Important Considerations for Business Co-Founders to Consider
Most people that come into our office expect to need a “simple” estate plan. Usually, they mean a will, power of attorneys, and a living will. No trust, no tax planning, and no trust provisions for their children or other family members. Perhaps the initial motivator for this is the lower cost, but also the understandable desire to avoid taking the time and energy to understand the workings of a more complex estate plan.
First of all, of course simple plans are less expensive and easier to understand. However simple estate plans are usually for small, straight forward estates. Small usually meaning an entire estate worth less than 100-150 thousand, and straightforward meaning married couple with adult, healthy children with no complications. Most couples estates are worth more than the smaller, especially when you consider that your estate consists of EVERYTHING you own (Life insurance, real property/homes, cars, personal property, retirement accounts, bank accounts, etc. Also, if you have children, grandchildren, or others that you care about and wish to see benefit from your estate, a simple plan offers absolutely no assurance that that will happen.
Here’s a couple of brief examples:
- John dies and leaves all of his assets to his wife Jessica. They have one child, Joe. A few years later, Jessica marries Jack, and they buy a house together with Jessica’s money, and she names Jack as the beneficiary of the IRA that she rolled over from John. Jessica then dies, with a Will that names Joe as the sole beneficiary. However, despite what the Will says, her second husband Jack gets the house, the IRA, and under Oklahoma law, one-half of all other property. John and Jane’s son, Joe, is left with little of her estate.
- Lisse has three adult children, Larry, Louise, and Lisa. Louise and Lonnie each have two children of their own. Lisse’s Will provides that each shall receive one-third of the estate. Lisse dies, and each child receives $250,000. Larry uses the money to buy a home with his wife. They then divorce, and the judge awards her the house in the divorce settlement. He is left with nothing of Lisse’s original estate. Louise uses the money to start a business, risky since she has little business sense or experience. The business fails, and she and her children are left with nothing. Lisa puts the money in a savings account in his name, but his Will provides that her husband gets everything. Lisa dies, and a couple of years later her husband remarries. Sometime after that he dies, and the new wife gets everything, and leaves nothing for Lisa’s children. After all of these events, Lisse’s children and grandchildren are left with nothing of the original estate.
These types of circumstances occur everyday and impact many, many families. Second marriages are very common, and as a consequence, children and grandchildren are unintentionally disinherited, and in-laws, spouses or ex-spouses, and creditors end up with the family legacy.
How do you prevent these types of things from happening? Call our office today about using a trust or multiple trusts as part of your overall estate plan. It will cost a bit more (at this time, but do not forget it skips probate costs), and take some more time to implement, but the savings and peace of mind can be priceless.
Most people know how to put beneficiary designations on their accounts to skip that asset from going to probate. Most of the time, it is a one or two page form that the financial institution provides you. (See more about that at our post about Beneficiary Designations). However, one type of asset that is often left behind is an automobile, boat, or any other titled vehicle. One particularly useful procedure that Oklahoma allows in these cases is the “No Administrator Affidavit” that is available from the Motor Vehicle Division of the Oklahoma Tax Commission through tag agencies in cities across Oklahoma. You can complete this form and attach a certified copy of the death certificate, and then the affiant (person who signed the affidavit) may obtain title to a vehicle, boat or outboard motor where there is no probate or administration proceeding and no other person would have a prior right.
If your estate is not large enough to justify paying for a Revocable Trust, you should look into how to set up your estate in a way that would make probate less strenuous on your family, or skip it all-together.
If you would like to know more about how to do this, or if you need to set up a Revocable Living Trust, please call the office of The Skillern Law Firm, PLLC today at (918) 805-2511.
What does the fiscal cliff agreement mean for my estate? The estate tax was a bit of a mixed bag – the $5 million dollar per person exemption was kept in place (and indexed for inflation continued) however the top rate is increased from 35% to 40% – effective yesterday. Other good news for estate planning – portability is kept in place and estate and gift remains unified – ie the $5 million stays in place for gift tax purposes as well. All are permanent law, so rejoice!
So, no real change for smaller estates worth under 5 million, however, if your estate is worth more than 5-10 million, the estate tax percentage increased.
Hope this helps! Please call the office of Skillern Law Firm if you have any questions or are ready to set up a trust or create a will.
Most couples, especially married couples, get their estate planning done together and draft them accordingly. Most of the time, married couples will get a Family Trust, rather than two individual Trusts, and all the beneficiaries/executors/trustees are listed as each other. After the unfortunate event of a divorce, it is extremely important to get your estate planning updated to reflect your life change. Most people’s wishes and ideas about who should receive and manage your property after your death changes after a divorce. The only way to effectively express that intent is to have a new estate plan drafted.
When you get divorced, you absolutely need to update your estate plan. Oklahoma law provides some safeguards for Wills, Trusts, and certain beneficiary designations. Under Oklahoma law, your former spouse does not benefit under your will or Trust, only if your Will or Trust follow the requirements of Oklahoma law. However, these few safeguards are incomplete and will not change your estate plan to exclude your ex-spouse in some situations. The default rule will not revoke any gifts to relatives of your ex-spouse, for example.
