Oklahoma City Attorney, Sara Murphy, is a full service Estate Planning Attorney. Sara specializes in fundamental estate planning, adult guardianship, probate & estate administration, wills & trust planning, powers of attorney, elder law, Medicaid application & qualification, long-term care planning, and more.
How do you ensure that you’ll be remembered as time and generations continue after you’re gone? One way to create a legacy is through the use of life insurance.
According to this article in MarketWatch, “5 ways to make a great impression after you’re dead,” life insurance is the Swiss Army knife of creating a legacy to ensure that you are remembered long after you have passed. That includes a legacy to loved ones as well as your community or causes that matter to you.
The payout from a life insurance policy—known as a “death benefit”—can be used to create a legacy. It’s even more than that for someone who wants to leave a legacy to their spouse and children. A life insurance policy can have a direct impact on individual lives, after you’ve passed away.
Immediate family first. The greatest legacy that you have is your family. Life insurance can assist with financial protection for them. If you have family who rely on your income for their day-to-day lives, think of them when deciding on life insurance and the amount of coverage you need. Your legacy can live on through a death benefit that can pay off the family home mortgage, contribute towards college tuition or help start a business. It can ultimately provide income that helps your loved ones continue to meet their financial needs, if you’re no longer around.
Be the “cool” aunt or uncle. Your nieces and nephews may not need a life insurance policy from you to cover their day-to-day financial needs. However, naming your nephew as a beneficiary of your life insurance policy is a gesture that would cement you as the best aunt or uncle ever. There are numerous uses for life insurance that could help your extended family. Be sure to talk to your siblings to make them aware, set expectations and allow them to factor the money into their family’s overall financial plans. A big influx of cash could have an impact on student aid, so it’s an important conversation to have.
Remember a legacy to your favorite charity. Maybe your legacy should be giving back to your favorite charity, like one dedicated to finding a cure for a disease or animal rescue. Life insurance offers the way to help charities after you pass. You can still continue giving back and advocating for what you believe in, after you are gone. Alternatively, you can name a trust as the beneficiary of your life insurance policy and provide the trust with specific instructions to give a certain amount of your estate to the charity when you die. You could also use your life insurance to establish a scholarship at your alma mater. Contact your school’s development or advancement office for assistance.
Talk with your estate planning attorney about how a life insurance policy can be a part of creating your legacy. You’ll want to make sure that the policy and your beneficiary designations are aligned with your estate planning objectives.
Depending on the amount of money and your level of wealth, the effect of receiving an inheritance can be a minor change in your tax liability or a notable change in your lifestyle. When looking at your options for an inherited IRA, it is important to recall that the tax rules differ depending on whether the beneficiary is a spouse or a non-spouse. For non-spouse beneficiaries like children or grandchildren, you need to understand the rules to avoid paying substantially higher income taxes and to keep more of your inheritance.
To simplify the decision-making process, we’ll look at selling the assets and taking a lump sum withdrawal or keeping the account invested.
Take a lump sum. A windfall inheritance may allow you to make a large purchase like a home or to take your dream vacation. However, before you decide to cash in some or all your inheritance, consider the income tax implications and the risk of comingling your inheritance. Withdrawals from an IRA account—whether an inherited IRA or a regular IRA—are taxed as ordinary income in the year of withdrawal. Consider this if you plan to liquidate your entire inherited IRA account, because the value of the assets will increase your taxable income in the year that you sell the assets and take the funds.
If you decide to take a distribution from your inherited IRA, decide where to deposit the cash proceeds. If you’re married, segregate money in an account titled in your own individual name, which will help to protect your inheritance in the event of a divorce. Typically, when inherited funds are comingled into a jointly held account, they become marital property.
Invest the inheritance. To avoid the immediate tax burden triggered by a lump sum withdrawal from the inherited IRA, or if you don’t need the money now, keep the assets invested, so the inheritance can continue to grow tax free. However, there will be mandatory distributions from the account over time. Talk to an attorney about the annual required minimum distributions, because the rules are complicated and are affected by factors such as your age, number of account beneficiaries and the age of the deceased.
