that is your desire, take action now before it is too late.

When is the Best Time to Plan your Estate?

Most people start thinking about planning their estates when they reach retirement age.

After all, the “normal” progression of life is to get out of school, get a job, get married, have kids, get your kids through college, retire, become grandparents, enjoy life…and then, after a long and fulfilling life, we know that we will eventually die.

But we all know that real life rarely happens this way. People have children and don’t get married, people get divorced, they marry more than once, they may never marry or have a family. Real life is full of options, choices, and twists of fate.

Dying, of course, is not an option. Nor do most of us choose how or when it will happen to us. Every time we leave our homes and get in our cars, we are at risk of being in a fatal car accident. Some people never have to leave their homes. Fires and carbon monoxide poisoning take hundreds of lives every year. In some parts of the country, drive-by shootings have taken the lives of innocents, young and old. Athletes in top physical condition die on the practice field. People of all ages are dying of cancer and other illnesses. And now that terrorism has reached our shores, hard-working people in the prime of their lives have died just because they went to work, like any other day.

We take precautions to try and extend our lives for as long as possible. We make sure our cars are in working order. We inspect our homes for fire hazards, and use smoke and carbon monoxide detectors. We eat healthier foods, exercise, and have regular checkups. And, since 9/11, we have all become more aware of our surroundings. No guarantees, but we are doing the best we can.

But what if that is not enough? What if you don’t make it to the end of the “normal” road of life? What would happen to your loved ones if you died today? Will there be enough money to provide for them the way you would want? Will they even be able to get to the assets you leave behind, or will your assets be tied up in courts, held ransom by attorney fees and court calendars? How long will they have to wait? And how much will they really get?

Wouldn’t it be better to make sure that the people you care about will be taken care of the way you want, especially if your life were to end suddenly and unexpectedly?

Or, let’s say you do live until a ripe old age. You could gamble, and wait until the last possible minute to plan your estate. You could be like those people who make estate planning decisions from their death beds in the hospital. But all too often, those hasty decisions are unwise and wrought with error. Wouldn’t it be better to put a plan in place now (so you’re covered, just in case), and then possibly have years to think about it, polish it and fine tune it until it’s just right?

Planning your estate now doesn’t mean you will die tomorrow, just as buying homeowner’s insurance doesn’t mean your house will burn down tomorrow. But if you act now, you won’t have to worry about what could happen to your family if your life doesn’t follow the normal progression…or about making bad decisions when you’ve run out of time.

It’s called peace of mind…and you can have it. So, when’s the best time to plan your estate? Right now!