Dear Trustee: A Letter of Wishes

July 16, 2014,

In late 2012, the government threatened to make steep cuts in the levels of exemption for gift and estate taxes. At the time, the gift tax exemption was set to drop from $5.1 million to $1 million, and the top tax rate was to rise from 35% to 55%. As a result, many families hurried to create trusts that would protect their assets from the cuts and did so very hastily. This is because assets placed in certain types of trusts are not affected by gift and estate taxes. However, Congress prevented these cuts, but by that time many trusts had been created with cook cutter documents in order to be executed quickly. Now, many creators of these trusts are going back and trying to provide more detail to the trustees about how they want the trusts to benefit their heirs.

Letter of Wishes

The trust creators are using "letters of wishes" which have long been around in the world of trusts and estates. These letters are not binding, but they typically reflect the intention of the trust creators in more detail than what was written when the trust was first formed. These intentions are usually in regard to priorities for doling out distributions, for example like getting for education or a new home.

The Growing Importance of Letters

Since the scramble at the end of 2012, these letters of wishes are growing in importance for the world of trusts and estates. Trusts created at the end of that year look very similar to one another. Because of the cookie cutter format, most trusts are broadly worded and give the trustees incredibly wide latitude in their roles. Normally when trusts are set up there is time to finely tune and tailor documents that specifically detail the trust creator's wishes. Additionally, broad parameters can be instituted for the trustees in order to guide them about the trust's intent. Paying for specific expenses or distributing funds to a certain level are common details that were left out of the rushed trusts at the end of 2012.

Now, families that created the simple, broad trusts have had the time to consider in detail how they want the trusts to be run. For example, one family placed a vacation home in a trust without further comment. Using a letter of wishes, the creators can now explain that they want the trustee to maintain the home for future generations to enjoy, and not to sell the house in order to make distributions to heirs.

These letters of wishes are now being given more consideration since the rush of trusts in 2012. When a trust is created with generically worded documents, a letter of wishes is given greater weight and can potentially affect how the trustee distributes funds. Trustees are supplementing the original trust documents with the letters for guidance in order to have a better idea about the wishes of the trust creators and to ensure that their wishes are being followed. If you or someone that you know created a trust at the end of 2012, consider reviewing the trust documents and writing up a letter of wishes. That way your intentions can also be followed the way that you had wanted.

The New Generation Gap is All About Money

July 14, 2014,

Parents who are now at retirement age think that they have done a great job discussing finances and estate plans with their children. However, their children think the exact opposite about the situation. According to a new study done by the Fidelity Investments Intra-Family Generational Finance Study, this is the new generation gap.

The key point in the study is that many parents are failing to have critical conversations about their finances and estate plans with their grown, adult children. For the baby boomer generation, money and estate planning are taboo subjects. However, the same study showed that having this important conversation with their children gave parents an increased peace of mind and reduced anxiety.

Key Findings in Study

Six key highlights can be pulled from the study about the new generation gap in families. These points include:

· Neither generation feels comfortable talking to the other about money
Only around half of parents and children feel comfortable discussing finances with one another

· Nearly 64% of parents and adult children disagree on the best time to discuss estate planning
This includes retirement plans, wills, other estate plans, nursing home care, and final wishes. Most parents want to wait until after retirement, and most children want to discuss it before.

· In many families, serious estate planning discussions are not happening at all
Around 40% of parents have not discussed any finances or estate planning with their children. Parents mainly do not want their children to rely on their inheritance, and children mainly do not want to upset both parties by bringing it up.

· Parents think that they are doing a better job at explaining their finances and estate plans than they are
A full 60% of parents who have had conversations with their children think that they had full, detailed conversations about their plans. However, only 42% of their children believed the same thing.

· Many parents do not think that they will need help from their adult children, but lots of the children think that they will
The baby boomer generation is a very independent group. A full 96% of parents do not believe that they will need financial assistance from their children, but almost 30% of children think that they will need to help their parents at some point. Additionally, only 6% of parents think that their children will need to provide elder care for them as they age, but 43% of children think that they or their siblings will be providing care.

· Children may be more nervous about their parents' finances and estate plans than is necessary
Over 56% of children believe that their parents are worrying constantly about their finances, but only 23% of parents worry about their financial future more than a few times per month.

