Planning

In past BLOGS, we have been focusing on estate planning.  You have made some big decisions or have at least started to think about your planning.  As you have been thinking, the thought may have crossed your mind about your fiduciary receiving compensation for their efforts.  Well, think no more about it. 

In New Jersey and New York, there are formulas in the statutes as to compensation for executors/administrators, for agents under a power of attorney, and for trustees.  Commissions are calculated on the value of the assets at specified times as well as on income earned. 

Since the commissions are statutory, there is little room for disputing the payment unless the fiduciary has failed to carry out their duties. 

However, in Pennsylvania, there is no specific formula in the statutes.  They go by a “reasonable” standard which is patterned after a case referred to as the Johnson Estate decided several years ago. 

These calculations will produce the maximum amount of commissions allowable.  The fiduciary can opt to take less than the maximum.  While the commission can be a deduction for an estate or a trust, any commission payment becomes taxable as ordinary income to the fiduciary for income tax payments. 

If there is a corporate fiduciary, they are entitled to a commission which may be calculated slightly differently than an individual fiduciary.

You have decided you need to think about your estate planning.  You want to avoid making mistakes.  Of course, the BIGGEST mistake is to not have any estate planning in place. 

To help you feel more confident about your estate planning, here are some thoughts to consider:

• Who will be your fiduciary – your executor, your agent under a power of attorney or health care directive, a trustee if you create a trust.  Who is best suited for this position?  Does the same person have to act for all?  While consistency is helpful, you must consider the decisions to be made.  The person who would be best for financial purposes may not be the best choice for your health care agent.  You should select individuals best suited for the duties and responsibilities they may have to carry out. 

• Tax laws are ever changing as are personal circumstances.  While your documents that are several years old may be sufficient in some regards, they may be deficient in other regards.  Older Powers of Attorneys may not contain HIPAA language.  Older documents may not address digital assets.  Your beneficiaries may have had a life change – divorce, disability, etc.  If in doubt, have your documents reviewed to determine if they need to be updated. 

• If a beneficiary is a minor, they would not be able to manage their inheritance.  Think about who should be named to manage their inheritance until they are older and what type of distribution scheme would you like for the minor to receive.

• What will happen if you become disabled, incapacitated?  Who will take care of any minor children you may have? 

• If you ignore tax consequences, the result could be additional taxes and thereby reduce the inheritance passing to your beneficiaries.

• Creating joint ownership of your assets may not be the best action.  Joint ownership could result in tax consequences if the other owner should die before you.  If the other owner encountered financial problems, your jointly owned assets could be at risk.  If the joint owner were to become involved in a divorce situation, your assets could become frozen pending the conclusion of the divorce. 

• You do not have to treat all beneficiaries the same.  Take into consideration where each beneficiary is in their life – are they good with finances, do they suffer from addiction, are they divorced, are they disabled and receiving governmental benefits?  You may need to consider these special circumstances with regard to distributions.

• And last, but not least, don’t assume your family will work together after your passing.  After the passing of the second parent, it is not uncommon for deep-seated feelings to surface among siblings.  To the greatest extent possible, have your affairs in order to avoid as many situations as possible.

Families have changed throughout the years due to divorces, second marriages, blended families, same sex marriages, single parents, cohabitating couples, multinational couples, couples with different religious beliefs, age gaps between couples – all which can require special considerations in doing your estate planning. 

You may have one or more of these considerations to be factored into your estate planning.  Why are these important? 

When there is a second or subsequent marriage, there could be assets brought into the marriage by each spouse or there could be children from one or both spouses and possibly a child from the current marriage.  How will these assets be treated when one spouse dies?  How are the children to be considered upon the death of one spouse? 

If a couple is cohabitating, they may jointly acquire assets.  How the assets are titled will have an impact of ownership upon the death of one of the parties.  Is there a cohabitation agreement? 

What will happen when one of the couple dies? Is there a child or children born in the relationship?

When there is an age gap with spouses, there can be a wealth gap.  How will the assets of each be considered?  Will they be separately held and distributed separately or will they be combined into joint ownership?  How will the assets be distributed if the richer spouse dies first? What if the residence is owned by the first to die spouse?

Multinational/multicultural couples could have an adventurous life as there could be opportunities to travel between two countries.  But, what is the country of residence?  Are assets owned in both countries?  What will be the tax consequences be upon the death of one spouse? 

Supplemental needs trust planning when there is a beneficiary who is disabled requires special consideration.  Government benefits should be considered so as not to jeopardize the same.  What is the prognosis for the beneficiary and the anticipated needs? 

Religious diversity can be an important consideration.  How are the children to be raised if one parent dies before the children are adults?  What are the feelings with regard to charitable contributions?  What are the religious beliefs with regard to health care decisions?  Are there medical restrictions like blood transfusions, surgery, organ transplants?  Funerals and burials? Are the spouses agreeable to respect the other’s beliefs?

The items above are not meant to scare you, but to spark thoughts that might need decisions.  When you meet with an attorney for your estate planning, don’t hesitate to bring up all matters of concern.  Failure to do so will impede your estate planning to address special considerations. 

When you say “estate planning”, many people think of going to an attorney and having their Last Will and Testament prepared.  But, is this all that meets the definition of “estate planning”?  Oh no — far from it. 

First of all, the term “estate planning” is the production of documents far beyond a Will.  At a minimum, a Durable Power of Attorney and a Health Care Directive/Living Will is prepared.  To those documents, there may be a Trust or two depending upon the situation. 

