How to declutter your life, what happens if die without a will, uses and purposes of essential trusts, the responsibilities of trustees and executors, a dire warning to your IRA beneficiaries, how to provide protection if you become incapacitated, your other wills, business buy-sell agreements, what records you need to keep, ethical wills and statement of values, estate liquidity, how to choose a guardian and arrange for an allowance for them, how assets can be left to a minor and a priceless gift you can give your children.
Getting Your Affairs in Order
How to arrange things to simplify your life so that others can easily pick up where you left offBy Edward MendlowitziUniverse, Inc.
Copyright © 2012 Edward Mendlowitz
All right reserved. ISBN: 978-1-4620-7089-3 Contents
Introduction...........................................................................................................xiiiChapter 1: Decluttering Your Life......................................................................................1Chapter 2: Purposes of Estate Planning.................................................................................4Chapter 3: Why a Will is Needed........................................................................................7Chapter 4: Your Other "Wills"..........................................................................................12Chapter 5: Forms of Ownership..........................................................................................14Chapter 6: Assets Included In An Estate................................................................................16Chapter 7: Estate Liquidity............................................................................................19Chapter 8: Life Insurance..............................................................................................21Chapter 9: Irrevocable Life Insurance Trust............................................................................23Chapter 10: Crummey Letter.............................................................................................26Chapter 11: Trusts.....................................................................................................30Chapter 12: Total Return Trusts........................................................................................34Chapter 13: Choosing Executors and Trustees............................................................................37Chapter 14: Trustees' Investment Responsibilities......................................................................39Chapter 15: Living Trusts..............................................................................................43Chapter 16: Credit Shelter Trust.......................................................................................46Chapter 17: Qualified Terminal Interest Property ("QTIP") Trust........................................................50Chapter 18: Choosing a Guardian for Minor Children.....................................................................51Chapter 19: How Assets Can be Left to a Minor..........................................................................54Chapter 20: Payments to a Guardian.....................................................................................56Chapter 21: A "Gift" for Your Children.................................................................................57Chapter 22: Bow Wow and Meow...........................................................................................59Chapter 23: IRA, 401k, 403b, Roth IRA, Roth 401k and Other Pension Planning............................................60Chapter 24: Pension Choices............................................................................................69Chapter 25: Social Security and Medicare...............................................................................74Chapter 26: Incapacity.................................................................................................75Chapter 27: Power of Attorney..........................................................................................77Chapter 28: Living Will and Health Care Proxy..........................................................................79Chapter 29: Disability Income Insurance................................................................................81Chapter 30: Long Term Care Insurance...................................................................................82Chapter 31: Other Insurance Coverage...................................................................................83Chapter 32: Business Agreements........................................................................................86Chapter 33: Escheat....................................................................................................87Chapter 34: What Records You Should Keep...............................................................................89Chapter 35: Funeral Arrangements.......................................................................................93Chapter 36: Letter of Instruction to Family............................................................................94Chapter 37: Ethical Will or Statement of Values........................................................................95Chapter 38: Conclusion.................................................................................................98Worksheet 1: Important Papers Listing and Checklist....................................................................101Worksheet 2: Checklist of Estate Planning Things to Do.................................................................104Worksheet 3: Estimated Assets to be Included in Estate and Potential Distribution to Beneficiaries.....................106Worksheet 4: Designation Sheet.........................................................................................107Worksheet 5: Terms of Trusts...........................................................................................109Worksheet 6: Fact Sheet................................................................................................111Worksheet 7: Specific Bequests.........................................................................................112Worksheet 8: Balance Sheet.............................................................................................113Worksheet 9: Cash Flow and Income......................................................................................116Worksheet 10: Life Insurance...........................................................................................117Worksheet 11: Pensions and Annuities...................................................................................118Worksheet 12: Financial Obligations....................................................................................119Worksheet 13: Checklist of Things to Get Rid of........................................................................120Worksheet 14: Passwords................................................................................................122Chapter One
Decluttering Your Life
Clutter robs you of time.