If you decide to keep the inherited IRA invested, be certain that it’s titled correctly and designate your own beneficiaries. The IRS has strict rules on how to title an inherited IRA, and if disregarded in the estate settlement, your inheritance could become fully taxable, or your minimum distributions might be determined based on the life expectancy of the oldest beneficiary. Either way, your personal taxes will be impacted, thereby decreasing your total net inheritance.
Once you establish a segregated account for your inherited IRA, be sure to complete a beneficiary designation form for the account. You should first speak with your estate attorney because your beneficiary designation decisions can have tax and estate planning ramifications.
An inheritance is a gift, at the same time that the loss of a loved one that led to the inheritance is cause for sorrow. If your inheritance includes a non-spousal IRA, be mindful of these rules so that you don’t lose a substantial part of the gift, whether to enjoy it yourself or to pass it along to the next generation.
People are often surprised when they learn what estate planning encompasses. It’s not just for the wealthy, and it’s more than about distributing assets on death.
Even if your “estate” is a single family home, apartment or condo and your assets include a few retirement accounts and a stack of photo albums from the 1960s, you still need an estate plan. That’s because an estate plan includes more than directions on how assets should be managed after you die.
WMUR’s recent article, “Money Matters: Importance of estate planning,” starts with some basics. An estate includes all of the property that you own. It is the outright ownership or ownership you share with someone else, like your home, bank accounts, investments and heirlooms. Managing these assets through all of your life events is the objective of an estate plan. It also includes a plan for what you want to happen with your healthcare and finances if you become incapacitated and can’t communicate your wishes. This is done with a healthcare directive and is a part of estate planning.
Here are a few other items that you need to consider with the help of a qualified estate planning attorney:
Financial plan. You should have a firm grasp of your finances and your family situation.
Will. The key document that all plans should contain. A will spells out the property you wish to leave to family, friends, and organizations. You should also name a personal representative to manage the probate process.
Guardianship. Your will should also designate guardians for your minor children, so you can say who will rear your children, if you and your spouse both die.
Directives. This includes durable powers of attorney for finances and health care. You can name individuals who you trust to take handle your finances and make health care decisions, if you’re unable to do so. Without these documents in place, the court will appoint someone to manage your finances. This could be someone who is unfamiliar with you and your situation.
Trusts. A trust lets funds be managed by a person or group for the benefit of others pursuant to the instructions in the trust document. Blended families, families that include children with special needs, and situations where control over the funds for an extended period is needed, are all potential scenarios for a trust.
Beneficiary Designations. Life insurance proceeds and retirement accounts will pass via beneficiary designations, so these should be current and aligned with your estate plan.
Funeral plans. You can leave specific instructions about your final arrangements, such as being buried or cremated, as well as electing to donate your organs.
When an estate plan is in place, you gain the peace of mind of knowing that your family doesn’t have to guess what you wanted. If you don’t have an estate plan, the laws of your state will be applied by the court, but it might not be what you had in mind.
A qualified estate planning attorney will work with you to cover all of the basics.
Think of your will as a love letter that will tell how you want to care for your family and friends when you are gone. It is not just a way to direct how you want your assets to be distributed.
Estate planning can make people uncomfortable, since it forces us to contemplate our own death as well as the idea that after we are gone, the world will continue. But it is recommended that you pivot your thinking and consider a will as a message to those who you leave behind. It shows that you thought enough about them to spare them from the stress and expenses that result when there is no will. It can also give you peace of mind, knowing that you’ve taken care of the hard details and made the necessary choices.
Some of the elements of final planning are described below.
In the article, “A Will Can Be a Beautiful Thing,”Kiplinger’s advises that the initial step in estate planning is creating a will. A recent survey found that 64% percent of American adults don't have a will. They either decided they didn't need one or they have just kept putting it off. A will instructs who you want to inherit your assets. It’s also used to let parents name a guardian to care for their minor children. Without a will, all of your estate may wind up in probate court. One option of an estate plan is a living trust. A trust transfers assets from the trust to beneficiaries without having to go through the probate process.
Here are a few other reminders about estate plans:
Spell Out Your Decisions on End-of-Life Care. Tell loved ones your wishes in the event that you are unable to make medical decisions for yourself. This includes life support, sustenance and pain treatment, as well as organ donation. A living will also contains a health care declaration with a power of attorney designating the agent you name to ensure that your medical instructions are executed.
