Steps in Making Life Easier for Your Loved Ones

By: Brian Shonk, Managing Partner

How hard do you want life to be for your family and close friends if you become unable to handle your own affairs? How much red-tape do you want your heirs to cut through upon your passing? 

The answers to those two questions are typically “not hard at all” and “as little as possible.”

Consider this: Do you have documents and asset ownership in place to accomplish those goals? If the answer is “no,” then life will be exceedingly more difficult for your family and close friends when you become incapacitated or die.

In order to make things as stress-free and efficient as possible, you need to actively create your plan. That’s where your attorney comes in – a strong estate planning attorney is highly skilled in assisting you in designing, creating and executing a plan that fits your personal goals. 

The vast majority of Americans do not have adequate planning in place to make life easier for their families during failing years or at death. Several major surveys show that most of us do not have important items including:

·      Durable Power of Attorney for financial affairs

·      Living Will or a Health Care Power of Attorney in place to handle issues while we are alive.

·      Will, a Trust or have titled our assets in a way that makes the transfer of assets on death and the wrapping up of our affairs on death easier for a beloved spouse or our children.

Attorneys are able to sort out the most complicated situations, even without any of those documents. However, it can be frustrating, time consuming and expensive to weave a path through the public guardianship and probate processes unless there is a comprehensive and easy-to-understand plan in place.

If you die with no Will or Trust in place (“intestate”), the courts will follow Ohio law to distribute your assets. It will not matter what you promised your daughter or told your spouse.  

If you pass with only a Will in place, the court has a cumbersome process for giving notice to all heirs and beneficiaries before approving the Will, handling creditor claims and dividing your estate. This is known as “probate,” and the cost of this judicial step can easily eat up more than 5 percent of your estate's value and take a year or longer.

The good news is you can avoid this by setting up the essential documents and titling your assets now. There are several alternative ways to accomplish this. The tools we now have make it simpler to prepare a solid estate plan that is an everlasting gift you can give your family, no matter how small or large you think your estate may be.

Your family may not thank you now, but you will feel relief knowing that a solid plan is in place.  The thanks come later, as we wrap up an estate, trust or distribute assets to loved ones. We often hear a family member say something like: “I am so thankful that (Mom/Dad) set this up beforehand – it was incredibly hard to handle the emotional loss on their passing – but this legal part has been much easier than we anticipated.”  

THE STEPS

1.  Title assets so they easily pass to your loved ones – Use of TOD, POD and Trusts.

Ohio law now provides many tools that make for the easy transfer of assets outside the probate process. For example, we can record a “Transfer on Death Designation Affidavit” (TOD) so that your home and other real estate pass immediately to your intended beneficiaries, without surrendering any control of your property while you are alive. Similarly, you can make bank accounts “Payable on Death” (POD) to intended beneficiaries with the execution of one document at your bank. Investment accounts can also be made TOD/POD. Even car titles can be made TOD to a specific beneficiary. And the transfers occur without the Probate Court’s involvement.

Sometimes the TOD/POD option is not the best tool. There are times when your beneficiary may need additional protection only a Trust can provide. You may own a treasured family asset (family residence, small or large farm, vacation home) that needs specialized treatment in order to preserve that special family asset for everyone’s use for a long period of time. A trust, a limited liability company and/or a family partnership can be more appropriate than TOD/POD to preserve those types of assets.

Trusts, limited liability companies and family partnerships are not tools reserved just for the wealthy. A trust can help avoid probate entirely, regardless of the value of your assets, and provide some continuing supervision when appropriate. Most trusts allow you to make changes to how you would ultimately like it managed or disbursed. When you die, the person you designate as your successor trustee simply takes over and follows your wishes.  

Ohio laws prohibit anyone under the age of 18 from being able to directly inherit money or assets. Therefore, if you name a minor child or grandchild as a direct beneficiary of an inheritance or a life insurance policy, you may inadvertently create a messy situation for him or her. No financial institution will release money to a minor without a Guardianship being established in the Probate Court, and the minor's guardian will have to jump through legal hoops to get the funds to care for the minor.

If you have minor children or grandchildren you want to receive assets directly on your death, then you should consider setting up at trust. This way they can avoid the potential mess and costly legal fees of a Guardianship.

2. Make a Will.

Even if you properly title your major assets to avoid the probate process, you still need a Will.  First, a Will allows you to carefully specify how you want certain possessions to be distributed. For example, your grandmother’s engagement ring, the heirloom grand piano, that valuable baseball card collection—all can be itemized in a Will. 

Second, a Will is needed because you are likely to acquire assets after you prepare your estate plan, and forget to title those new assets so that they pass outside probate. For example, you might purchase a new car and forget to put a TOD designation on the title. In those instances, your Will provides the only means to sell or transfer the vehicle. The Will also governs who receives the residual estate (i.e. those items not specifically assigned for distribution), so that the beneficiaries in the Will share in the sale proceeds of the vehicle.