How to Fix the Generation Gap

The main takeaway for parents from this study is that if you are nearing retirement age and have adult children you need to have the estate planning talk. Discussions need to be had that involve serious, detailed conversations about finances, estate plans, and any possible concerns. It should also not be a one and done discussion. Have these talks periodically about different aspects of your estate plan. Make sure that all of your children know your wishes and that all the documents are in place. Although the first conversation may be difficult, once you break through the initial barrier of having the talk you will have greater peace of mind and better estate plans in the long run.

Walking on the Wild Side: Lou Reed's Estate Plan

July 10, 2014,

The late lead singer and guitarist of The Velvet Underground, who later had a decades-long successful solo career, was the man who famously sang "Hey babe, let's take a walk on the wild side." He seemed to take that lyric to heart when it came to his estate planning, and his estate is worth more than $30 million.

Lou Reed passed away from liver disease on Oct. 27, 2013 at the age of 71. Recent filings in probate court in Manhattan show that since his death less than a year ago his estate has already earned another $20.3 million. This income has come from his copyright, publishing, and performance royalties as well as other deals that were put together by his longtime manager, Robert Gotterer. Mr. Gotterer is also one of the co-executors of Lou Reed's estate.

Details of Lou Reed's Estate

Mr. Gotterer recently filed motions in probate court, reporting on the income earned in the estate. All in all, $10 million in assets are set aside for Reed's wife and sister as well as another $500,000 set aside for his mother's care. Reed's wife and sister will split the residual of the estate 75% and 25%, respectively, with real estate totaling over $9 million going to his wife alone.

And despite the enormous wealth of his estate, Reed's executors are only asking for $220,000 in fees. Compared to Michael Jackson's executors, who are taking 10% of most business deals (including the $250 million deal with Sony), Reed's executors are being paid practically nothing. But why do we know all of the details of his estate, and why is this plan taking a walk on the wild side?

Reed's Estate Plan

The reason that Lou Reed's estate is public knowledge is because Reed relied on a will that he signed in 2012. The will was thirty-four pages long, but it was still only a will. Because Lou Reed did not use a revocable living trust for his plans the estate must go through full probate in the court system, and that means that everything within his estate is made public. The New York Post is breaking news about every piece of his estate that becomes public knowledge, and media outlets across the world are commenting in their own stories about the details of Reed's estate.

Unfortunately, if Reed had used a revocable living trust and transferred his assets into the trust during his lifetime all of this information would have been kept secret from the public. No one would have the details of his estate's worth, know who gets what, or even know how much his executors were getting paid for their time. In other words, trusts keep your estate private, while wills must go through probate court - a fully public process.

Lessons Learned

While the common person may not need to worry about the press leaking the details of their estate, there are plenty of other reasons why you should strive to avoid probate court. Besides being public, probate court is also expensive, time consuming, stressful, and often causes family fights. These fights break out because it is much easier to file challenges or objections in probate court than to a private trust. Additionally, it is much simpler to leave instructions, conditions, limitations, or suggestions in a trust document. So while Lou may have taken a walk on the wild side with his estate planning, we can take away the importance of avoiding probate court and using private estate planning documents in our own estates.

The Danger of Passing on Reverse Mortgage Problems to Heirs

July 9, 2014,

People entering retirement age are now facing an unexpected hurdle - dealing with the pitfalls from their parents' reverse mortgage. The same loans that were supposed to be helping their elderly parents stay in their homes are now pushing the children out of them. In fact, the same situation is playing out all across the United States, where the retirement age children of elderly borrowers are discovering that their parents' reverse mortgages are now threatening their own inheritances.

Reverse Mortgage Schemes
A reverse mortgage is a financial tool that allows people age 62 and older to borrow money against the value of their homes. This money does not need to be paid back until they move out of the home or die. Unfortunately, many children of parents who invested in reverse mortgages are discovering the issues that arise with them.

Under federal law, survivors of a reverse mortgage are supposed to be given the option to settle the loan for a percentage of the full amount. Instead, reverse mortgage companies are now threatening the heirs with foreclosure on the homes unless they pay in full. In fact, some reverse mortgage lenders are foreclosing in a matter of weeks after the borrower dies, and it has led to a rash of lawsuits in state and federal courts against reverse mortgage lenders.

In other cases, the reverse mortgage lenders do not move to foreclose but instead plunge the heirs into a bureaucratic quagmire if they want details about how to save their family home. The lenders make it nearly impossible to figure out what the rules are in order to pay back the loan, and they wait for the heirs to either give up or run out of time. Another tactic is where lenders do offer the heirs a chance to pay a percentage of the value of the house, but since the time that the reverse mortgage was taken out the overall value of the house has increased.

