One Thing to Do for Your Children Now That They Are Adults.

Amazing how quickly time passes.  This post was originally written seven years ago, but for those with children graduating from high school soon, it is worth repeating.

graduationMy son just graduated from high school and will be off to college soon.  We are already deciding what computer, rugs, curtains, posters, shelves, etc. he will need.  We are looking at a bank account and debit card for his incidentals.  Is there anything else to consider?  Well, yes there is.

Now that your child is over 18, he is an adult – scary thought!  If your child should have an accident at school and need medical care, the health care providers may be reluctant to provide you information or take direction from you unless your “child” has granted you that right.

Here are some important documents to prepare:

Durable Power of Attorney.  This document gives another person the authority to make personal and financial decisions on your behalf. A Durable Power of Attorney can cover all aspects of your personal and financial affairs, or may be limited to specific situations and activities. Of all the documents listed here, this one probably has the most options for specific tailoring.

Medical Power of Attorney.  This document designates a person your child trusts (presumably you, but may be others, also) to make health care decisions on his behalf should he be unable to make such decisions. It is effective immediately after it is executed and is typically effective indefinitely.  The agent may make health care decisions on your child’s behalf only if your child’s attending physician certifies in writing that your child is incompetent to make those decisions. The physician must file the certification in the medical record. Treatment may not be given to or withheld from your child if he objects. This is true whether or not your child is incompetent.

Directive to Physicians and Family.  This document is sometimes referred to as a living will.  It is used to prohibit or authorize the use of life-prolonging treatments when a person’s condition is terminal (doctor has diagnosed the person with less than six months to live) or irreversible (condition, injury, or illness that may be treated, but is never cured or eliminated; that leaves a person unable to care for or make decisions for the person’s own self; and that, without life-sustaining treatment provided in accordance with the prevailing standard of medical care, is fatal).

HIPAA Release.  This is a critical document.  It allows medical providers to release to the designated persons medical and health related information about the patient that would otherwise be protected under federal law from being disclosed.

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Mistakes Executors Make

An article published in the Wall Street Journal several years ago is still one of my favorites.  It is particularly relevant to those who are serving or have been designated as executor executor2in friends’ or family members’ wills, but it is also important for those who are doing the appointing.  Are you designating someone who is likely to fall into some of these traps?  If so, you may want to alert them ahead of time.

The article is reprinted below in full.

The Biggest Mistakes Executors Make

Settling an estate is often a thankless task.

Here’s how to avoid some common pitfalls.

Veronica Dagher
The Wall Street Journal
Jan. 31, 2016

Serving as an estate executor isn’t for the faint of heart.

It can seem like an honor, at first. When people make out their wills, they typically name a trusted person as their executor, who then has a legal responsibility to distribute their property according to the wishes of the deceased, and make sure all debts and creditors are paid.

But in addition to lots of paperwork and deadlines, the job often comes with a minefield of family issues. And worst of all, executors can be sued.

Here are some of the biggest mistakes executors want to avoid:

Paying bills too quickly

Often an executor will start receiving the deceased’s mail and paying credit-card bills and other invoices as they arrive, says Debra Doyle, shareholder at the law firm Greenberg Traurig in Chicago. They do this, Ms. Doyle says, in the mistaken belief that timely payment is required.  In truth, such bills are well down the list of priorities for payment. Paying these debts before all other classes is a breach of fiduciary duty and potentially exposes the executor to personal liability, Ms. Doyle says.

Ms. Doyle recalls one estate that carried a significant federal income-tax liability the executor knew nothing about. Once the tax bill became known, there wasn’t enough money left in the estate to pay it since the executor had first paid other debts.

In cases like this, the executor potentially has a personal liability to pay the outstanding tax liability because the executor improperly paid estate assets to satisfy lower-class creditor claims before settling the IRS claims, Ms. Doyle says. In some cases, the IRS may be willing to settle with the executor, but not in all cases, she adds.

Before paying any creditors, executors should consult with a trust and estate attorney to understand the priority of payments. For example, funeral expenses and federal and state taxes take priority over other debts such as the cable bill, she says.

In addition, the executor should consult with the estate’s accountant for an estimate of all tax liabilities, and consult with the estate’s attorney to estimate all administration expenses and payments, if any, due to the surviving spouse or children under a spousal or child’s award from the probate court.

Even after setting aside sufficient estate assets to satisfy the highest priority creditors, executors should consider satisfying all other debts and creditors only after the entire estate administration has been completed and all tax returns filed and taxes paid. This process may take nine months to two years, depending on the complexities involved, Ms. Doyle says.

Playing the market

Some executors are tempted to invest an estate’s assets—in an attempt to increase the value of the estate—during the settlement process. That can be a risky tactic. For one, an executor generally has no obligation to increase the value of an estate’s holdings, even if the distribution to heirs is prolonged.

