<p>Hi everyone,</p>
<p>I was reading the last few pages of the Retirement thread and noticed that the subject had turned towards estate planning considerations. I thought it might be nice to have those posts here in one place and for us to benefit from all the experience and expertise of the CC community. </p>
<p>Great idea! I think many of us are flustered, overwhelmed, and confused when it comes to this subject. We don’t know what to do, we don’t trust the high priced advisors, so we end up just doing nothing.</p>
<p>My parents still haven’t taken care of their will.</p>
<p>I’ll start by moving a couple of posts over here from the Retirement thread:</p>
<p>For couples within the Federal Estate Tax exemption ($5.34 million per person): it makes sense to keep assets in your estate until death, because your heirs get a “step-up” basis at the time of death and would only owe taxes on gains after the new step-up basis when the asset is sold. </p>
<p>For very wealthy people who have estates in excess of the Federal Estate Tax exemption, there are competing interests – gifting now to reduce the estate below the Federal limits and letting gains accumulate “outside the estate” vs. waiting until death to transfer assets and giving heirs the benefit of the step-up basis (but which runs the risk of having the estate exceed the Federal limits eventually if the assets’ values are already high).</p>
<p>Any further thoughts?</p>
<p>About Stretch IRAs, just make sure that your primary and secondary beneficiaries are reviewed periodically and up-to-date. IRAs pass outside of probate if you have valid beneficiaries in place at the time of death. Their descent is governed by your IRA contract with the financial institution. </p>
<p>Most of us have our spouses as primary beneficiaries for our 401(k) accounts and IRAs, but as we age and change our intentions, it might be advisable to put children or grandchildren as co-primary beneficiaries. That way, the option of having the IRA descend directly to the heirs with the longest life expectancies is not defeated by close-in-time deaths.</p>
<p>My H’s parents died within two days of one another this year. MIL was already ill and it was expected she would pass soon. But FIL collapsed and died unexpected two days before she did, and this was after she had already gone into a coma. It was very difficult sorting things out and it has required multiple disclaimers to get the IRAs descended to the grandchildren. Also, not all financial institutions allow the same procedure. Therefore, in addition to making sure your beneficiaries are in place properly, it is a good idea to consult with the institution holding your IRAs to see how they would handle it once the original IRA owner dies. It is not always as straightforward as you hope and, unfortunately, you won’t know if your plan works.</p>
<p>I dealt with 5 different financial institutions to settle the ILs’ IRAs and have been impressed with 3 (Fidelity, Vanguard among them) out of the 5. One of them (a large company) has been an absolute nightmare.</p>
<p>It is a difficult subject, to be sure. My ILs actually tried to do things correctly. They both had wills, a living trust (for the house, so that the house will not have to go through probate), beneficiaries for their IRAs and non-IRA accounts, but there was still so much that needed to be sorted out. </p>
<p>The smartest thing they did was to choose my H as the executor, because ultimately I was able to help out. If they had chosen their elder son, he would have been overwhelmed, short of time and we would not be any where near as close to being finished. I am not saying this to pat myself on the back. Being the executor of one’s parent’s estate is a very difficult task regardless of expertise but in my ILs’ case, I was glad to help out because both sons were already in shock about the timing of their parents’ deaths. </p>
<p>I have learned a great deal during this process about what to do and not to do. </p>
<p>I echo @busdriver11’s sentiments. I KNOW we have to do something……but haven’t touched the will in more than ten years and our financial situation has changed significantly since then. Do not want to spend thousands seeking advice, and feel that I <em>should</em> be able to figure this out myself since all we own is a house and random accounts. Nothing esoteric. Bookmarking! </p>
<p>I try to follow the other thread but it goes over my head quickly.</p>
<p>@CT1417 </p>
<p>My first suggestion is to review everything you have in “random accounts.” There is often no reason to have that many. If you want to simplify your situation, you should start there. There are many reasons to have accounts in several institutions, but just remember that your heirs will have to track them down.</p>
<p>Also, as we age, it will be easier to deal with things if they are simplified. </p>
<p>
</p>
<p>Care to share which institution? If it’s mine, I’d like to move before I die.</p>
<p>Also these are considerations:</p>
<p>(1) How quickly do you want your spouse or heirs to be able to get the assets? Most financial institutions have TOD or “transfer on death” arrangements. If you have a valid TOD in place, it is a matter of your survivors furnishing a certificate of death and whatever other papers the financial institution requires and the account is transferred. </p>
