Aaron Charles Gregg

Do Unmarried Couples Need Estate Planning?

“Experts say that creating a plan for what happens to your estate — regardless of how meager or massive your assets — is key for unmarried couples who want their commitment to each other protected in the event of death.”

A couple that has no intention of ever getting married should know that they won’t get the automatic rights and protections that legally wed spouses get, particularly when it comes to death. Therefore, unmarried couples must make a concerted effort to cover all the bases, says CNBC’s recent article entitled “Here’s what happens to your partner if you’re not married and you die.”

The number of unmarried couples who live together reached 18 million in 2016, a 29% increase from 14 million in 2007, according to the Pew Research Center. Among adults age 50 and older, the increase was 75% with roughly 4 million cohabiting in 2016, compared to 2.3 million in 2007.

These couples still face some key differences from their married counterparts. For example, there’s no filing federal taxes as a couple, and if an employer allows health insurance for a partner, the amount the company contributes is taxable to the employee, rather than being tax-free for a spouse.

End-of-life considerations also need attention. Unmarried couples can sign some legal documents that will dictate what happens, if one of them either becomes incapacitated or passes away, which is a type of estate plan.

If you die without a will or intestate, the state probate court will decide how your assets are distributed. A will by itself also won’t address everything. If you want to make sure your tax-advantaged retirement accounts — like your Roth IRA and 401(k) plans — go to your partner, make sure that individual is the designated beneficiary on those accounts. Even if your will says otherwise, whoever’s listed as the beneficiaries on those accounts will get the money. It’s the same for insurance policies and annuities.

If both partner’s names are on checking, savings or investment accounts, the account will pass directly to the surviving partner. However, for an account with only one partner’s name on it, ask the bank about the appropriate form to be completed, so the money is left directly to the surviving partner. This is what’s called a transfer-on-death or payable-on-death designation. Without this designation, the assets will end up in probate and distributed either in accordance with the will or intestacy state laws.

Regardless of how the mortgage is paid or whose name is on the loan, the person named on the deed is the owner. If the house in one partner’s name, it won’t automatically pass to the partner, as it would with a married couple (via joint tenancy with rights of survivorship). It would become part of the probate estate. To remedy this, you can retitle the home, so that both partners are listed as joint owners on the deed, “with rights of survivorship.” Each partner then equally owns the house and is entitled to assume full ownership upon the death of the other. Note that there could be other factors to consider before adding a partner’s name to an existing deed, such as expenses, tax implications and protection from potential creditors. Ask your estate planning or probate attorney before you make a change. A partner owning the house, could leave it to the surviving partner in the will. Remember, though, any asset passing via the will is subject to probate, which may lead to unforeseen issues.

In addition, a partner has no legal say in his or her partner’s medical treatment, if he or she is in a situation where they can’t make decisions for themselves. To give the partner that right, partners can grant each other a durable power of attorney over health care. This allows the partner to make important health-care decisions, if the one in the hospital is unable to do so. This is different from a living will, which states a person’s wishes if they are on life support or suffer from a terminal condition. This document helps guide the agent’s decision-making. If no one is named, medical personnel must follow the instructions in that document.

Likewise, partners may want to give each other durable power of attorney for finances. This would let them handle one another’s money, including accessing accounts as necessary, if the incapacitated partner could not do so. If the partners have dependents, name a guardian for them in the will. Otherwise, that decision will be left to the courts.

Reference: CNBC (Dec. 16, 2019) “Here’s what happens to your partner if you’re not married and you die”

How Can Beneficiary Designations Wreck My Estate Plan?

“Beneficiary designations are a crucial part of estate planning, yet they are often overlooked. Once you have signed your estate planning documents, you need to make sure that your beneficiary designations are consistent with the rest of your estate plan.”

It’s not uncommon for the intent of an individual’s will and trust to be overridden by beneficiary designations that weren’t chosen carefully.

Some people think that naming a beneficiary should be a simple job, and they try to do it themselves. Others don’t want to bother their attorney with what seems like a straightforward issue. A well-intentioned financial advisor could also complete the change of beneficiary form incorrectly.

Beneficiary designations are often used for life insurance and retirement benefits, but more frequently, they’re also being used for brokerage and bank accounts. People trying to avoid probate may name a “payable on death” beneficiary of an account. However, they don’t know that doing this may undermine their existing estate plan. It’s best to consult with your attorney to make certain that your named beneficiaries are consistent with your estate planning documents.