It is important to update your Will and/or Trust after a divorce, because the default Oklahoma rules that may or may not apply, and an experienced estate planning attorney will know which ones need updating. One of the best ways to express your new wishes after the divorce is to create or amend your estate plan. This way, you are able to accurately express your new intent with your estate, since divorce usually changes your intent (i.e. leaving the ex-spouse out), and this will ensure that your wishes are clearly communicated.
One important thing to update after a divorce is beneficiary designations on accounts. When you select beneficiaries for life insurance, retirement plans, or bank accounts, you are making a legally significant decision. After you pass away, the institution holding the account will look at your account information, including the death beneficiary, and distribute accordingly. Ex-spouses, if not changed on the account, have a strong chance of benefiting from the account. Divorce has an very limited effect, if any, on these beneficiary type arrangements.
For example, most people hold a lot of assets in their IRA, 401(k), or other retirement plan. Most people do not realize that these retirement plans are governed by Federal law, and no state (including Oklahoma) can use a divorce decree/order to overcome the beneficiary designation on your retirement plan. This means your ex-spouse will benefit if the beneficiary is not changed. You absolutely have to change the beneficiaries after a divorce decree is final to express your new intent.
Most people have many other things on their minds if they have just gone through a divorce, but it is very important to contact an estate planning attorney, or be active in keeping your estate plan up-to-date. Please contact the Skillern Law Firm, PLLC if you need your estate plan updated or created.
Most people know what life insurance is and what it does for you. However, if you do not, let’s go over the basics. Life insurance is insurance that you can pay a monthly fee for that will pay a beneficiary an amount of money after you pass away. The amount of money paid at the time of death is known as the death benefit, and the expense of the monthly payment usually depends on the total death benefit amount.
Within life insurance, there are two major different types of life insurance: term life and whole life. Term life insurance has level premiums for a specified term of years, and then the premiums usually increase dramatically after the initial term (10, 20, 30 years). “Whole” or “permanent” life insurance commonly has level terms for life, and includes an investment element that can be used to reduce premiums, purchase additional death benefit, or can be taken as cash dividends by the policy owner. Whole life insurance premuiums are more expensive then term life, but there are added benefits.
A life insurance agent can help you decide which policy or policies are best for you. However, estate planning attorneys are there to help make sure that your policy is effectively used in your estate plan, and help set up the best legal structure for the death benefit, as well as help you make a decision as to who should own the policy.
How is life insurance taxed?
Unless Congress or the State of Oklahoma changes the income tax law (which could very well happen in 2013), life insurance’s death benefit is usually received by the individual beneficiary income tax free. However, life insurance money can be subject to the estate tax and generation skipping transfer tax, if the deceased insured had any “incidents of ownership” in the life insurance policy. Since there is a possibility of estate taxes, it is important to consult with an estate planning attorney prior to selecting ownership of the policy and making beneficiary designations.
How to use life insurance in your estate planning.
Life insurance can be used in several ways in your estate plan. Life insurance is very helpful, since it provides additional or supplemental inheritance money to your heirs, besides a home or your savings money. Some of the estate planning uses of life insurance include:
- Life insurance provides liquidity to pay administration expenses or debts, so your house or accounts would not have to be sold or split up to pay for estate costs.
- Life insurance also provides liquidity to purchase assets from other trusts or probate estates. This can occur when there is real estate or business interests that the family wants to keep in the family.
- Life insurance can provide a trust estate for people still in the accumulation phase of life, usually a minor or young adult. You can put the life insurance in a trust to be held in trust, rather then given in a lump sum.
- Leveraging the value of the gift tax annual exclusion and exemption, and generation skipping transfer tax exemption, life insurance could potentially allow you to transfer larger amounts of wealth than you could with a straight, outright transfer.
Basically, life insurance is a helpful asset to include in your estate plan. If you already have life insurance, consult with an estate planning lawyer to see how to maximize the benefit of your life insurance in your estate plan. If you do not have life insurance, consider discussing life insurance with an estate planning attorney and/or insurance agent to see what type of insurance policy integrates well with your estate plan. Contact the Skillern Law Firm office today and set up your free consultation.
One important thing that must be said is that beneficiary designations, including IRA’s, life insurance, annuities, bank accounts, etc., go outside probate and the trust. What is said in the Will does not effect what is said in a beneficiary designation.
For instance, if you want to leave your two children 50/50 of your estate, and you put that in your Will or Trust, but leave only one as a beneficiary or joint owner of an account, that one child will receive the entire amount of the account, and the other child has no legal right to the other half. Beneficiary designations trump whatever your Will says about the other assets.
This can also play a role in Guardianship designations in a Will or Trust. Some people believe that if they designate a guardian for their child in their Will or Trust, and then leave that Guardian as a beneficiary on an account, that the guardian will be obligated to use that money for the child’s use once they become legal guardian. This is not true. If the named beneficiary is left as a beneficiary on an account, then it is legally their money, not the child’s. You can leave the child as the beneficiary, and once the legal guardian is approved by the Court, they can access the account for the child’s use.