It’s especially risky when an estate plan calls for giving a trust or individual a “pecuniary” amount, which is a precise amount based upon the value of assets reported on the estate tax return, says Hugh Magill, Northern Trust NTRS -3.48 % ’s chief fiduciary officer. That specific amount must be distributed to the trust or individual, regardless of fluctuations in the value of the assets before funding.

One father named his three adult sons as executors under his estate plan, which included a pecuniary formula for funding the trust for the surviving spouse, with the balance of the estate passing to the sons. The estate consisted largely of high-quality bonds, which the sons sold shortly after their father’s death to invest in a much riskier portfolio of small-cap stocks, which they hoped would grow, Mr. Magill says. But the value of those stocks declined more than 50% before the spouse’s trust was funded at the full amount required. The sons’ resulting share bore the entire decline in the stocks’ value, resulting in a loss to them of more than $5 million.

If the decline in the stock portfolio had been so large that the spouse’s trust could not be fully funded, the sons’ actions could have subjected them to a lawsuit for breach of fiduciary duty, he says.

Don’t “play the market” during the estate-settlement process, Mr. Magill says. In most states, the executor has an obligation to conserve, but not to increase, the value of the assets during estate settlement.

Mishandling real estate

Real estate is often one of the hardest assets to administer, says Ms. Doyle. One beneficiary might be living in the house, while another might want it sold quickly. The executor must decide the listing price and the commission to pay the real-estate agent, Ms. Doyle says. Unless amicable decisions can be reached among all of the beneficiaries, the executor may be forced to seek probate-court assistance, she says.

In addition, real-estate agents may recommend certain improvements to the property before the sale. Before authorizing any improvement, the executor needs to consider whether he or she is authorized to spend estate assets to make such improvements.

Executors also should be careful not to hold on to a house for too long. Insurance companies don’t like to insure empty houses for extended periods, Ms. Doyle says. If the home is vacant, the executor also needs to beware of maintenance issues. If a pipe breaks, significant damage can be done before anyone discovers it. Repairs can cost thousands of dollars and delay a property’s sale.

Executors should maintain the homeowner’s insurance on the decedent’s house in case of a fire or accident, says Avi Kestenbaum, partner at the Meltzer, Lippe, Goldstein & Breitstone law firm in Mineola, N.Y.

Losing tangible assets

Executors sometimes don’t realize that assets—tangible and intangible—belong to a new entity, the estate, as of the date of death. It’s the executor’s responsibility to keep the assets safe while arrangements are made to distribute them according to the decedent’s plan, says Paulina Mejia, managing director and head of wealth strategies at Atlantic Trust in New York.

Ms. Mejia says she knew an executor who was a family friend of the deceased and didn’t realize the son was helping himself to his late father’s works of art and valuable items while the estate was being settled. This caused many problems, because the will bequeathed the art to a museum. The executor could have been sued, she adds.  The executor should have immediately taken an inventory of the assets and arranged to appraise and securely store the art until it was ready to be distributed to the museum, Ms. Mejia says.

Executors must find all of the deceased’s assets and sort through all of their personal belongings to account for the entire estate, says Victor Ngai, an executive at Guardian Life Insurance Co. of America in New York. They also may need to get security for the home.

One other word of advice from Mr. Ngai: Don’t succumb to family pressure to make distributions too soon. It may result in insufficient assets to pay off creditors, he says.

“Money has a habit of changing the attitudes of a lot of people,” Mr. Ngai says, “but an executor’s job isn’t simply to distribute wealth.”

Ms. Dagher is a Wall Street Journal reporter and host of the Watching Your Wealth podcast. Email: veronica.dagher@wsj.com.

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Signed My Will – Now What?

If you have had a will prepared and signed it with the appropriate formalities, don’t allow communicationsyour family to be the one calling the attorney and saying, “Dad said he had a will, but we cannot find it.”

Family communication is key to many aspects of life and estate planning. If your will leaves your estate in a manner that might seem strange to your family, be sure to tell them ahead of time. Don’t surprise them with a substantial bequest to unfamiliar friends or charities unless you have told them ahead of time. Don’t appoint an unusual executor, trustee or guardian unless you have told family members ahead of time. If you don’t communicate, family members are likely to challenge the will, quarrel among themselves, or have long term strained relationships.

Another key communication issue is to tell your family members, especially the executor, where the original of your will is kept. You might have it in a bank safe deposit box that will never be found. Or it might be thrown out with a bunch of miscellaneous papers that no one thought was important. Be sure the file or envelope you have it in is appropriately and conspicuously labeled and at least a couple trusted people know where it is. If you have no trusted friends, consider filing your will with the county clerk.

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Is It Really a Free Dinner???