Next, the attorney is not the only party to be involved with the process. A financial advisor can be a very important member of your estate planning team.  Also, your tax preparer may be vital in helping to assist in your planning.  Each of these professionals knows you in a different way and, collaboratively, they can offer the best estate plan for you. 

You may be thinking, do all of these people need to be involved with my estate planning?  The attorney will be the professional responsible for drafting the documents.  In New Jersey, only an attorney is authorized to draft a Last Will and Testament for another individual.  But, the attorney won’t have your financial information and the details of the wealth you have accumulated.  Your tax preparer can assist with certain tax-related discussions.  Each of your team members is proficient in their particular area.  Collaboratively, they will be able to assist in implementing your wishes in the best possible way.  You may have a business to be considered.  You may have a certain situation within your family such as a disabled child or grandchild, or a child who may not have a stable marriage or may have financial problems.  Your financial advisor may have information regarding retirement-type accounts or insurance. 

Each of these team members will work in your best interest.  One of them alone would not necessarily have the whole picture of you, but together they can fit the puzzle pieces together to create the best estate plan for you.

As we look back in history, the memorialization of the deceased have been very diverse among the cultures of our world. In the U.S., we see a mix of the different cultures based upon personal preferences as well as religious beliefs. 

So, what is ahead in the future with regard to dying and memorialization of the dead?  Taking into consideration that space for ground interment is becoming a concern, the rise in cremations and the building of mausoleums, what will be next?  Cremations are very popular due to the reduced cost from a traditional funeral. 

A recent article that I read stated that, thanks to technology, engineers can transform the carbon from human ashes into diamond gems that are physically and chemically identical to natural diamonds.  Using one pound of ashes, the pure carbon elements are extracted and impurities are removed.  Any remaining ashes are then returned to the family.  With the use of heat at about 2,400 degrees Fahrenheit and pressure, diamonds are created. 

Now, you are saying to yourself that these “memorial” diamonds can’t be the same as genuine diamonds, but it has been proven that they are identical down to the atomic level. Once created, the diamond can be kept in rough form or can be cut and polished the same as genuine diamonds.  So, in about six months, your loved one can be turned into a diamond.  Fascinating.  The cost is based upon the size and cut of the diamond. 

So, you say that you aren’t into diamonds.  Here are a few other alternatives. 

How about a custom-made vinyl record made from your loved one’s ashes?

Or, perhaps sending your loved one’s ashes into orbit, to the moon or even into deep space?

If your loved one liked the ocean, you could consider incorporating a loved one’s ashes into an artificial reef or marine habitat. 

Or, if you are a little more down-to-earth, you could use some of the cremains to grow an indoor tree. 

So, what would be your choice? Hmmmm.

So, we are in the first full week of January and life is regaining a normal routine.  How are you doing on your resolutions?  Last week, Yasmeen Khaleel gave a list of suggestions of areas to address with regard to estate planning.  If you read that blog, have you even given it any further thought?  I would hope so as it is so important to have your estate planning and financial matters in order.  I know, it’s not the easiest of matters to think about, but it is invaluable should something happen.

This week, we will continue with suggestions on estate planning and taxes.

STUFF WE OWN – We all have “stuff”.  And probably much more than we need or use.  The things we don’t use take up space, so why not start your spring cleaning during the dreary winter months when we aren’t outside enjoying the weather?  Start small in cleaning out an area.  Eliminate what you don’t need (someone will thank you later).  But, now that you have items you are willing to part with, what do you do with them?  GIVE THEM AWAY!  Perhaps family members or friends could use the items.  Better yet, give them to a charity.  There are several charities that will come to your home to pick up the items as long as they are bagged or boxed and one person can handle the parcel.  Charities will use these items in their thrift stores to generate funds to help others.  Go online or keep your eyes open in your mailbox for flyers of charities willing to pick up items.  Remember the saying, “one man’s trash is another man’s treasure”.

SECURITIES – Do you want to benefit a charity or an individual by gifting some securities?  All gifts less than $15,000 can be gifted without any gift tax consequences known as annual exclusion gifts.  If you are inclined to pass along securities, check with your attorney or accountant with regard to considerations to be made in this regard.

BENEFICIARIES – Have you checked your beneficiaries on your IRA/pension accounts and/or life insurance policies lately?  This is an area frequently overlooked but very important.  If the primary designated beneficiary is deceased, are there contingent beneficiaries?  If not, then the asset upon your death will pass to your estate to be distributed pursuant to the provisions in your will rather than to a specific beneficiary.  Is this the disposition plan you want?  What happens if the designated beneficiary is a former spouse from whom you are divorced?  Who will benefit from the asset upon your passing?

ASSETS YOU HAVEN’T THOUGHT ABOUT FOR A WHILE – Many of our parents may have taken out life insurance policies on us when we were younger.  Some of us may have had a 401(k) from a former employer.  Ring any bells?  If you haven’t thought about these recently, you should put this on your list of things to address.  If you haven’t thought about these for a while, now is the time.  Determine who the beneficiary is, what the current value is, whether the company may have merged and the current contact information.  Don’t let these assets escheat to the state as unclaimed funds for someone to deal with in the future.  It is much easier to deal with these assets sooner, rather than later.

UNCLAIMED PROPERTY – Did you know that you can search on the internet for unclaimed property in your name?  The site is “Missing Money” and you simply put in your name and the state and it will produce a report of individuals with similar names of funds being held by the state.  If you have lived in multiple states, check each state in which you resided.  You never know, you might find a surprise.

Next week we will continue with more suggestions.  Have a good week.