The Perils of Online Estate Planning

The rise of online estate planning has lead to a rise in problems attorneys discover after the fact, many of which an estate planning attorney could avoid.

While the attraction of simplicity and low cost is appealing, the results are all too often disastrous, affirms Insurance News in the article “Mind Your Mouse Clicks: DIY Estate Planning War Stories.” The increasing number of glitches that estate planning attorneys are seeing in online estate planning after the fact has increased, as much as the number of people using online estate planning forms. For estate planning attorneys who are concerned about their clients and their families, the disasters are troubling, and very difficult to fix in estate administrations.

A few clumsy mouse clicks can derail an online estate plan and adversely affect the family. Here are five real life examples.

Details matter. One of the biggest and most routinely made mistakes in DIY estate planning goes hand-in-hand with simple wills, where both spouses want to leave everything to each other. Except this typical couple neglected something. See if you can figure out what they did wrong:

John’s will: I leave everything to my wife Phyllis.

Phyllis’ will: I leave everything to my wife Phyllis.

Unless John dies and Phyllis marries someone named Phyllis, this will is not going to work. It seems like a simple enough error, but the courts are not forgiving of errors.

Life insurance mistakes. Jeff owns a life insurance policy and has been using its cash value as a “rainy day” fund. He had intended to swap the life insurance into his irrevocable grantor trust in exchange for low-basis stock held in the trust. The swap would remove the life insurance from Jeff’s estate without exposure to the estate tax three-year rule, and the stock would receive a stepped-up basis at death, leading to tax savings on both sides of the swap.

However, Jeff had a stroke recently, and he’s incapacitated. He planned ahead though, or so he thought. He downloaded a free durable power of attorney form from a nonprofit that helps the elderly. The POA specifically included the power to change ownership of his life insurance.

Jeff put his name in the space designated for the POA. As a result, the insurance company won’t accept the form, and the swap isn’t going to happen.

Incomplete documents. Ellen created an online will leaving her entire probate estate to her husband. It was fast, cheap and she was delighted. However, she forgot to click on the space where the executor is named. The website address for the website company is the default information in the form, which is what was created when she completed the will. The court is not likely to appoint the website as her executor. Her heirs are stuck, unless she corrects this, hoping the court will understand. Hope is a terrible estate plan.

Letting the form define the estate plan. Single parent Joan has a 6-year-old son. Her will includes a standard trust for minors, providing income and principal for her son until he turns 21, at which point he inherits everything. Joan met with a life insurance advisor and applied for a $1 million convertible 20–year term life insurance policy. It will be payable to the trust. However, her son has autism, and receives government benefits. There are no special needs provisions in her will, so her son is at risk of losing any benefits, if and when he inherits the policy proceeds.

Don’t set it and forget it. One couple created online wills, when the estate tax exclusion was $2 million. They created a credit shelter, or bypass, trust to reduce their estate taxes, by allowing each of them to use their estate tax exclusion amount. However, the federal estate tax exclusion today is $11.4 million per person. With $4 million in separate assets and a $2 million life insurance policy payable to children from a previous marriage, the husband’s separate assets will go into the bypass trust. None of it will go to his wife.

Online estate planning is dangerous because there is no opportunity to receive legal advice on how to meet your goals in your estate plan.  An experienced estate planning attorney who is licensed to practice in your state is the best source for creating and updating estate plans, preparing for incapacity and ensuring that tax planning is done efficiently.  This post will help you get started.  https://galligan-law.com/how-to-begin-the-estate-planning-process/

Reference: Insurance News Net (Sep. 9, 2019) “Mind Your Mouse Clicks: DIY Estate Planning War Stories”

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What to Know About Continuing Care Retirement Communities

Continuing Care Retirement Communities are great residential options for some, but have many pros and cons to consider when planning your long term care.

With all the different types of residential options for seniors today, it is easy to get confused by the terminology. If you are trying to decide which choice is right for you or your loved one, you need to evaluate several kinds of arrangements. Here is what you need to know about continuing care retirement communities.