Have you received the mailings or seen the notices in your local newspaper or periodical?  Free Lunch Seminar on the Critical Elements of Estate Planning.  Free Dinner (at a fancy restaurant) on what you need to know to maximize your government benefits.  These and similar offers usually focus on the great dinner you will get or the intriguing topics, but only in the smallest of print at the bottom of the page give you any hint as to who might be giving you this information.

trap-860x450_cThe one I recently saw caught my attention because it included a statement that “Financial Professionals, Insurance Agents and Attorneys will be charged a $2500.00 educational fee.”  Let me tell you, each of those professions put on hundreds of educational programs for their members every year and even the more expensive of them are frequently priced at a tenth or less of that figure.  The real translation of that statement is “We don’t want educated people who might be able to poke holes in our presentation to attend.”

That should concern you.  Groups like this want to get you one-on-one to pressure you into spending much more money than you need to spend for something you will likely be left not understanding, but feel like you got all your needs covered.  Or they are primarily interested in getting you to move your investments to their company so they can charge you ongoing fees.

I am not saying all of these seminars are bad.  I have seen some good informational presentations, but you need to understand that most likely there is going to be some sort of sale presentation included – immediately or as a follow up.  And you should investigate the qualifications of the presenters.  Is a financial person advising you on estate planning laws?  Is a lawyer talking about how to manage your money?  Are the presenters experienced in the field in which they speak?

Bottom line, there is no truly free dinner.  Be cautious.  Investigate who you are dealing with before you accept what they say or pay them any money.  And take your time before moving forward with any decision.

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Have You Protected Your Digital Assets?

Digital assets are fast becoming one of the most valuable parts of many people’s estates.  The following column alerts us to ideas for protecting those assets when we die.digital

Don’t leave grieving relatives searching for your passwords: Here’s how to organize your digital life before you die

There was a time when you didn’t worry much about your email account, or the website you bought years ago, or your usernames and passwords for various financial and other accounts.

But now you do. Now you must make sure that your loved ones have access to your digital assets should you die.

“Digital assets are becoming more and more prominent parts of people’s estates – they just can’t be ignored anymore,” says Karen Van Voorhis, a certified financial planner with Daniel J. Galli & Associates.

So how do make sure your digital assets don’t die with you?

Here’s what experts say:

Put digital assets into your estate plan

Almost everyone neglects to consider this, no matter their age, says Kashif Ahmed, president of American Private Wealth.

“Make provisions in your will to authorize your designated executor to be able to retrieve your digital assets, and also to be able to shut down your digital accounts, especially social media such as Facebook.”

Ahmed has witnessed “horror stories” of social media accounts remaining active long after someone has died being taken over and “used” by someone else.

Barbara O’Neill, the CEO of Money Talk, recommends completing a digital assets inventory worksheet and sharing it with trusted individuals such as your spouse and the executor of your estate. An example can be found at https://njaes.rutgers.edu/money/pdfs/Digital-Assets-Worksheet.pdf.

A word of caution: Expect this task to take several hours to confirm usernames and passwords, says O’Neill.

And don’t overlook any account, says Van Voorhis.

“Accounts with an actual monetary value like PayPal or Venmo are actually includable in your estate, and someone needs to know how to access them if something happens to you,” she says.

And when it comes to language in your will, Judson Meinhart, a certified financial planner with Parsec Financial, says a “broad, catchall statement regarding the distribution of your digital assets – or the inclusion of them in your estate – is your best friend.”

Use a password management tool

Leveraging a service like LastPass, Dashlane, or Password Boss provides a convenient means for inventorying all your online accounts and can also help you create more secure passwords, says Meinhart.

Make sure too, says Thomas Murphy, a certified financial planner with Murphy & Sylvest that someone else – your designated executor or financial power of attorney, knows how to access those tools.

When available, Meinhart says the best option is to use service providers’ own account tools.

“These tools are unique to the individual service provider – Google, Facebook, PayPal, etc. – and provide the user with a variety of options, from naming a legacy contact who will be provided limited access to an account, to the outright deletion of your account and data if your account remains inactive for a certain period of time,” he says.

Create a digital vault

Dana Menard, the founder and CEO of Twin Cities Wealth Strategies, gives all his financial planning clients their own “digital vault” in which they can store all of their important documents like their estate planning documents, mortgage paperwork, copies of personal identification, credit cards, pictures and even family recipes.

“Everyone is living in a more digital world and when an older adult passes away it can be a lot easier for the next generation to access everything they need in a singular location without having to physically track everything down,’ says Menard. “It also gives us the ability to have those difficult discussions with our clients and their heirs.”

For her part, Van Voorhis recommends Everplans, a site meant to help people group all their important information in one place – including usernames and passwords. Users can assign a “deputy” who can also access all their information.

“It’s great not only for digital assets but also for organizing medical, health, home, insurance, tax and other information,” she says.

Robert Powell, CFP, is the editor of TheStreet’s Retirement Daily (www.retirementdaily.net) and contributes regularly to USA TODAY. Got questions about money? Email Bob at rpowell@allthingsretirement.com.

 

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