Wealth Advisor’s “7 Ways That Beneficiary Designations Can Mess Up Your Estate Plan” lists seven issues you need to think about, when making your beneficiary designations.
Cash. If your will leaves cash to various people or charities, you need to make certain that sufficient money comes into your estate, so your executor can pay these gifts.

Estate tax liability. If assets do pass outside your estate to a named beneficiary, make certain there will be sufficient money in your estate and trust to pay your estate tax lability. If all your assets pass by beneficiary designation, your executor may not have enough money to pay the estate taxes that may be due at your death.

Protect your tax savings. If you have created trusts for estate tax purposes, make sure that sufficient assets flow into your trusts to maximize the estate tax savings. Designating individuals as beneficiaries instead of your trusts may defeat the purpose of your estate tax planning. If there aren’t enough assets in your trust, the estate tax provisions may not work. As a result, your heirs may eventually end up paying more in taxes.

Accurate records. Be sure the information you have on the change of beneficiary form is accurate. This is particularly important if the beneficiary is a trust—the trust name, trustee information and tax identification number all need to be right.

Spouses as beneficiaries. Many people name their spouse as the primary beneficiary of their life insurance policy, followed by their trust as the secondary beneficiary. However, this may defeat your estate planning, especially if you have children from a first marriage, or if you don’t want your spouse to control the assets. If your trust provides for your surviving spouse on your death, he or she will be taken care of from the trust.

No last minute changes. Some people change their beneficiary designations at the last minute, because they’re nervous about assets flowing into a trust. This could lead to increased estate tax payments and litigation from heirs who were left out.

Qualified accounts. Don’t name a trust as the beneficiary of qualified accounts, like an IRA, without consulting with your attorney. Trusts that receive such qualified money need to contain special provisions for income tax purposes.

Be sure that your beneficiary designations work with your estate planning, rather than against it.

Reference: Wealth Advisor (October 8, 2019) “7 Ways That Beneficiary Designations Can Mess Up Your Estate Plan”

How Do I Avoid Unintentionally Disinheriting a Family Member?

“Do you want to disinherit your loved ones? Then simply name the wrong person on your beneficiary forms. That sounds too simple, yes, but everyday individuals die leaving their financial assets to the wrong person.”

When an account owner dies, their assets go directly to beneficiaries named on the account. This bypasses and overrides the will or trust. Therefore, you should use care in coordinating your overall estate plan. You don’t want the wrong person ending up with the financial benefits.
The News-Enterprise recent article, “Don’t accidentally leave your estate to the wrong person,” tells the story of the widower who remarried after the death of his first wife. Because he didn’t change his IRA beneficiary form, at his death, his second wife was left out. She received no money from the IRA, and the retirement money went to his first wife, the named beneficiary.
Many types of accounts have beneficiary forms, like U.S. savings bonds, bank accounts, certificates of deposit that can be made payable on death, investment accounts that are set-up as transfer on death, life insurance, annuities and retirement accounts.
Remember that beneficiary designations don’t carry over, when you roll your 401(k) to a new plan or IRA.
You can name as your beneficiaries individuals, trusts, charities, organizations, your estate, or no one at all. You can name groups, like “all my living grandchildren who survive me.” However, be certain that the beneficiary form lets you to pass assets “per stirpes,” meaning, equally among the branches of your family. For example, say you’re leaving your life insurance to your four children. One predeceases you. Without the “per stirpes” clause, the remaining three remaining children would divide the death proceeds. With the “per stirpes” clause, the deceased child’s share would pass to the late child’s children (your grandchildren).
Don’t leave assets to minors outright, because it creates the process of having a court appointed guardian care for the assets, until the age of 18 in most states. Instead, you might create trusts for the minor heirs, have the trust as the beneficiary of the assets, and then have the trust pay the money to heirs over time, after they have reached legal age or another milestone.
You should also not name disabled individuals as beneficiaries, because it can cause them to lose their government benefits. Instead, ask your attorney about creating a special needs or supplemental needs trust. This preserves their ability to continue to receive the government benefits.

Reference: The News-Enterprise (November 30, 2019) “Don’t accidentally leave your estate to the wrong person”

How Do I Set Up a Living Trust?