An Increasing Problem
According to various elder care and estate planning leaders, reverse mortgage lending issues are on the rise in the United States. Tens of thousands of survivors of reverse mortgages are now attempting to beat the ploys of these lenders. Unfortunately, this problem will only increase over time as more Americans are reaching their elder years and are turning to their homes for money. The combined debt of those ages 64-73 is now higher than any other age group, and right now 13% of all reverse mortgages are underwater.

For heirs, the main issue is that few know about the set of reverse mortgage rules set forth in the Department of Housing and Urban Development. While the department vets reverse mortgage lenders, it does not provide a list of firms in violation of the rules or that have been penalized.

What Heirs Need to Know
According to the rules set forth by the Department of Housing and Urban Development the lenders of reverse mortgages must offer heirs up to thirty days to decide what they want to do with the property. Additionally, they must give up to six months to arrange financing. Most importantly, the rule states that heirs are allowed to pay only 95% of the current fair market value of the property. Hopefully, by making the rules and pitfalls of reverse mortgage lending public more parents and heirs can avoid the problems that come with them.

The Most Valuable Assets for Your Heirs

July 7, 2014,

Planning for retirement can be difficult; however, if you also plan on leaving money to heirs in your estate plan the process can be even more complex. Deciding which financial accounts should be tapped first for retirement funds and which should be left for inheritance purposes is a tricky question. The answer is often determined by your own financial needs for retirement as well as the needs of your heirs, but you can expect the following to occur with your heirs with each of these retirement accounts.

Roth IRA

As a general rule, a Roth IRA account is a great asset to leave for inheritance. When inherited, Roth distributions are tax-free for your heirs. If planned properly, your heirs can take distributions from the account over the course of their lifetimes and simultaneously leave the bulk of the principal from the account to continue to grow in interest. Additionally, the federal estate tax exemption is now at $10.6 million for a married couple. That means that most Roth IRA accounts that are inherited will be both income and estate tax free.

However, there is one issue that was recently decided by the courts regarding retirement accounts and inheritance. If your heir inherits your Roth IRA and then goes bankrupt your bequeathed Roth IRA is subject to their creditors. You should take the time to explain to your heirs that your retirement accounts are not shielded from their bankruptcy.

Stocks, Bonds, and Mutual Funds

Other types of retirement assets such as stocks, bonds, and mutual funds are good accounts to leave for inheritance if they have greatly increased in value over time. The reason for this is called the "step up" in cost basis. Cost basis is the price of an asset (like a stock or bond) when it was first purchased. This is the price that all increases or decreases in value are measured by. When you sell an asset, the capital gains taxes are determined by the amount of value that your stock or bond has increased. However, if you pass along those assets to your heirs, they get to "step up" the cost basis to the value of the asset on the day of your death. Therefore, when your heirs decide to sell the stock or bond, the tax break on capital gains will be significant.

One common idea for funding retirement, while still leaving assets for heirs, is to focus on selling stocks, bonds, and mutual fund assets that have seen the smallest gain or loss. That way the assets that will have the largest tax breaks are reserved for your heirs. Also, keep in mind when determining which assets will go to heirs that annuities inherited by non-spouses and U.S. savings bonds do not get the "step up" in cost basis.

IRA or 401(k?)

In terms of value, the costliest assets to leave to heirs are tax-deferred retirement accounts such as an IRA or a 401(k). These accounts get no step up in cost basis like stocks, bonds, and mutual funds. Additionally, they are distributed at ordinary tax rates for your heirs, unlike the Roth IRAs.

If you are planning on leaving money to your heirs as well as to charitable causes, consider leaving the tax-deferred assets to charity. Charitable organizations are not taxed on those types of assets, and the tax-free or stepped up assets can then be left for your heirs.

Trust Creation: Little Mistakes that Can Cost Big

July 3, 2014,

If you have accrued some wealth in your lifetime, have a significant life insurance policy, or simply want to look out for the best interests of your children the idea of incorporating a trust into your estate plan may have been suggested. A trust fund places assets into trust, run by an appointed trustee who makes decisions about the investment and distribution of trust assets to its beneficiaries. However, smaller mistakes can be made in the creation of a trust for your children that can cause major problems after you are gone.

Carefully Consider the Trustee

Naming a trustee for a trust fund for your children is different than naming a custodian for their physical care. Consider appointing someone who has financial knowledge and can make wise decisions regarding the trust assets. Also consider naming co-trustees to the fund, thereby creating a set of checks and balances that can preemptively avoid any type of trust abuse.