<p>(2) Item (1) just allows you to get ownership of the accounts transferred, it does not take into account estate taxes. But as has been stated, Federal Estate tax exemption = $5.34 million per person so it is not a consideration for most people.</p>
<p>@ iglooo</p>
<p>I would, except that as you might have read, we had somewhat unusual circumstances. I will say, however, that this institution gave conflicting information, made mistakes in the initial round of transferring the IRA to the descendants, reversed itself after I contacted them to let them know about the mistake and decided that what they advised me they would agree to do would not be possible. I am now on my third go-around with this company. </p>
<p>Out of curiosity, how should children of a parent or spouse of someone who has had a history of serious irresponsibility with finances go about finding ways to ensure he/she doesn’t blow through his/her portion of the inheritance?</p>
<p>Am curious as I’ve known of some older classmates who had one parent who has such issues and it is a potential concern/ended up being a financial disaster for the children concerned when the more financially responsible spouse passes/passed*. </p>
<ul>
<li>Needing to financially support the surviving parent after he/she blew through his/her savings and inheritance.<br></li>
</ul>
<p>@cobrat </p>
<p>I believe the concerned party should consult with an estate attorney or read up on trusts first, then consult with an attorney. Essentially, you are trying to take financial decisions out of the hands of the “irresponsible” party but still give the financial benefit to that party. It is a complicated matter, similar to creating a trust for minor children or disabled children, but in this case for an adult. If it is a genuine concern, you need to involve an expert to make sure arrangements are properly made. </p>
<p>For people reluctant to seek counsel and whose situation is straight forward, a Legal Zoom will and trust is not a bad thing. I got my parents to do that when Dad was terminal and they had changed states. It has worked fine, the trust was accepted by all institutions. If the situation is complex, involves tax shifting, or cranky beneficiaries, then, don’t go with something that simple.</p>
<p>The hardest thing with Dad’s estate was passwords & logins. I now keep a doc hidden in my computer & it refers to usual personal or usual business passwords & logins. The “usual” and “new” info is hand written with our trust docs, the email Doc lets me update if there are special characters, capitals, etc. It is stunning to see how many logins we have. I have been working all year to update and sort and change passwords for some consistency- a theme for simple shopping sites, a different theme for more important sites.</p>
<p>The other thing that was painful was the bonds, my parents had about 100 $25 bonds, we had to fill out all sorts of paperwork to make them all e-bonds and get his name off. The site is difficult to use, too.</p>
<p>I am trying to use the lessons I see in settling Dad;s & preparing Mom’s estate and apply those lessons in DH & I’s planning.</p>
<p>I agree completely with @somemom </p>
<p>It takes settling someone’s estate or estates to learn what not to do and what one needs to do now.</p>
<p>I was lucky because my ILs were still using paper statements. If they had gone completely to e-statements, we would have been in much worse shape even doing the due diligence to find out exactly what they had. They kept a “master list” of investments and accounts, but that was approx 2 years out of date because ill health and lack of time inevitably took their toll. It was a good starting point though. Also, my H had started talking to his father about finances and where the accounts were, etc. </p>
<p>The first thing I did as I started re-doing our own financial housekeeping is to start a master list containing financial institutions, account numbers, online login information, etc., which I printed out and made sure it is easy to find among our files. And, to be honest, the best thing I can do is to simplify, so that our child won’t have to go through the boxes and files to find things. </p>
<p>AttorneyMother, Thank you for starting this thread and providing so much useful information. Your experience with the “nightmare” company is similar to what I recently went through. I messaged them 3 times and each time was told that I couldn’t do what I wanted to do, but was given different reasons. I left a negative feedback to their short satisfaction survey, and lo and behold got a phone call from someone higher up with an apology and confirmation that I was right in the first place. Good luck if you want to “ask Chuck”.</p>
<p>@momsquad </p>
<p>I’m glad you got satisfaction. Unfortunately, it is not always a matter of complaining to get the right or desired result in settling a decedent’s accounts. In almost all cases, the account will either pass by way of TOD or to a designated beneficiary (i.e., by contract). Otherwise, it will have to go to the decedent’s estate or via probate. </p>