“Setting up a living trust is largely the same, regardless of where you live in the U.S.”
For those who want to spare heirs the hassle and cost of the probate process, you may consider transferring your assets to a living trust.
Yahoo! Finance’s recent article, “How to Create a Living Trust in Tennessee” explains that creating a living trust is mostly the same, regardless of where you live in the U.S.
Let’s look at the basic steps you’ll need to take, with the help of a qualified estate planning attorney:
1. List the assets that should go into the trust. There are some assets, such as 401(k) plans and IRAs, which must be in an individual’s name. Other items like bank accounts, securities and life insurance policies can but don’t need to, provided you set up payable-on-death accounts or designate your beneficiaries. Usually real estate and business interests are shielded with living trusts.
2. Select the right type of living trust. If you use a revocable trust, you can remove assets or cancel the trust. With an irrevocable trust, you don’t have this luxury. If you’re not married, you can create a single trust. If you’re married, a Tennessee Community Property Trust will hold what you own jointly without having to split property or say who owns what. However, this type of trust isn’t a good option, if you’re in a later marriage with separate assets and children from previous relationships.
3. Name a trustee. The trustee will manage the trust. With revocable trusts, you can also be the trustee, or in the case of a joint trust, you and your spouse can be co-trustees. If you name yourself, name a successor trustee for when you pass away.
4. Create a trust agreement. It’s best to hire an estate planning attorney to create the trust, because it must be done correctly and legally. If the trust is found to be invalid, there may be penalties, taxes and added costs.
5. Sign and notarize the trust document.
6. Transfer property into the trust. The law states that the trust won’t be effective, unless and until property is retitled in the name of the trust.
Trusts and their rules can be complicated. Use an experienced estate planning attorney to do it right.
Reference: Yahoo! Finance (September 27, 2019) “How to Create a Living Trust in Tennessee”

Do I Need a TOD Account?

“Transfer on death (TOD) accounts can keep your estate planning intact, while keeping your beneficiaries out of court. If you’re among the 57% of adults who don’t currently have a will or trust, your family is likely headed to probate court.”

A Transfer-on-Death (TOD) account can eliminate a legal problem, by moving your assets without leaving them in your will.

Yahoo Finance’s recent article, “Transfer on Death (TOD) Accounts for Estate Planning” explains that a transfer on death (TOD) account automatically transfers its assets to a named beneficiary when the holder dies. TOD account holders can designate multiple beneficiaries and divide assets any way they want. However, the beneficiaries have no rights to a TOD account, while its owner is alive. The beneficiaries can also be changed at any time.

When a person with a TOD account dies, the executor will deliver a copy of the death certificate to an agent at the account’s bank or brokerage. The account is re-registered in the beneficiary’s name. A TOD account sidesteps the probate process and takes precedence over a will.

If you have a surviving spouse as your joint owner, investment and bank accounts will go to them before going to a TOD account beneficiary. Based on state law, a beneficiary may receive the assets of a TOD account, only after a joint owner spouse’s death, if at all.

A TOD account can be divided among several beneficiaries, but it doesn’t have to be done so equally. A TOD account with someone under 18 as a beneficiary, could also be a problem because minors can’t control investment accounts. You would need to name a guardian or set up a trust (and name a trustee).

As you start the estate planning process, an experienced estate planning attorney will be a big help in organizing your finances and accounts. Talk to them about your overall estate plan objectives.

Reference: Yahoo Finance (June 26, 2019) “Transfer on Death (TOD) Accounts for Estate Planning”

Can Beneficiary Designations Create Problems for My Estate Plan?

“How you name beneficiaries can complicate an estate plan.”

A senior with a $2.5 million estate, 85% of which is in brokerage accounts, has designated his two children as beneficiaries with per stirpes on all his accounts. His will does the same thing, so he can avoid the probate process. Does this create any issues?

A recent nj.com article asks “Will my estate plan avoid probate?” According to the article, this current plan could have complications.

Even though our senior has his beneficiary designations lined up on his investment accounts, having a will is critical because we all have assets that don’t pass by beneficiary designation. These are usually personal assets like jewelry, household goods or automobiles. These items will pass by the state laws of intestacy, if there’s no will to instruct how they should pass.

A beneficiary designation, like a "payable on death" account, will supersede the terms of a will as far as that specific account. Naming both (or all) children on all your accounts is preferable to naming one on one account and another on another account, because a senior can spend down the accounts at different times and in different amounts. That could result in unintentionally benefiting the beneficiaries unequally.