Be Clear about the Goals of the Trust

When thinking about the smaller details of a trust it is important to be very clear in your wishes. How often do you want trust assets distributed? Yearly, every five years, or at the trustee's discretion? Do you want your children to reach a certain age first or reach some other type of goal? Do you want the distributions to be tied to future earnings so that the children that need more of the funds get more? By covering each issue clearly in your estate plan you can avoid issues arising later down the road.

Check Your Beneficiaries

This means more than checking to see that all of your children are named as beneficiaries to the trust. Most parents assume that their life insurance and retirement accounts are automatically going to their children, but very few parents double check to make sure that their children are listed as the beneficiaries on those accounts. Also, consider listing every single beneficiary of the trust as beneficiaries for the other accounts to ensure that everyone is legally entitled to the proceeds. This can eliminate any issues or ambiguity if only one child is listed as a beneficiary of those accounts but was just expected to make distributions to remaining children. You can also consider naming the trust as the beneficiary to your other accounts, thereby ensuring that the money will be distributed properly through the trust channels.

Keep Up to Date on All Other Estate Planning Documents

In order to ensure that everyone is accounted for in the trust fund and other estate plans, occasionally check all of your estate planning documents. This is especially important after any major life events such as a marriage, divorce, or the inclusion of other children. By keeping all documents up to date you can take care of any problems in the estate plan before they happen. Make plans to regularly update the will, check beneficiaries, and ensure that everyone listed in your estate plan is still alive and able to take part in the trust that you have created.

Key Estate Planning Questions to Help Avoid Mistakes

July 1, 2014,

Many people are uncomfortable with the process of estate planning. As a result, people are not always completely forthcoming with their estate planning attorney or do not think through all aspects of their plan. If you are just starting to draft your estate plan or are thinking of revising your current documents, here are some questions to consider that can make the process easier.

· What are your personal goals? Professional goals?
Establishing personal and professional goals can give an idea of how much you will need to live comfortably in your lifetime and how much will be left for your heirs. If you plan on retiring early or need more money for personal, financial, or health reasons an attorney can help you structure your estate plan accordingly. Establishing goals is also a good way to indicate to your heirs what they should expect to receive from your estate.

· What would you like to achieve with your wealth?
Knowing what you want to do with your money can also help with estate planning. Are you planning on investing in a post-retirement business, do you want to spend most of your wealth before you die, or do you want to set aside a significant amount for your heirs?

· What keeps you up at night about your money?
Knowing your concerns about your current estate can also help your attorney plan accordingly. If you are unsure about how to use money in retirement and have some left for your heirs they can help you structure a plan, and if you don't know the best way to leave money for your heirs an attorney can tell you what your options are.

· What do you want for your children? Parents? Other family members?
Everyone wants their loved ones to be happy, healthy, and taken care of. However, you need to think carefully about how exactly you want your estate to help. Do you want your loved ones receiving lump sums of money after you are gone, or would setting up a trust be more prudent? In the case of you passing before your parents do you want part of your estate to be put towards their senior care?

· Who have you considered for the role of executor of your estate? Why?
What you should be asking yourself when appointing an executor is who knows best about my estate wishes and has the ability to see them through? It could be a spouse, child, or family friend. You can also appoint someone outside of your close circle like an attorney in order to avoid any personal or familial conflicts that could arise.

· Who have you considered for the role of trustee of your various trusts? Why?
The trustee(s) to any accounts set up for your estate should be knowledgeable about your financial matters as well as your wishes for those assets. You can appoint someone who is close to your family and knows the intimate needs of the beneficiaries, or if you can appoint a neutral third party who will make decisions based on what is best for the trust.

· Who have you considered for the role of custodian for your children?
This person will be in charge of raising your children, and it should be someone who can effectively communicate with the executor and any trustees for your estate to ensure that your children are properly cared for in the estate plan.

· Do your family members get along? If not, why?
If your family does not get along, you need to discuss with your attorney how this may affect your estate plan. Beneficiary, executor, trustee, and other designations can be greatly affected if there is discord in your family. This may mean that you include a letter in your estate plan explaining your decisions, or it may mean restructuring your plan entirely to avoid any further strife.

Back to Basics - 10 Essential Estate Planning Documents Pt. 2

June 27, 2014,

In the last post we discussed the first five of ten essential documents that should be considered when estate planning. Those included a basic will, beneficiary forms, a financial power of attorney, medical power of attorney, and a living will. Here are the last five documents that should be included in your estate planning process.