Check Your Beneficiaries. Fill out each of the beneficiary designations for your bank accounts, brokerage accounts and life insurance policies. You should specify both your primary and contingent beneficiaries.
Document Your Funeral Wishes. Specify whether you want to be buried or cremated. You can also list favorite music or scriptures for your end-of-life celebration or funeral. You should also note if you’re a veteran and whether you have funds put aside for funeral expenses.
Important Papers and Information. Keep real estate and car deeds, wills, trusts, insurance policies, retirement benefits, 401(k), and IRA documents in a safe location. However, make sure to tell the executor of your estate where these items are kept.
Planning for Married People. Each member of the couple should have their own will, since it is not likely that you will both pass away at the same time. If you have a separate will for each spouse, you can take into consideration circumstances like children from a prior marriage, charitable causes that you want to support that your spouse may not value as much as you do and your personal effects.
Your will can be another way that you show your loved ones how much they mean to you, and that you want to protect them, even after death.
Wills and trusts are two very different kinds of documents used in estate planning. Everyone needs a will, but not everyone needs a trust. Knowing the difference will help you to understand what you need.
A will is the cornerstone of an estate plan. It’s the legal document by which an individual instructs how property should be distributed among heirs, as explained by WMUR in “Money Matters: Wills vs. Trusts.” A will must be processed through the probate court system, which is how your affairs will be concluded after all debts have been paid. Your will includes the name of your executor. That’s the person who is in charge of making sure that your wishes, as expressed in the will, are fulfilled.
On the other hand, a trust is a legal document and the grantor is the person who creates the trust. The grantor decides what assets are going to be included, selects the trustee and chooses beneficiaries. The trustee manages the property in the trust and protects the assets for the beneficiary. The trustee distributes assets according to the trust’s provisions.
The grantor can be the trustee, and if it’s you, you need to name a successor trustee, in case you are unable to function as trustee. The beneficiary can be you during your lifetime and then your spouse, children, or friends at your death. The trust also directs when and how the assets are to be distributed to the beneficiaries.
For a trust to function properly, you’ll need to transfer the title of assets to the trust. For example, your brokerage account can be transferred into a trust account, and IRAs and 401(k) s can name the trust as the beneficiary.
Here are some significant differences between wills and trusts:
Will are public records, but trusts are usually private;
You must transfer assets to your trust for it to work, while you’re alive. This is not the case with a will;
A trust can manage assets while you’re incapacitated, but a will only works at your death;
With property in more than one state, you might be able to avoid probate in each state by placing all of the property in a trust; and
You can designate a guardian for your minor children or dependents in a will, but not a trust.
Depending on the complexity of your estate, including its size, you may find that you need a will and a trust, or several different types of trusts. An estate planning attorney will be able to help you identify what, if any, trusts, are needed to protect your family.
Children worry about their aging parent’s ability to manage money and are often concerned about what happens when their parent passes away and leaves a substantial amount of debt behind.
Kids know their parents all too well. So when your questions about credit card debt go unanswered, or if you get a vague “don’t worry, it’s nothing” answer, you may be right to be concerned. It’s not unusual for adult children to discover sizable credit card debt after their parents pass.
Kiplinger’s recent article, “Dealing With Debts After Death,” says that in one instance, an elderly father used the credit cards to help pay for his late wife's time in an expensive nursing home.
In most instances, the child won’t be responsible for the debts of the parent.
With more seniors piling up debt, many children ask what happens to their unpaid bills when they die. Seniors have been taking on more debt in the last two decades. From 1989 to 2013, the Federal Reserve's latest Survey of Consumer Finances says that debt loads nearly doubled for households headed by older people, from 21% to about 41%. Children sometimes discover a deceased parent's unknown debts. They are also worried they've inherited them.
Some debts aren’t clear, like tax obligations that can impact an inheritance.
Typically, when a person dies, his or her estate owes the debt. Their estate’s assets are used to repay the debt. That will eat into the amount left for the heirs. If there's not enough money to cover it, the debt goes unpaid. As far as unsecured credit card debt, children typically don't inherit a parent's unpaid balance, regardless of the amount or purpose of the spending. But a child who’s a joint holder on the credit card would be liable.
Retirement plans with a named beneficiary, such as a child, can't be reached by creditors of the deceased. However, if the deceased parent named the estate as the beneficiary of an IRA or 401(k), creditors have access to it to collect the late parent's debts.
