How to Minimize Legal Fees After Death

Death is a costly business.  Aside from funeral expenses, legal fees can take a big chunk out of how much is left for your loved ones after you’re gone. 

But it doesn’t have to be this way.  Careful planning can minimize the legal fees your loved ones will pay after you die.  Here’s how:

1.         Make an estate plan – The cost of creating an estate plan will be far less than the legal fees your loved ones will have to pay if you don’t have one.  But be careful – don’t try to write your own will or revocable living trust.  Do-it-yourself or online plans often fail to include valuable cost, tax, and legal fee saving opportunities. You need the advice and assistance of an experienced estate planning attorney to create an estate plan that will work when it’s needed and minimize legal fees after your death.

2.         Maintain your estate plan – Once you’ve created your estate plan, don’t stick it in a drawer and forget about it.  Instead, fine tune your plan as your life and your finances change.  Otherwise, when your plan is needed, it will be stale and out of date and will cost your beneficiaries time and legal fees to fix it. In a worst case scenario, a stale plan could lead to expensive and emotionally draining litigation between your family members. Regular maintenance of your estate plan makes it easier to carry out when needed.

3.         Have a debt plan – Make a plan for paying off your debts and taxes after you die.  This should include setting aside funds that your loved ones will have easy access to (for example, set up a joint bank account or a payable on death account) so that they won’t have to use their own assets to pay your bills until your will can be probated or the successor trustee of your trust can be appointed.  If your estate is taxable, then make sure you have enough assets that can be easily liquidated to pay the estate tax bill.  Life insurance can be another option for providing easy access to cash and paying estate taxes, but it’s important that you align your life insurance plan with your estate plan to get the maximum benefit.

4.         Let your loved ones know where your estate plan and other important documents are located – If your loved ones don’t know where to find your health care directive, durable power of attorney, will, or revocable living trust, then their hands will be tied if you become incapacitated or die.  While you don’t need to tell your loved ones what your estate plan says, at the very least you should tell someone you trust where your estate plan and other important documents are being stored.  You should also make a list of the passwords for your computer and accounts you manage online and a contact list for all of your key advisors (such as your attorney, accountant, life insurance agent, financial advisor, banker, and religious advisor).

Following these practical tips will save your family valuable time and money during a difficult time. 

Philip Seymour Hoffman's Will: 3 Critical Mistakes

Oscar-winning actor Philip Seymour Hoffman died from a drug overdose in February 2014. Sadly, he left behind three young children - and a fortune estimated to be worth $35 million. 

He was only 46. 

After his death, Mr. Hoffman’s Last Will and Testament was filed for probate.  The Will is short – only 15 pages – and, it was signed on October 7, 2004, about a year and a half after the actor’s first child was born. 

The Will leaves his entire estate to Marianne “Mimi” O’Donnell, a costume designer and the mother of all three of Mr. Hoffman’s children.  The couple never married and had separated in 2013 (due to Mr. Hoffman’s recurring drug problems). 

Estate Planning Mistake #1 – Using a Will

Shortly after Mr. Hoffman’s Will was filed, The New York Post published it online and his final wishes instantly became public information.  We know his request to have his son (the only child living when the Will was signed) raised in Manhattan, Chicago, or San Francisco so that he "will be exposed to the culture, arts and architecture that such cities offer." 

There is another way – a private way.  A Revocable Living Trust (as used by Elizabeth Taylor and Paul Walker) would have kept Mr. Hoffman’s final wishes a private matter.

Estate Planning Mistake #2 – Failing to Update His Estate Plan

Mr. Hoffman signed his Will in October 2004.

• During the next nine years, he had two daughters, won an Oscar for best actor for his performance in Capote, and amassed the majority of his fortune. 
• Considering Mr. Hoffman's well-documented, long-term struggle with drug addiction as well as the significant changes in his life and net worth during those nine years, it is surprising that he failed to update his estate plan. 
• At the very least, your estate plan should be reviewed every few years to insure that it still does what you want it to do and takes into consideration changes in your finances, your family, and the law.  

 Estate Planning Mistake #3 – Ignoring a Trusted Advisor

In probate court documents filed in July, it was revealed that Mr. Hoffman’s accountant repeatedly advised him to protect his children with a trust fund.  But the actor ignored this good advice. 

With the terms of the old 2004 Will left unchanged, the estate will pass to Mr. Hoffman’s estranged girlfriend, outright and without any protections.