6. Inventory of assets
Every financial planner has a different way of structuring and explaining your assets. Some planners give you a small book detailing every complex facet of your current financial status. Others will hand you a page with a simple chart or graph that sums up your entire account, and a lot of other financial planners fall somewhere in between. You should talk with your financial planner about getting documents that explain your assets in a way that your executor and heirs will be able to understand, and include it with your other estate planning documents.

7. List of contacts
Providing a list of contacts can greatly help your executor, attorney, and heirs. The list should include the contact information for any personal advisors such as bankers, lawyers, doctors, and tax advisors. You should also list all of your utility providers and any other service that is done for you or your home. This can include dog walking, lawn care, pest control, and others. Finally, provide the contact information for anyone that will be involved in the estate plan so that they can all be notified.

8. Guide to digital assets
As discussed in previous posts, estate planning now includes digital assets. Online bank accounts, social media pages, and the like are all digital assets. Provide a list of accounts, user names, and passwords so that your executor will have access to your digital assets. The list can be a hard copy, or you can opt for an online password storage service and give your executor access to that account.

9. Funeral arrangements
Making all of your funeral arrangements beforehand can greatly relieve the stress on your family from your passing. Decisions about cremation, burial, funeral home, memorial services, pallbearers, and the like can all be predetermined by you in your funeral arrangements. If you expect any donations to be made in your honor you can also decide which charities should get them, as well as how much they should each receive.

10. Trusts
A trust is an estate planning tool that allows assets from your estate to bypass probate proceedings and provide for your loved ones. Trusts are a great tool to provide financial stability for minor children, spouses, and anyone in your family with special needs. You must also name a person as trustee who will make decisions regarding the trust money such as investment and distributions.

Not everyone will need every document in this list for their estate planning needs. However, you should go over all of them with your estate planning attorney. These ten essential documents should cover almost every aspect of your estate plan and ensure that your wishes will be fulfilled as you want them in addition to making sure that your loved ones will be taken care of after you are gone.

Back to Basics - 10 Essential Estate Planning Documents Pt. 1

June 25, 2014,

Most people do not like to talk about estate planning. Some do not want to think about the idea of death, others do not want to discuss financial or personal matters, and more simply procrastinate. However, once you do make the decision to set up your estate plan the options and paperwork can seem daunting. Here are ten basic, essential documents that you should discuss with your attorney about including in your estate planning process.

1. Basic will
The will is the document that most people think of when they consider estate planning. A will, in its most basic form, states who gets what when you pass. Family, friends, trusts, charities, and just about anyone else can be named as an heir or beneficiary in a will. You can also name a guardian for minor children in a will, and you should appoint an executor for the will, as well. If you do not have a will the court decides who gets what in your estate and a judge decides where your children will live.

2. Beneficiary forms
Almost every retirement account and insurance policy names a beneficiary in the case that you die while in the possession of the policy or account. Most beneficiary forms are mandatory, but you need to check each account and update the beneficiary if any major life changes like marriage, divorce, or children have occurred. You should also make copies of all beneficiary forms, and make sure that they are included in your estate planning documents.

3. Financial power of attorney
A power of attorney form names a person to make specific types of decisions about your well-being in the case that you are no longer able to do so yourself. A financial power of attorney form designates a person to make all financial and legal decisions on your behalf. A financial power of attorney form can be customized to the level of decision making power and types of decisions that the holder can have.

4. Medical power of attorney (Healthcare proxy)
The medical power of attorney form is similar to the financial power of attorney. The difference is that the person named to the medical power of attorney, otherwise known as a healthcare proxy, makes all of your medical decisions for you if you are unable to do so yourself. An important detail within the medical power of attorney is to include a HIPAA form that gives the person appointed as your healthcare proxy access to your medical records and information so that better decisions can be made about your care.

5. Living will
Also known as an advanced medical directive, a living will details all of your decisions regarding end of life wishes and long-term medical care. You can customize a living will to a particular illness or types of procedures that you do or do not wish to have. If you foresee issues arising within your family about your living will for personal or religious reasons consider explaining within the living will why you chose those directives. Whoever is appointed in your medical power of attorney should follow the decisions set out by you in your living will.

The next post will continue with the last five documents essential to the estate planning process.

Inheriting Parental Debt

June 23, 2014,

The loss of a parent is a heartbreaking experience, and discovering that your parent had a large amount of debt can add even more stress to the situation. Usually, creditors have a certain period of time in which to make claims against your parent's estate. In most cases, you are not responsible for the debts of your deceased parent and if there are not enough assets the debt dies with them; however, in certain circumstances you can be on the hook to pay for what your parent left behind. Responsibility for debts is typically determined by the type of debt, the assets available, and where your parent resided.