That being said, it is great to have beneficiaries on accounts, because it makes a lot of sense and allows the executor or trustee to focus on fewer assets to disburse. However, always keep in mind the distinction between beneficiary in a Will or Trust, and a beneficiary on an account.
If you do not have a Will or Trust set up, please contact our office today to set up an appointment!
If you have children who are minors, it is very important to 1) get a will and 2) choose a guardian to take care of them should you pass away before they are the age of majority. This can be a very, very difficult choice, especially if the father and mother do not agree on a guardian. It is a common estate planning problem, since usually both grandparents volunteer, or the child has two favorite aunts, etc.
However, making sure that your child is taken care of if an unfortunate accident should happen to both parents is very important. If the parents do not stipulate who they nominate as guardian in a will, the children will be chosen a guardian through a court process, which takes months, is expensive, and puts a great emotional toll on the children after their parents’ death.
There are some important factors to think about when choosing your child(ren)’s guardian. From parenting style to finding a stable living condition, as well as the existing relationship between the children and their nominated guardian, here are countless issues to contemplate before you make the final decision.
What follows is a list of only some of the important questions parents may want to ask themselves as they consider their options for guardian of their minor children:
1. Where is your potential guardian located? Moving, especially after a traumatic event like a parents’ death, can be hard for minors. Does your potential guardian live in the same city or same State?Will your child be able to stay in a familiar environment during the emotional transition, or will he or she have to move to another city or state? What part of town does the potential guardian live? Is their house located around good schools and safe neighborhoods?
2. How close is the child(ren) and the potential guardian? If the minor child and the potential guardian have an existing, close relationship, it will make the transition much easier for the child. There will already be a relationship of trust, comfort, and the guardian will already know the likes and dislikes of the minor child. If you end up choosing a family member or sibling that lives far away, you should try to establish a familiar relationship with the child and their potential guardian in case something happens to you.
3. Is your potential guardian physically, emotionally, and financially prepared to take care of your child(ren)? While nominating grandparents seems like a great idea, since usually there is already a close bond and a relationship, an aging grandparent may not be physically or emotionally fit to take care of your young child or your moody teenager. Similarly, a loved aunt, who has many student loans and lives in one-bedroom apartment, may not be financially fit, or have the time, to provide for the child(ren).
4. If your minor children have special needs, does you potential guardian have the knowledge or the skill to handle your child correctly? A special needs child is a hard situation that can take the parents years to develop important skills that they need to have to correctly care for the child. When you are looking at potential guardians, be aware of their skills with special needs children, or encourage them to gain knowledge and develop skills in case they are ever needed.
5. Make sure to tell your potential guardian, and discuss it with them beforehand. It is very important to have a conversation with your potential guardian before you nominate them in you will. You can gauge how comfortable they are with the idea, and see if there is any reluctance before you nominate them for such an important task. Make sure you tell them of your parenting preferences, important features you want in your children’s care (religious, education), and tell them of your hopes for your children. Also, make sure your potential guardian knows that he/she can say no if they are unable to take on the responsibility, and make sure that you have several backup nominations in case your first choice declines.
If you have minor children, it is very important that you nominate a guardian in a will. The task of nominating a guardian is not an easy one, and there may be disagreements between the two parents, but it is an important task that must be done. The minute you have children, you should be thinking of their futures and their safety, and that includes a situation if you and your spouse are no longer able to care for them. It will also give you a peace of mind, knowing that your children will be in good hands, and that the court will have little to no say in who will take care of your children.
If you would like to know more about creating a will and nominating a guardian, please call the offices of the Skillern Law firm today!
Many people who create a Revocable Living Trust fail to understand what happens to the trust after they are gone (for more information about types of trusts, see Let’s Talk Trusts). One of the most common misconceptions is what happens to a Revocable Living Trust after the trustmaker or “trustor,” or the person who created and funded the trust, dies. A lot of successor trustees believe, that as long as the trust is fully funded, all that they need to do is collect an inheritance check, pay some taxes, and that is it. However, it really does not take a lot of common sense to figure out that there needs to be more than that, since you are closing and cleaning up the financial affairs of a person’s entire life. (For more on trustee’s duties, See Duties of A Trustee).
Even though probate is not required for a correctly and fully funded trust, the successor trustee of the trust will still have quite a few responsibilities and duties to accomplish before the trust’s beneficiaries can receive their inheritance. Usually, there are taxes to be filed and paid, bills to be paid, paying ongoing expenses of maintaining the real estate of the trust, and selling or auctioning off any property that cannot be liquidated any other way. However much work this seems, this is much better than having a court process where a judge is looking over every bill to be paid, every expense, and holding things up due to court dates needing to be scheduled. Usually the only professionals needed in this process is a good accountant, and sometimes an attorney. Cleaning up and closing a trust is still much faster and cheaper than probate.
If you are interested in getting a trust, or finding out more about how one can help you and your heirs, please call our office today.