For a parent's federal student loan or Parent Plus loan, the outstanding debt is canceled upon death. However, the Education Department recently has required the borrower's estate to pay taxes on the forgiven debt.
What if your parents owned a home and there is still a mortgage on the property? If you want to keep the house, one option is to contact the lender and try to take over the payments. Another is to sell the house and pay off the mortgage. If the house is underwater—that is, worth less than the amount of the mortgage—the creditor holds the debt, not the heir. An estate planning attorney will be able to help your family navigate this part of the estate.
Longer lives are great, but a longer life that includes good health, adequate resources and a high quality of life takes a lot of planning and discipline.
According to a survey of seniors from the National Council on Aging, 80% of respondents said that they planned to remain in their homes, although 40% felt that they would need a child or grandchild to care for them at some point. The survey, reported in an article in Forbes,“You May Live Longer Than You Expect: Are You Prepared?”, also found that about a third didn’t know if they had enough money to last through retirement. Here’s the kicker: some of those surveyed didn’t have a financial plan in place.
There are several things you can do in preparation for a good quality of life as you age. First, begin as soon as possible so you can take full advantage of resources that can help you have a longer, healthier life. You should start with financial planning. It is important to share your current financial situation and describe your goals for both before and after you retire. This will allow you to design a workable plan that will help you achieve those goals.
Next, look at legal and estate planning. Depending on your individual circumstances, your plan can be relatively simple or complex, but should be tailored to your needs and objectives. At a minimum, make sure that you:
Create a complete estate plan. That includes a Living Trust, a Living Will, Durable Powers of Attorney, Healthcare and HIPAA Power of Attorney, and estate planning letters;
Designate guardians for minors and dependents;
Create written instructions for locating important documents, like your insurance policies, bank accounts, and other financial assets;
Designate your retirement plan, 401(k), and IRA beneficiaries; and
Make funeral arrangements, whether pre-paid or pre-planned.
Your comprehensive estate plan should ensure that your assets are distributed how, when, and to whom you say. This can relieve loved ones of the stress and emotional impact of making difficult financial and medical decisions on your behalf, if you’re unable to do so because of incapacitation.
Now that your financial and legal health has been addressed, don’t neglect your physical and emotional health and well-being. Make sure to have annual checkups with your doctor, and include a fitness evaluation. The chances of your living a longer, healthier and more rewarding life are more possible today than ever before.
Avoiding estate planning because it forces us to consider our ultimate fate, overlooks the fact that having no plan leaves us unprotected in the event of incapacity. It also leaves our loved ones with taxes and legal costs that could be easily be avoided.
If you need another reason to address estate planning now, pop icon Prince should serve as a good example. Dying unexpectedly early at age 57, Prince left behind an estate valued at approximately $300 million. With no will, no spouse, no children and five half-siblings squabbling over his fortune, about half of his estate will be consumed by federal and estate taxes.
To be certain that at your death your estate isn't dragged through the courts and eviscerated by taxes, and all of your related decisions are executed in the way that you want, remember the following steps:
Inventory. Take inventory of your assets and liabilities to calculate your net worth and what’s in your estate. Before you visit an estate planning attorney, take some time to create this inventory to make sure that the meeting is worthwhile and to discuss the issues more thoroughly.
Beneficiaries. Select your beneficiaries and decide how you want your assets to be distributed. If you have children, you might consider a trust until the time when they receive their inheritance. For example, they could receive a portion at age 18, more at age 25 and the rest when they turn 30. You should also be sure to update your beneficiaries on retirement accounts and life insurance policies.
Your plan manager. Who’s going to quarterback your plan? It is important to designate an individual to have power of attorney to handle financial matters, if you become incapacitated and an advance health care directive, so someone you trust can make medical decisions on your behalf. A living will details the types of medical decisions you would prefer, such as an order not to resuscitate (DNR).
What’s in the plan? Talk with an experienced estate planning attorney and determine what type of plan is best for your situation.
Every state has different laws regarding inheritance. Therefore, you’ll want to sit down with an estate planning attorney who will understand that laws of your state and your own situation. Whether or not you have a spouse, children or live with a partner, all of these factors go into creating a personalized estate plan that works for you. No matter how unpleasant it is to contemplate you own mortality, this is an important task and should be done sooner rather than later.