Assets can be protected from creditors even if your parent passed on with debt. If you are listed as the beneficiary of a retirement account or life insurance policy that money cannot be touched by creditors. However, other assets in the estate may have to be sold in order to pay off the debts of creditors. This can greatly reduce or eliminate your inheritance from your parent's estate.

Credit Card Debt
In most cases, you are not responsible for the credit card debt of your parent. However, if you are a co-signor for your parent's credit cards then you can be held liable for the debt. Credit card companies are considered low priority creditors. That means that they fall behind other lenders, funeral care costs, and tax agencies. If you are responsible for paying off your parent's credit card debt, typically the credit card companies will agree to negotiate a lower payment because of their low priority.

Medical Care Debt
Deciding who is responsible for unpaid medical bills is separated into two categories: those who were on Medicaid and those who were not. If your parent was on Medicaid then you are not responsible for the debt. Under Medicaid rules, the only major asset that a person can possess and qualify for Medicaid is a home. The state can place a lien on the home to recover payments, but that money will come from the estate.

If your parent was not on Medicaid and had unpaid medical bills, state law determines whether or not you are responsible for the debt. The estate must first try to pay off all outstanding medical bills from estate assets. If the debt remains, "filial responsibility" may mandate that you pay off the remainder. Almost thirty states have filial responsibility statutes that require adult children to pay off the remaining debt if the estate cannot.

Mortgage Debt
If you inherit your parent's home and it comes with a mortgage you may be responsible for the underlying debt. If the mortgage exceeds the value of the home you can consider foreclosing in order to pay off the mortgage on the property. After the foreclosure sale if mortgage debt still remains the bank can go after the estate for the difference. If you wish to keep the inherited home then you are responsible for making all mortgage payments on the home going forward.

You are not responsible for paying off the taxes of your parent. Government agencies are usually top priority creditors and they can take from the estate to pay off outstanding taxes, but they cannot go after you for any remaining balance if the estate is unable to pay it off in its entirety.

Supreme Court Ruling - Inherited IRAs Not Protected in Bankruptcy

June 20, 2014,

In a unanimous decision the Supreme Court has ruled that an IRA is not protected from creditors in bankruptcy proceedings when it is inherited in an estate. In the case of Clark v. Rameker, Heidi Heffron-Clark inherited an IRA from her mother in 2001. The account contained roughly $450,000 and she began to make distributions. In 2010, Mrs. Heffron-Clark and her husband filed for bankruptcy, but they claimed that the remaining $300,000 in the account was shielded from creditors as retirement funds. The creditors and bankruptcy court disagreed, and the case went all of the way up to the Supreme Court.

Key Distinctions of Inherited IRAs

The Court made its decision that inherited IRA accounts are subject to bankruptcy and creditors based on a couple of specific differences between inherited IRAs and owner IRA accounts. Owners of an inherited IRA cannot put additional funds into the account. Additionally, they can take distributions from the account at any time without penalty. In fact, the law states that an heir to an IRA account must either withdraw the entire amount from the account within five years of the original owner's death or at the very least take out a minimum amount starting the December 31st after the original owner died. This applies to regular and Roth IRA accounts.

Inherited IRAs differ from IRA owner accounts because the purpose of an IRA is to ensure that retirement funds will be available in your elder years. If an IRA is inherited, the original owner clearly no longer needs those funds for his retirement, and therefore the need for bankruptcy protection of those assets no longer applies.

Ramifications on Estate Planning

This decision does have some effect on estate planning. First and foremost, it is important to remember that IRAs are typically not covered in a will. When an IRA or other employer-sponsored retirement fund is created the owner of the account must fill out a beneficiary designation form. This form can later be amended, but the account is inherited by the person named on this legal document.

Spouses face the biggest consequences from the decision in Clark. A spouse that inherits an IRA has the option to rollover the inherited account into her own IRA. Distributions from her IRA are postponed until the spouse turns 70½, and penalties apply if the spouse takes the IRA early. If a spouse elects not to rollover the IRA, it is considered an inherited account and is now subject to bankruptcy proceedings.