<p>My ILs had a couple of “naked” accounts (what I called the accounts that did not TOD or beneficiaries in place) and those required either a “small estate affidavit” (which did not apply in their case) or letters testamentary (which are issued upon the probating of a will to the executor). In some cases, the death certificate sufficed, but that is the very rare case and the proceeds will be issued “the estate.” </p>
<p>It is important to note that there is estate “planning,” which is what we all hope to do well. And the more tedious and difficult estate “administration,” which is what our survivors/heirs will have to do between the time of death and the time the estate is completely settled. This interim period is made even more difficult and time consuming if the first part is not done well but it is not avoidable–someone will have to administer the estate regardless, doing such things as paying bills, closing accounts, settling inheritances, transferring ownership of assets, filing taxes, etc. Much work. </p>
<p>A few things we have done for our own estate, as well as working w my mom (I’m an only child, so it may not work for everyone)</p>
<ul>
<li>H & I each have trusts as the owners of our individual life insurance policies. This will keep them out of our estate. our estate attorney set these up 15+ years ago for us for under $500 each. Each trust has a non-interest bearing checking account (a trust w no income does not have to file a tax return) where we ‘gift’ the premium each year to the trust, which then pays the premium. I beleive each trust is set up to provide income to the surviving spouse and when the second one dies, the principal goes to our kids.<br></li>
<li>Converted my moms checking account to a joint account w me as a co-signer 10+ years ago. This gives me full access in the event she becomes incapacitated and will also keep it out of probate. (Don’t need to worry about taxes for her estate size).<br></li>
<li>mom is selling her house soon and I will be opening an account at Fidelity to deposit proceeds. We will open it in joint name a few weeks before the closing and then have proceeds wired in. I will then set up an ETF for her rent and utilities going forward, so she doesn’t have to worry about it. (Technically there’s a flaw here that she can’t ‘gift’ this to me at one time without paying gift tax, but the intent is not to circumvent tax law, it’s convenience).<br></li>
</ul>
<p>@nj2011mom </p>
<p>About the sale of your mother’s house and its proceeds, I believe that it may be considered a “taxable gift” to you during the year in which it occurs (because she conveys it from her ownership to joint ownership). “Taxable gift” in that the amount exceeds the annual $14,000 exclusion for individual gifts. However, it is my understanding that she has the option of having that “taxable gift” counted against her lifetime exclusion of $5.34 million before there are any estate taxes due. You might look into that question to avoid estate tax issues and for your peace of mind. </p>
<p>I believe that very few people are subject to the gift tax anymore, only those whose lifetime gifts exceed the $5.3 million exclusion. The confusion arises because any gift in excess of the annual exclusion, currently $14,000 per person gifted, requires the filing of a gift tax form with the IRS. This is so the Feds can keep a tally of your giving so they can subtract it from your lifetime maximum of $5.3 million. However you do not have to pay a tax on the amount in excess of $14,000. Keeping gifts under $14,000 is the easiest because they do not require the filing of any forms, but there is no financial penalty (except the extra cost if you hire a tax preparer to file the form) to giving more than that amount. At least that’s my interpretation of the law as a nonprofessional. Certain states my impose their own gift taxes, not sure about that. </p>
<p>@nj2011mom, are you working with a knowledgeable estate attorney? In general it is much better to inherit assets rather than to add your name as joint owner, for reasons explained by AttorneyMother. Your mom could draw up a revocable living trust and add you as co-trustee. You would be able to manage her affairs without requiring a springing power of attorney, although we found that some banks and the insufferable large brokerage have their own paperwork and legalese to maneuver through in order to gain power of attorney privileges. </p>
<p>Near the end of 2012 when there were fears of the limit reverting to $1 million, my in-laws were convinced to set up a family trust. When my MIL dies, it will split into 3 separate trusts for her 3 children. I don’t understand exactly how this trust works, the lawyer says tax-free withdrawals can be made for ‘education, heath, and maintenance’. I know the lawyer gets a hefty fee for doing the taxes on it each year, and since I do my family taxes I will have to learn about it at some point. I’m not happy about the whole situation, I wish they had left it alone. The amount she has in her estate is under the current limits. When H dies it will split into three for our kids and they will be saddled with it, have to have taxes done for it each year, etc. It depresses me whenever I think about it.</p>