With this type of issue, it’s wise to speak to an estate planning attorney about whether to designate beneficiaries on financial accounts or life insurance policies, or instead, have the assets payable to the estate or trusts under the will. Depending on the overall estate plan, naming beneficiaries could disrupt and undermine the estate plan strategy that is designed by your attorney. The reason is trusts established in a will may not be able to be funded, and taxes or administration expenses may not be able to be paid as planned.

Banks often encourage people to name beneficiaries on various accounts because of the FDIC insurance limitations but moving some funds to another bank may be a better idea. Another issue with beneficiary designations is that as banks merge, and the accounts change, or as you move your accounts from one bank to another, the beneficiary designations that you once had set may be inadvertently left off.

Therefore, if our senior is relying on beneficiary designations, after any change in his financial institution, whether a branch change, name change, or institution change, he would be smart to reconfirm the beneficiary designations. This is especially true for insurance policies and retirement accounts, which generally pass by beneficiary designation forms and not by a will.

Talk to an estate planning attorney to be certain your current plan still meets your goal for your assets and heirs.

Reference: nj.com (September 24, 2018) “Will my estate plan avoid probate?”

Is Having a Joint Bank Account with Mom a Good Idea?

“Taking care of an aging parent is full of challenges.  Therefore, on first thought, opening a joint bank account with your mom or dad seems like a no-brainer. Dig deeper though, before you make such a move. For all the advantages, there are risks and complications.”

Opening a joint bank account with your aging parent sure sounds like a good idea. But NextAvenue’s article asks, “Should You Have a Joint Bank Account With Your Parent?” It turns out there are some real issues with this plan.

A joint bank account can be a quick and easy way to help your parents pay bills and monitor their spending. With you monitoring their account, it’s also easier for you to see potential fraud. It allows an adult child to watch for unauthorized purchases or other issues with the account, like late fees or overdrafts. Another benefit is that in the event of your parents’ deaths, you will have immediate access to the account funds, without the need to go through the probate process. This can be helpful when paying burial and other final expenses.

However, there’s plenty that can go wrong if you have a joint bank account with your parents. First, your parents’ money won’t be safe from your own debts or liabilities. If something happens to you, like an accident, divorce, or bankruptcy, you’ll be putting your parents’ money at risk. Depending on the rights of survivorship on the account, all the money in the account could go directly to you when the last of your parents dies. That would disinherit your brothers and sisters.

If you make deposits to the account yourself, it may impact your parents’ eligibility for government benefits, like Medicaid. A joint account may also play a role in your child’s student financial aid eligibility because government and financial institutions can designate all the money in the joint account as your money—even if half of it is yours and half belongs to your parents.

There can also be tax implications to having a joint account. The IRS could deem this to be a gift, triggering a gift tax return, if the account is valued above $15,000 (from each parent for 2018). Likewise, if the parents and adult child open a new account together, and the parents deposit a large amount of money which the adult child later withdraws, it could arguably be seen as a gift.

Look at these options that might work better for you and your family, instead of a joint bank account:

1. With signature authority on an account, you can pay your parents’ bills;. However, you won’t be authorized to use the money in ways that aren’t for their benefit, and the money will be protected from your creditors.
2. With power of attorney, an adult child can make financial decisions on the accounts that are titled in the parents’ names. The POA should be durable, so that it will still be in place, if the parents become incapacitated.
3. Your parents can create a revocable living trust, appoint you as co-trustee and open a bank account in the name of the trust with two or more signers. Talk with an estate planning or elder law attorney to see if this makes sense in your situation.
4. If you’re worried about your mom or dad’s mental capacity, you petition the court for guardianship, which will let you to manage his or her finances. The guardian doesn’t own the funds, and the money can’t be garnished or seized to settle a guardian’s debt. However, it’s a difficult and complicated process. All concerned may be better served to have a durable power of attorney in place, before a parent becomes incapacitated.
5. If the biggest worry is avoiding having money tied up in probate after a parent’s death, your mother or father can add a “Payable on Death” provision to a financial account. The money in the account will then bypass probate and be paid directly to their beneficiaries. However, speak with an experienced estate planning attorney before doing this to make certain that this won’t contradict a will or any other estate planning that already has been done.

Reference: NextAvenue (July 17, 2018) “Should You Have a Joint Bank Account With Your Parent?”