Nothing will go directly to his children. 

Had Mr. Hoffman listened to his accountant and worked with an estate planning attorney, he could have established a lasting legacy for his children, protecting them and their inheritances. 

With the counseling and advice of an experienced estate planning attorney, you can avoid mistakes like Mr. Hoffman’s.   

So, What is a Trust Anyway?

A more "legal-sounding" definition is below, but I find this analogy does a better job of putting the definition in plain English.

Think of a trust as a red wagon.  Without a trust, as you walk through life, you carry everything in your arms, figuratively speaking: your house, IRAs, life insurance, bank accounts, etc.  If you trip (i.e., become incapacitated or pass away), all you stuff ends up on the sidewalk and for everyone else to see.  Your family and loved ones are left to pick everything up and figure out what to do.  

Now imagine that your stuff was in a red wagon instead of your arms.  When you trip, your stuff stays in the wagon, and all that happens is you drop the handle.  Your stuff remains safe, and there are written instructions on what is supposed to happen to your stuff.  Perhaps best of all, not everyone can see what is in your wagon - only the people you want to see.

A Revocable Living Trust is created while you are alive. Your property and assets are transferred into and owned by the Trust, over which you retain full ownership and control.  When properly drafted and executed, your Trust allows your assets to be efficiently distributed upon your death according to your instructions, while avoiding the costly and time-consuming probate process and the mandatory attorney fees associated with probate.

A Trust also contains your instructions for your own care and the care of your loved ones should you become disabled.  And, it keeps your instructions and your financial affairs private, unlike a will.  However, it can only accomplish these objectives if you properly draft, execute, and fund your Trust.

Below are 10 advantages of creating a Revocable Living Trust:

1. Provides one planning document with complete, comprehensive instructions for your care and the care of your loved ones.
2. Provides continuity in the handling of your affairs by efficiently transferring your property to your loved ones.
3. Avoids probate on your disability or death with respect to its assets if your trust is funded properly.
4. Easily moves with you from state to state.
5. Creates protective trusts for your loved ones that are free from the supervision of the probate court.
6. Can be easily changed, should you desire to do so.
7. Enables you to rely on your Trustees, should you wish to travel or otherwise delegate the day-to-day management of your financial affairs.
8. Is difficult for disgruntled heirs to attack.
9. Ensures your family’s privacy following your disability or death.
10. Achieves your death tax objectives.

If  you would like more information on how a Family Legacy Plan uses a trust, feel free to contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

10 Worst States for Retirement

USA Today listed what it considers to the 10 worst States for retirement.  There are a few common traits for this list o' shame: high crime rates, high property taxes, and low life expectancy.

10. Alabama - low life expectancy, and the violent crime rate is in the top 10% for the country

9. Michigan - One word: Detroit.  Plus, the winters are brutal.

8. New York (tie) - Actually, the Empire State has a lower crime rate, but the weather and taxes make it unfriendly to the retired.

8. Maryland (tie) - high crime and high taxes.

8. Georgia (tie) - The Peach State has a good climate, but in every other category, it's subpar.

5. Nevada - Violent crime rate is 2nd in the country, and despite the glitz and glamour of Vegas, the economy has been struggling for years.

4. Illinois - high property taxes

3. Tennessee - high crime and low life expectancy

2. Louisiana - the only thing keeping Louisiana from the No. 1 spot is its weather.

1.  Alaska - weather alone could put Alaska in the top spot, but its economy is not strong and the cost of living is high

I don't know if I agree with Alabama and Georgia being on the list.  I'd be hard pressed to find a good reason to suffer through northern winters when I retire.

3 Things You Should Probably Include in Your Estate Plan

A good estate plan covers as many of your assets as possible.  Here are three things that may be missing, but should be considered:

1. Pets - I'm not suggesting you go the route of Leona and give all your assets to your beloved pet, but perhaps designating who will take care of the pet and then some funds to help will ensure that your cat/dog/etc. does not end up at the local adoption shelter.

2. Guns - Depending on the type of firearm you own, there may be federal and state laws restricting the transfer of the weapons.  Additionally, designating who is to receive the guns will help prevent the assets from being sold off to pay your debts after you pass away.  A more recent development in estate planning has been the concept of a "gun trust" - this is where the trust owns the guns, and the trustee has the right to use and maintain them.