3. Execute a Durable Power of Attorney for Property and Financial Affairs.

A Durable Power of Attorney (POA) for property and financial affairs allows a trusted family member or friend to handle your financial affairs should you become unable to do so. Without a Durable POA, if you become physically or mentally unable to handle your affairs (even if only temporarily) a Guardianship will likely need to be filed with the Probate Court so that your financial affairs are kept current. The cost, delay, loss of privacy and loss of self in having the court declare someone legally incompetent in a Guardianship proceeding is shocking to many of our clients, especially when a properly prepared Durable POA would have avoided the entire Guardianship process. Placing assets into a revocable living trust can accomplish this same goal. A trust and transfer of assets to the trust is especially recommended if there is no appropriate individual to name as your attorney-in-fact (a.k.a. agent or representative) in your Durable POA.

4. Execute a Living Will and Durable Power of Attorney for Health Care.

So long as you are competent and able to communicate your wishes, you remain in charge of your own health care decisions. What happens if you become mentally unable to understand your health care options and make decisions? What happens if you become physically unable to communicate your wishes, even on a temporary basis?

Under those circumstances, the combination of a Durable Power of Attorney for Health Care (DPOAHC) and a Living Will allows you to express your wishes and appoint a trusted person who will make decisions for you consistent with your wishes. Without those documents, the stress of family members disagreeing on such matters becomes intense, and potentially costly. If no informal resolution is reached, sometimes a Guardianship of your person is required, but even the Guardian may have restrictions imposed by the Probate Court as to certain matters.

We work closely with you in framing appropriate language in your Living Will and DPOAHC that makes your general wishes known, and provides welcome guidance to your agent in making health care decisions for you should you become unable to do so.

5. Make your funeral wishes known.

You can make pre-planned funeral arrangements with a local funeral home and/or execute a Funeral Directive that tells your loved ones who is to make the arrangements and what you desire. The directives may be as simple as choosing between traditional burial or cremation, but they can include what type of service, whether calling hours are to be observed, where you wish your body/ashes to be placed.

6. Double-check who receives your retirement accounts.

A common situation is that of a divorce. An ex-spouse might have been listed as the beneficiary of an IRA or life insurance policy, and that document was never updated, it is highly likely that the ex-spouse will be legally entitled to the money in the retirement account or the death benefit from the insurance policy.

To be clear: it does not usually matter what you say in your Will or Trust when it comes to retirement accounts or insurance policies. The beneficiary document attached to your IRA accounts (and your life insurance policy) overrides what you say elsewhere.

While there are things your family law lawyer can do to prevent these unintended results, if you want to assure that a different beneficiary receives the money, you must change the beneficiary document. Be aware that there are limitations on changes to beneficiaries on certain retirement accounts while you are married – your spouse is legally the default beneficiary for all 401(k) accounts. If you want to choose an heir other than your spouse while still married, you must file a written waiver (signed by your spouse) with the financial institution holding your retirement account. Taking the steps to set up your estate properly, including updating beneficiaries on retirement accounts and insurance policies, will spare your family some additional difficulties in the future.

7.  Observe the Good Your Gifts Can Do

There is no law saying you have to die before your assets can be passed to loved ones. In fact, gifting earlier can be a lovely way to personally see how your money helps your family thrive. There are times when a gift now could make all the difference in the world to your family.

A word of caution – before you give away anything of substantial value, think seriously about your own future. On average, a 65-year-old person will live 20-25 more years, so you should first be sure your own retirement is secure.

If you are in a position (and want) to make gifts now, you can give gifts of up to $14,000 each year to each recipient without concern of the federal gift tax. The annual exclusion from gift tax in 2016 is $14,000, and it adjusts for inflation each year. The $14,000 limit applies to individuals, not households. For example, you could give $14,000 to your adult son and $14,000 to his wife in December 2016. Your spouse could give the same—resulting in a total of $56,000 free and clear of any gift tax. You can then do the exact same thing in January 2017.  Further, you can make unlimited gifts to pay for someone else's educational or medical expenses without worrying about gift taxes. However, there are nuances to what type of assets to gift, including income tax and capital gain considerations. Therefore, a thorough review of your assets, income and goals should be completed before engaging in a regular pattern of gifting.

Now that you understand the importance of estate planning, please know that we are here to walk with you through this process. We realize this information can seem overwhelming. Breaking the process into steps can bring some clarity. Our first task is to organize the information into an understandable set of options tailored for your family’s needs. Second, we will guide you in making specific decisions for your plan that will best achieve your goals and protect your loved ones. Third, we will implement that cohesive plan to make life easier for you and your loved ones, providing peace of mind during the good times and a well-thought out plan that kicks in when you and your loved ones are faced with the difficult times that every one of us eventually faces.

Please contact us at 740-653-6464 or click here.