Think about how much time you waste looking for something. You pass over the same things time after time; you spend time to make room for more "good things" that you just have to have; or you spend energy looking at piles of stuff that you know "you'll need some day" but you never seem to have time for that "day" so the piles grow and grow and grow.
The one thing we have that is the same as everyone else is time, yet some seem to get so much more done, have so much more fun, and always seem ready to do something or go somewhere, while others just never seem to. The quantity of clutter is the difference between the doers and the never-get-to-doers.
I know many people, including myself, that never let go of anything. But I've also seen many friends move to what might be their final residences and somehow they get rid of tons of stuff. They are not any different than the accumulators—they just reached a stage in their lives where an uncluttered existence seems more preferable. I heard them all complain about having to get rid of their "valuable" accumulations, yet haven't heard any regrets afterward. There might just be something to uncluttering your live.
Clutter comes in many forms. Stuff becomes clutter. Unorganized stuff becomes even more clutter. Unmade "going to get to it" arrangements also inject clutter into your minds. This includes not making preparations for your death, hospital stays and prolonged rehab, potential incapacity, winding down your financial affairs, protecting yourself against bad unforeseen circumstances, and making sure what you want to occur with your assets, occurs the way you want it to.
Decluttering your life is not rocket science. But it takes resolve and movement. Wanting to do it doesn't work without the doing actually being done.
I have seen and heard about many houses of deceased loved ones being emptied of 50+ years accumulations of Playbills, Reader's Digests, National Geographics and Harvard Business Reviews. These treasures are tied and dragged to the curb to await the next recycling truck's visit. Someone will be throwing them out—it could be you or your family. As long as you have them, you have clutter, unless you regularly refer to a saved copy. And many libraries now have many of these available digitally, so anything you want to refer to is retrievable.
Making sound arrangements with a will, trusts, and other documents provides comfort and erase negative energy and possible anxiety and the quandaries presented by having to do something you just can't seem to want to do, get to, confront or decide. I can guarantee that if you can't make a decision about some things you should do, that decision will definitely be made someday, by someone and it won't be as good as your worst decision in the matter.
Decluttering also involves assembling all your important papers in one place, and consolidating bank and brokerage accounts. If you don't want to close any accounts, using Quicken® or Money® to aggregate your investing activities places all your information in one place making it easier to manage and for others, if necessary, to get a top side picture of your financial accounts. Another way to simplify your life is to sell small amounts of shares you have that, taken together, don't amount to much value. A bonus to this is that it will decrease the mail you get, most of which gets thrown out anyway. At a minimum, you will get mail at least five times a year for each stock you own. Selling ten stocks of less than a dozen shares owned in each of those companies will reduce your mail by 50 items a year—probably more since they also mail you repetitive offers to repurchase those odd amounts. Use the extra money to take your grandkids to the circus, or even buy them a car if you have enough from the sale. If you don't want to bother to sell them, donate the shares to your favorite charities and at least get a tax deduction out of it.
Speaking of charities, they regularly bombard us with address labels, calendars, note pads and even phone calls to get us to match others or do more. I hate to say you should stop contributing to them, but that seems to be the only way to get the harassment to stop—but it takes years. If you want to give, give through a blanket charity such as United Way or through a major religious organization, or give cash to people you know that are raising money for worthwhile charities, and don't request a receipt, and don't provide your name and address. You will lose the tax deduction, which is a small price to pay to get rid of the scores of solicitations you get each month.
Other mail causing clutter are "contests" where you may have won a million bucks—you just have to send $22.95 to register your information. Once that is done—the mail and phone calls will start in earnest. You think the charity mail is harassment—wait until these people get you on their list.
Tax returns and the back up documents are excellent road maps of the accounts and investments you have. You should retain at least six years of tax returns and back up data. This way, someone handling your affairs or settling your estate would have a very good idea of what assets you have and where they are. One method to follow is to put each year's return and data in an envelope marked with the year on it, and the date you should dispose of it [shredding it, of course]. Each year when you put the information in the new envelope, get rid of the earliest one. Later in here is a listing of the types of records you should keep and for how long. You should review that also.