Estate planning includes planning for incapacity, which no one believes will ever happen to them. Having the right documents in place, makes a difficult situation more manageable.
Accidents and traumatic health events happen to people every day, even to the healthiest among us. For some, a health crisis is a short term problem, but for many others, entire lives are changed. Without an estate plan, which includes documents concerning incapacity, the consequences can be enormous, according to The Business Journal’s article, “Proper estate planning is as much about life as death.”
Make a plan. A will is a legal document that provides evidence of your wishes to those who will represent you after death as executor and provides instructions to that person on how and to whom to disburse the assets.
Power of Attorney and Revocable Living Trust. Without a durable power of attorney or a revocable living trust, financial institutions won’t speak with someone trying to help you with your financial affairs. If you’re critically injured or terminally ill and you have no end-of-life care instructions, your family won’t know how to carry out your wishes. A health care power of attorney can empower the person(s) that you choose to direct your medical care consistent with your wishes.
Beneficiary Designations. Life insurance, retirement plans, and financial accounts have beneficiary designations or are held as joint tenants. They, therefore, pass directly to someone else at death without probate. It is important that these designations are consistent with your overall estate plan.
Guardianship. If you have minor children, you need to designate your preference on guardianship. If you have young adult children or others dependent on you for care or financial support, there are trusts that can ensure this support continues during periods of incapacity and after death.
Taxes. You need to look at both income taxes and estate taxes when planning. Inheriting property is typically not a taxable event, but if you are liquidating certain inherited property—like an IRA or an annuity— it can result in a significant income tax bill. Proper planning can help minimize overall income and estate taxation.
Keep your plan current. Everyone has changes and life events. These changes can impact your family structure, financial situation, personal wishes, and new tax laws on your estate. Review your estate documents and your beneficiary designations regularly.
To protect yourself and your family, you should speak with a qualified estate planning attorney to ensure that the right documents are prepared for your situation. If you go with a “do-it-yourself” plan, you won’t know if the documents are correct. You may have saved some money, but the cost and problems of incorrect documents that your loved ones will have to deal with, will far outweigh any savings.
Once you turn 30, if you haven’t already gotten focused on saving for retirement and managing your money, it’s time to grow up!
One of the hallmarks of being an adult is having a job, an emergency fund with about six months’ worth of living expenses (in cash) and starting to save for retirement, whether through your employer’s program or an IRA or SEP of your own. In “3 Smart Money Moves to Make in Your 30s,” Motley Fool outlines three important tasks for your financial “to-do” list.
Bump up retirement savings. While still at an early stage of your career, saving for retirement should be your #1 priority. Remember that the earlier you begin to save, the better it is because there’s more time for your money to compound for you. You may also not have any big financial commitments yet, like a home and family. It is important to save as much as you can now, because it becomes a lot more difficult when you have added financial responsibilities. If you’re not maxing out your contributions to your retirement account at work, think about upping your deferral by at least 1% a year—if your salary also increases each year.
Manage risks. Two of your greatest assets are your health and your ability to earn income. You need to protect those assets. One option to protect your income stream, is to invest in disability insurance and life insurance. The Social Security Administration says there’s a 1-in-4 chance that a 20-year-old will become disabled during his or her working life. The loss of income due to a short-term or long-term injury or disability can have a dramatic impact on your life and finances. Your income is important to your well-being and to your livelihood. It is important to determine if your employer has disability insurance and to check to see if the coverage fits your situation. Your need for life insurance depends, to a great degree, on whether you have someone else who depends upon your income. If there is no such person, then there's a good chance you don't need life insurance. However, if you have children or support your elderly parents, a policy may be needed.
Create an estate plan with an experienced attorney. Don’t stick your head in the sand on this because you think you are too young. If you have a family and assets, you need an estate plan to protect your family from the cost and stress of probate and to distribute your assets when you die. An estate planning attorney will know what documents you need, from a will and power of attorney to health care directives. This will also help you review your beneficiary designations. Certain assets, like retirement accounts and insurance policies, are governed by the beneficiary designation, no matter what your will might say. You should check those beneficiary designations to keep up with changes in your life. Thirty is when a lot of people marry and have children, so this is an especially important time of your life to keep these current.