Besides rolling over the account another option for avoiding an inherited IRA being subject to bankruptcy proceedings is to name a trust, as opposed to a person, as the beneficiary of the IRA. With the advent of the decision in Clark we are likely to see an increasing number of account owners naming trusts as the IRA beneficiary and having their loved ones named as beneficiaries to the trust. However, setting up IRA beneficiaries as a trust is a complicated legal issue, and if you elect this option the best decision is to talk to an experienced estate planning attorney about the matter.

Tips on How to Leave an Inheritance to Your Children

June 19, 2014,

According to some estimates, the Baby Boomer generation will leave over $30 billion to their children in their wills over the next thirty to forty years. When leaving an inheritance for minor or adult children sometimes personal, professional, or financial issues can flare up and complicate the process. If you wish to leave your estate to your children here are five simple steps that will ease any conflicts in the planning.

· Use open communication to manage expectations
Talk to your children about what to expect from the estate. Recent surveys have found that children often undervalue their parents' estates by over $100,000. Letting your children know where you stand financially and what they should reasonably expect resolves a lot of conflicts before they even begin. You should also communicate about how their expectations should change because of economic downturns, long-term medical care, or other unexpected issues.

· Create a level playing field
Creating a level playing field does not necessarily mean that you must distribute all assets equally. This can also apply to the distribution of responsibilities when it comes to settling your affairs. When your children feel included in the process it makes them feel like they are worthy, capable, and trusted by you. Getting everyone involved can minimize fighting over aspects of your estate.

· Distribute assets yourself
One common issue that causes problems between children occurs when assumptions are made about asset distribution. A lot of parents will name one child as the beneficiary of a life insurance policy or other account and simply expect that child to equally distribute the money to the rest of his siblings. To avoid any potential issues, name all children as the beneficiaries to the accounts that you wish them to share.

· If distributing unequally, explain why
The largest issues often come from inequality in asset distribution. Children fight when one gets more than others. Oftentimes, parents have good reasons for allocating more of the estate to one or more children. One child may make more money, another may need more for schooling or special needs, or a variety other logical reasons for unequal distribution. The easiest way to resolve this issue is to simply explain why. Because parents often feel uneasy about having these kinds of talks with their children, another option is to leave a note with the will or address it in your estate planning documents.

· Eliminate uncertainty by placing the estate in a trust
A lot of attorneys who specialize in estate planning suggest distributing estate assets to children in chunks, particularly if the children inheriting the estate are at a younger age. The logic of this is that children will make more mature financial decisions as they age. One simple way to control when and how your children receive their inheritance from your estate is by putting your estate in a trust. In addition to placing specifications about when and how distributions should be made, many other types of provisions can be written into a trust. It can ensure that your children will make wise and prudent decisions about the inheritance that you provide.

The Risks of a Prepaid Funeral

June 17, 2014,

The usual story regarding issues with prepaid funerals is similar to this - one person purchases a prepaid funeral plan and does not inform her family. Years later, she passes away and the documentation for the prepaid funeral plan is nowhere to be found nor does anyone know that it even exists. The family pays for the funeral, and only afterwards is the paperwork discovered. However, at that point the funeral has already occurred, and the home refuses to refund the family for the costs.

On the outset, prepaid funerals sound like a good idea to include in estate planning. It appears to be a way to reduce the stress and costs of planning a funeral on your family; however, many issues can arise with the incorporation of a prepaid funeral into an estate. Other options are available in estate planning that can solve the same problems without the potential pitfalls of a prepaid funeral.

Common Problems with Prepaid Funerals

One big issue with prepaid funerals is cost. The average price of a funeral is around $8,000 according to the National Funeral Directors Association, but some prepaid plans can end up costing more in payments than the payout in the end. This has a detrimental effect on the rest of your estate that you want to leave to your loved ones.

Another issue with some prepaid funeral plans is a "redemption clause." Because so many prepaid funeral documents are lost or plans were never told to the families some less scrupulous prepaid funeral companies have instituted a redemption clause. It states that a prepaid plan claim must be submitted to the company within a certain time period (usually 30 days) in order to be accepted and a payout to be made.

Alternatives to Prepaid Funerals

Research has found that the majority of Americans do not shop around for funeral planning services or a funeral home. Most people either choose the funeral home closest to them or the home that other members of their family have used. By comparing various funeral homes, prepaid and otherwise, you can see the options and services that are provided by each and choose the one that is right for you.

If you want to provide something for your family that will take some of the stress out of planning and paying for your funeral consider creating a "payable upon death" account. These types of bank accounts earn interest, provide money in case of an emergency, and can provide financial support for your funeral after you have passed away.