An important thing to do, if you still hold on to your stamp, coin, Lladro, whiskey shot glass, sugar package or match book collection is to leave instructions of who to go to that you believe is reputable and will make a reasonable offer for the accumulation, because that is what it is. If it were anything more, you would have won awards and then sold the collection at auction since you've already reached the pinnacle for that hobby. Organize whatever you retain so it will be easy to handle and identify the better and more valuable items.
Benjamin Franklin, a favorite of mine, said "do not squander time because that is the stuff life is made of." Clutter causes the squander. Declutter provides relief and an extra part of your life. Actually, Franklin began the quote with "Does thou love life?" You decide about the clutter!
Chapter Two
Purposes of Estate Planning
Estate planning, also referred to as family wealth transfer planning, is a process that calls for a person arranging their affairs in an orderly concerted manner.
Estate planning is usually associated with saving estate and inheritance taxes, but that is not the primary reason. Estate planning is a method that provides for the testator (the person making the will) making their wishes clear and that transfers are made the way they wanted them made, and to whom, and when. I feel one of the most important reasons to plan and have a will is for parents to provide for a guardian for minor children should they die prematurely. And for that guardian to have adequate funds with which to carry out their unanticipated responsibility (this will be explained later)—this is not a tax savings issue, but a family security and growth issue.
Estate planning includes the following:
• To devise a plan that will provide for the financial security and comfort of the testator and their spouse for the balance of both their lives. This is not solely a plan for the remaining family after a death. Some might call this financial planning but it transcends the immediate issues and is involved with not outliving your money, hence leaving an estate.
• To have the testator and their spouse retain as much control and enjoyment as possible over their assets until their death.
• Keep the family assets in the family and out of the hands of creditors of family members and divorced spouses of family members if it applies.
• Figuring out what the estate taxes and administration costs will be and trying to minimize them and determine how they will be paid.
• Estimating the time probate takes; and to try to minimize unnecessary expenses and delays of probate and administration of the assets.
• Projecting the cash flow to the beneficiaries during the estate administration period and after the estate is settled.
• Helping the testator make the proper choices of bequests to their various beneficiaries including charities, if so desired.
• Helping the testator arrange their affairs so that it would be clear what state they are a resident of, if there is a chance that more than one state might make a claim.
• Arranging a plan of contingency for the operation and sale of any businesses.
• Setting up a methodology of liquidating non-liquid assets.
• Determining the applicability of trusts and arranging for their creation and funding.
• Determining the scope, if any, of liabilities the estate will have including notes signed and guaranteed, previous divorce settlements, prenuptial agreements, support commitments for children born out of wedlock, business buy sell arrangements and outstanding tax audits and liabilities.
• Determining the effect of income tax on some of the distributions and bequests, if applicable.
• Designate specific items of property to pass to certain people, such as a ring to a brother or niece.
• The will can be used to remember some people by leaving them fixed sums of money.
• Part of the process—and this has nothing to do with probate or taxes—is where the testator prepares a letter of instructions giving pertinent information they feel their family will need, or that will be helpful in the settling of their affairs. This letter tells what items need to be addressed immediately such as burial instructions and funeral information, people to notify, and the location of important papers.
• These letters also occasionally contain a statement of values or concerns that they want their children, grandchildren, or other heirs to know. The letter should be left in a place that would be looked at as soon as practical after death.
• Planning for the care of a disabled relative is super important if you are supporting someone in that position.
• The process helps put order into a person's affairs, collects and assembles information, and identifies and can clear up loose ends should they exist.
Chapter Three
Why a Will is Needed
Without a will, a state statute will designate who inherits the deceased's property and how it is distributed.