3.  Unique collections - Like firearms, if you don't specify where these items go, they could be liquidated (read: sold) to pay off debts.  Perhaps there is someone who shares your passion and would appreciate your collection?  I recommend naming a specific recipient who can be trusted to take care of the collection.

If you have questions on how to get any of these accomplished, or you would like more information on how a Family Legacy Plan can take care of most of this list, feel free to contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

Your IRA Isn't as Protected as You Think It Is

Two of the greatest benefits of a traditional or Roth IRA are the tax advantages and protections against creditors.  The U.S. Supreme Court has ruled that once an IRA is transferred to a beneficiary, e.g., your children, the IRA loses the protections against creditors.

Click here to read the unanimous opinion.  The Supreme Court decided that once an IRA is inherited, it loses the characteristics of a "retirement fund" and, as a result, your beneficiaries creditors can go after it.

Fortunately, there is a way to add creditor protection to the IRA - the Standalone Retirement Trust.  Here are some of the benefits of a Standalone Retirement Trust:

• Protects the inherited IRA from each beneficiary's creditors as well as predators and lawsuits;
• Insures that the inherited IRA remains in your bloodlines and out of the hands of a daughter-in-law or son-in-law, or, more importantly, a former daughter-in-law or son-in-law;
• Allows for experienced investment management and oversight of the IRA assets by a professional trustee;
• Prevents the beneficiary from gambling away the inherited IRA or blowing it all on exotic vacations, expensive jewelry, designer shoes and fast cars;
• Enables proper planning for a special needs beneficiary;
• Permits you to name minor beneficiaries, such as grandchildren, as immediate beneficiaries of the inherited IRA without the need for a court-supervised guardianship; and
• Facilitates generation-skipping transfer tax planning to insure that estate taxes are minimized or even eliminated at each generation of your family.

If you think a Standalone Retirement Trust may be right for you, feel free to contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

7 Questions to Ask Your Parents about Estate Planning

Asking your parents about their estate plan can be a touchy subject for many reasons.  It's difficult to bring up the subject without sounding like you're already coming up with ways to spend their money.  Regardless of where someone is in their life, it's important to have a plan to make sure assets are used in the way intended.

Here are 7 questions that will lead to a productive discussion about estate planning.

1.  Do you have an estate plan?

The majority of Americans have not developed a formal estate plan, or if they do have a plan, it's from a website and likely won't work in the way intended at the right time.  If they have done a formal estate plan, then it should be updated at an absolute minimum every 5 years.  Ideally, the plan should be reviewed with an attorney once a year to account for changes in life.

2.  Am I (or one of my brothers/sisters) a fiduciary in the plan?

If you're named as the executor of a will, successor trustee or a similar position in an estate plan, you'll have a legal obligation to follow your parents wishes and act in the best interests of the beneficiaries.  This can easily run contrary to what you think is best for you or your family.  It can also lead to nasty family fight over assets.  

Here are two alternatives to alleviate the risk of a family feud:

a. Name a professional fiduciary instead of a family member

b. Meet with everyone who stands to receive something under the plan, explain the plan, and then memorialize the meeting, ideally with an attorney.

3. Are the inheritances properly protected?

If you receive something outright - proceeds from a retirement account, property, etc., it can be attacked by a creditor.  In other words, if you end up in a bankruptcy, you could end up losing your inheritance.  If your minor children stand to receive something outright under the plan, then they'll receive it when they're 18.  This could be a problem if that "something" is a large sum of money.

Ideally, any inheritance should come in the form of a trust to protect from creditors and the potential misjudgments of youth.

4.  Are your healthcare documents up to date and HIPAA compliant?

Laws surrounding healthcare are like tax laws - they change often, and the changes can be quite substantial.  If your parents documents are not up to date, their end of life wishes may not be followed.

5.  Do you have a trust?  Has it been properly funded?

A revocable living trust and other trust options are great for an estate plan, but to make them work, they have to be properly funded.  It's also extremely important to make sure that certain things are owned by the trust while others name the trust as beneficiary.  This has significant tax implications.

6.  Do you know what your estate plan tax liability is?

To trigger federal estate taxes in 2014, the estate has to have a value of at least $5.34 million.  In 2015, the taxes start at $5.43 million.  As the law stands right now, the increases in estate taxes at the federal level are tied to inflation.  Of course, this is all subject to change depending on the will of Congress...

The value of the estate is a complicated formula, so it's important to review this regularly and make sure the estate plan takes advantage of tall tax strategies out there.  