Another way to relieve the stress and problems that come with planning for your funeral is to simply talk with your family and loved ones about your wishes. Most people do not want to talk about their funeral because the topic makes them uncomfortable, but by explaining what you want it reduces the guesswork, and most likely some cost, for your family later on.

Late-in-Life Marriages and Combining Estate Plans

June 12, 2014,

Finding happiness with someone else at any age is a wonderful thing that we all strive for. However, combining family and finances later in life can be more complicated than getting married in your 20s or 30s. In addition to separate finances a lot of people who marry later in life already have their own estate plan in place. Combining two estate plans into one cohesive set of final wishes can be complicated. Here are a few tips to keep in mind when combining estate plans after a late-in-life marriage.

Talking About Prior Obligations
Older couples can bring prior obligations and debts into the estate planning process. While most financial matters affect the present, some obligations can have a direct effect on the estate planning process. If your new spouse has a reverse mortgage on the home or owes half of his pension to a former spouse it will have a direct impact on what will be inherited from the estate.

Making Decisions about Adult and Minor Children
Late-in-life marriages face further complications when there are minor or adult children involved. In most cases each spouse's individual estate plan provides for their children, but other questions arise when combining estate plans. Will the new spouse inherit money that would have otherwise gone to the kids? Do all of the children benefit equally from the new estate plan, and should it? Are there other resources in place from a prenuptial or divorce agreement that provide for some children but not for others? All of these questions, and others, need to be addressed when adult or minor children are involved.

Changing All Documents Related to the Estate Plan
Combining estate plans is more than just signing a new will. When going through the process it is also important to revisit all other tangential documents that affect the estate plan. Review beneficiaries for life insurance policies, retirement plans, and other important financial accounts. It is vitally important to review those documents because in estate law the legal titles of beneficiaries usually trump the wishes in a will.

Deciding How Much To Combine
Because late-in-life marriages often come with complicated financial and family matters some couples choose not to combine everything in their new estate plan. If one spouse is already taken care of because of a prior marriage then it may make more sense to leave her out of the will so that the children will inherit more. Similarly, if some children are provided for from a previous marriage, have money in a trust, or are adults that are independently wealthy it may make sense to leave them less in an estate plan in favor of more dependent or minor children.

The most important thing when combining estate plans after a late-in-life marriage is to make sure that everyone in your combined family is taken care of and your final wishes are fulfilled. If you or your new spouse is uncomfortable discussing issues of finances or estate planning, speaking with an experienced estate planning attorney can also help to facilitate this process.

Lawyer Developing Online Estate Planning Game

June 11, 2014,

An attorney is developing an online game aimed at teaching its players about estate planning. Stephanie Kimbro has created a demo for the game, "Estate Quest," where the player is a detective who is given various cases about people who did not plan their estates correctly. The player is taken back in time and given clues about what the person should have done in his estate or written in his will. Examples include naming a guardian, specifying bequests to certain people, or naming an executor.

Using Crowdsourcing for Legal Products
Ms. Kimbro has been utilizing online crowdsourcing such as Rockethub as a means to develop her game. Crowdsourcing websites allow developers to explain their idea to everyone on the internet, and if people want to invest in the idea they donate money to the venture. Crowdsourcing is also a good tool for gauging interest in potential products. Ms. Kimbro is interested to learn about how crowdsourcing can be used to advance legal services projects, and she is using Estate Quest as a test product.

Teaching Estate Planning through Gaming
The goal of law-related online games such as Estate Quest is to teach people of all ages about certain topics in the law. Ms. Kimbro is also working with Illinois Legal Aid Online to develop a game that teaches its players about landlord/tenant law. She stated that the goals of these legal games are to:

· Empower players to prevent legal problems before they happen
· Award players with points that can be used as discounts for access to legal assistance online
· Increase access to justice through engagement and power of gaming to teach basic legal rights
· Build a fun game that may be played online in a social capacity with friends and family

A game like Estate Quest appeals to a younger, more tech-savvy generation, and it can teach players about important legal topics at a younger age. It also encourages younger players to play the game with older members of their family who may have a more pressing need for legal information about estate planning.

The animated game play also serves as a way to discuss sensitive subjects in a more approachable manner. One of the main reasons why so many people do not have an estate plan in place is because the subject matter is uncomfortable to talk about. Others attempt estate planning on their own without an experienced attorney because they do not wish to discuss final wishes or financial matters with others. Games such as Estate Quest can help to facilitate the conversation about estate planning as well as highlight the potential issues that can come with attempting estate planning on your own.