The estate of a person that dies with no will ("intestate") will have added costs because a court will need to appoint someone to oversee the administration of the estate. Related and interested parties will need to petition this appointee when they want, or need, something done or distributions from the assets. Additional costs will accumulate such as fidelity bond premiums, public notice ads and court appointed overseers' fees. Further, every extra action will add time and cause delays until the estate can make distributions.
And, very likely, the statutory distribution scheme (known as intestate distribution) will differ from the deceased's wishes.
Typically, intestate laws divide an estate between the surviving spouse and children, giving about one-third to one-half to the spouse and balance to the children, and possibly other relatives. Even if the decedent does not have children, the spouse generally will not inherit the entire estate.
Some people have everything in joint name, or a trust, or have all their assets, so they think, in accounts that have designated beneficiaries or inheritors. However, there is always something not included, or possibly someone that wants to make a claim against an estate causing the probate or surrogate court to initiate a file. If no assets come up, then this becomes a wasted exercise, but in some situations assets crop up. Some of these could be:
• a safe deposit box in decedent's name containing jewelry, gold coins or cash;
• personal jewelry, a watch or a family heirloom previously inherited by the decedent;
• cash on their person when they died in a public place;
• undeposited checks;
• unclaimed assets being held by the state through escheat laws;
• final pay checks, bonuses or commissions;
• a lottery ticket they purchased also on them when they died;
• money they lent someone;
• a stamp or coin collection;
• art and other valuable items; and
• various other assets that crop up unexpectedly.
For these people a simple will leaving everything to their spouse, or children will ease some inconvenience when they die. Another asset that can crop up is an inheritance by someone that predeceased them which they were unaware of, or where the earlier estate hasn't been distributed yet.
Following are some specifics of why a will is needed.
• The will puts a structure in place, designating how, when and for what time frame income and asset distributions will be made, and to whom; and the person to perform each type of function, and who will invest the funds and actually make the distributions.
• A will provides the opportunity to designate a guardian for minor children. The testator usually has better insight than a court into which of their relatives or friends will best be able to care for their children, both emotionally and financially.
• The will can also provide for payments to the guardian to defray additional costs for caring for the children. If there is no will and if the children are minors, it will be necessary for the person who is to care for the children to apply to a court for permission to so do, and for any funding that would be needed. The court will also require a fiduciary (e.g., a trustee) to be appointed to receive and manage the property the children inherit. This can be a cumbersome and expensive process, requiring court supervision throughout the children's minority. The will can designate the trustee of the funds set aside for the children and guardians and provide instructions of what can be distributed to the guardian.
• A will provides the ability to leave assets in trusts with the income going to one set of beneficiaries or the spouse while the principal will go to others. The terms and timing of principal distributions can also be set in a will, which cannot be done if there is no will. The distributions in accordance with a will can be unequal and based on need among the group of beneficiaries or based on the discretion of the executor or trustee appointed in the will, while distributions where there is no will have to be applied for to the court and explained why they are needed.
• A will permits specific assets or amounts to be designated for certain people, who are not necessarily family members.
• A will provides for distributions to charitable organizations and possibly under what conditions. The will can also designate family foundations to be the inheritor of the charitable bequests, and this cannot be done without a will.
• You can use a will to disinherit someone or specifically exclude someone from inheriting anything from you. With no will, this person might be entitled to a share of the net estate assets.
• A will also can simplify the probate process for survivors. For example, a will designates a personal representative also known as an executor to handle the estate and wind down the decedent's affairs.
• The will can direct how taxes and debts should be paid, and can call for the waiving of bonding requirements for executors and trustees and state limitations on types of investments or payments.
• The will can also facilitate and enable an estate to take maximum advantage of estate tax savings.
• A will sets the stage for executors to ease the distribution of assets to trusts and beneficiaries named in the will and for the choice of assets.
(Continues...)
Excerpted from Getting Your Affairs in Orderby Edward Mendlowitz Copyright © 2012 by Edward Mendlowitz . Excerpted by permission of iUniverse, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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