7.  Have you considered long term care needs?

The cost of an assisted living facility can quickly eat through retirement savings, and without proper planning, people can find themselves ineligible for Medicare and Medicaid due to "look-back" provisions for qualification purposes.  In addition to planning for these contingencies, people in or near retirement should consider long-term care insurance.  

If you have questions on how to get any of these accomplished, or you would like more information on how a Family Legacy Plan can take care of most of this list, feel free to contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

Debt is The Only Thing My Kids Will Inherit

Wrong.  

There are some situations where your kids can "inherit" debt, but there are specific requirements, and most people do not find themselves in those situations.  In fact, in those situations they're not inheriting it at all, but instead fulfilling their obligations as a guarantor on the debt.  I know - two sides of the same coin.

The good news is that there are ways to make sure that assets like retirement accounts, life insurance and other investments go to the benefit of your children and loved ones instead of paying off debt when you are relieved of your mortal coil.

First, let's make sure we understand exactly what happens to debt when one dies.  Well, it depends on what kind of debt it is.  Federally guaranteed student loans are forgiven upon the death of the borrower.  Without a well designed estate plan, most everything else is going to go through probate.  This is oversimplified, but you'll get the idea - probate is a lawsuit filed by you after you die, using your own money, for the benefit of your creditors.  

Of course there are exceptions like life insurance benefits and retirement accounts, but to make sure those funds aren't used to pay other debts, you need a plan.

A will is a good place to start, but it's important to remember that a will must go through probate in order to work.  So we're right back at the same problem.  Additionally, the probate process is completely public.  Anyone can go to a courthouse and find out what someone left to their heirs.  

For some the privacy issue may not be that big of a concern, but think about this: "anyone" includes creditors.  Debt collectors can be a tad bit aggressive, and some of them will have absolutely no problem calling up your loved ones after your gone and telling them that their share of your 401(k) has to be handed over to satisfy credit card debt.  It can and does happen.

If you have questions on what does and does not go through probate, or you would like more information on how a Family Legacy Plan can help protect your estate from creditors, contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.

Tips for the Family CFO

Stress and concerns over the family budget are perhaps the most common instigator for marriage fights.  Often, the lack of money itself is not the problem, rather an underlying issue.  These tips may not solve the root cause, but they should help ease the stress of the never-ending struggle to make ends meet.

It's Not a One Person Job.  I'm having trouble coming up with a part of marriage and raising a family that is a one-person job.  Sure, one person may actually do the work like mowing the lawn, folding laundry or cooking dinner; but, the other partner is watching the kids or taking care of something else that has to be done.  When it comes to finances, both partners should be familiar enough with the ins and outs that if something happens to one, the other can function so that the electricity stays on and there aren't any overdraft fees.

Your Financial Planner Should be a Fiduciary.  A fiduciary is someone who is required to act in your best interest.  There are plenty of investing coaches and mutual fund managers who are more interested in the commission from selling you a particular stock or fund.  A registered investment adviser is a different breed, and he / she is obligated to tell you what is best for you, not for his / her commission.  One of the best ways to ensure your financial adviser's interests are aligned with yours is to pay based on your portfolio's performance.  If you do well, so does the financial adviser and, more importantly, vice versa.

Manage Credit Cards.  Credit card companies make their money off people not paying the balances off.  Credit cards can be a useful tool, and the rewards can be utilized in very creative ways.  However, if you're carrying large credit card debt and paying interest on it, you're on the losing end of that equation.  It's like Vegas - play long enough, and the house always wins.  I recommend paying off the bill each month and tracking credit card spending as if it were cash.  This isn't easy, especially with 3 credit card offers showing up in the mail every day.

Make a Plan.  At a minimum, there should be a budget.  Quicken has an outstanding program for tracking and managing personal finances, and it is compatible with most banks' online features.  You can download your transactions and then review and categorize them to get a very detailed picture on where your money goes each month.  Next, get an estate plan so that all those dollars you saved by following your budget aren't wasted paying unnecessary fees and taxes.

Have a System for Important Documents.  Keep it old school with a filing cabinet and hanging folders, or scan all your important documents and save them as PDF's on your computer.  If you opt for the PDF route, make sure you have a regular backup service like Carbonite so that when your computer crashes, you don't lose every important document along with the hard drive.

If you have questions on how to get any of these accomplished, or you would like more information on how a Family Legacy Plan can help with the CFO duties, feel free to contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com.