A continuing care retirement community (a “CCRC”) offers a continuum of care, from independent living for people who need no assistance, to assisted living that offers some services, to nursing home care that provides skilled nursing care. A person or couple usually move into the level they need, with the option to move to either more independence or more services as their needs change.  See here for more information on different options and how to pay for them.  https://galligan-law.com/practice-areas/elder-law/

The benefit of a continuing care retirement community (CCRC) is you do not have to move to a different facility when you need more medical attention or if your health improves. You would have to move to a different part of the community, that is usually in a separate building. However, all levels of care are at one campus or physical location.

The drawbacks of CCRC include:

  • These facilities tend to be more expensive than stand-alone centers. There is usually a sizeable entrance fee, ranging from $10,000 to $500,000.
  • The monthly expenses of living in a CCRC make these facilities out of range for low-income and most middle-income seniors. On top of the rent, there is a monthly maintenance fee that can range from $200 to more than $2,000.
  • There might not be a vacancy in the section to which you want to move, so you might have to go on a waiting list or move out of the CCRC to get the level of care you need. If you move out, you can lose the entrance fee you paid.
  • Usually, you do not own the place where you live, even though you might pay more than the market value of the building.

On the other hand, CCRCs have advantages, like:

  • A broader range of activities and services than stand-alone facilities.
  • Getting to stay close to the friends you have at the CCRC, when your needs change.
  • More options for independent living, like apartments, houses, duplexes and townhomes.
  • The CCRC arrangement creates a social network and helps residents get through grief when a spouse passes. Residents of CCRCs tend to have less social isolation and higher activity levels as widows or widowers, than people who live in single-family homes that are not part of a CCRC.
  • Because CCRCs have so many ongoing activities and the facilities include a range of opportunities for physical exercise, like swimming, yoga, tennis, golf, walking and dance, seniors in these communities tend to stay healthy and socially engaged.
  • Many CCRCs have barbers, hairdressers, grocery stores, coffee shops and retail shops onsite for the convenience of residents.
  • You can tailor your services to your desires. One resident might only want lawn care and snow removal. Another person might want housekeeping, meal preparation and transportation.

Make sure that you get detailed written information about all the costs for each service the CCRC offers and for all levels of care. Get the facility to tell you in writing what happens to your entrance fee, if you move from the facility.  You also want to make sure that your estate plan addresses any potential refunds of the entrance fee if you pass away as they often become probate assets without proper planning.

Compare at least three CCRC developments, if you decide that a CCRC is the option you prefer and can afford.

References:

A Place for Mom. “Continuing Care Retirement Communities.” (accessed August 21, 2019) https://www.aplaceformom.com/planning-and-advice/articles/continuing-care-retirement-communities

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The Importance of Business Succession Planning

Business succession planning is a critical part of estate planning, especially when you plan to use the value of your business to fund your retirement

Business succession planning prepares for a business owner’s retirement or untimely disability or death. Research shows that 78% of small business owners responded that they plan to use the sale of their business to fund their retirement. However, just 25% of private business owners say they have a succession plan in place.

The Houston Business Journal’s recent article, “Three tips to employing establishing a strong succession plan,” takes up this matter for discussion.

Applying proactive business succession planning may help your business successfully move to new leadership and keep operations running smoothly. Here are a few tips for establishing your succession plan.  You can also see here for more information.  https://galligan-law.com/practice-areas/business-succession-planning/

Regardless of whether you’re going with a family member to succeed you or bringing in someone from the outside to take over, it’s important that the plan is communicated beforehand. You don’t want workers speculating or feeling blindsided by the decision.

Be sure that you have legal documents in place and clear expectations, guidelines, and rules, so there aren’t any gray areas when the time of transition comes.  This is essential in business succession planning.  This may come in many forms from traditional estate planning such as Wills or Trusts, and business specific documents such as Buy-Sell Agreements, the documents governing business operation and more.

If you are appointing a family member, set out details on how other family members will contribute to the company if they are interested. You could have more than one family member run the company, but it may be best to have one clear decision maker.  Part of business succession planning is establishing the plan before you stop operating the business yourself.  So, if you are appointing a family member who isn’t currently involved in the business, bring them in early to teach them and familiarize them with the company and its employees and vendors.

If you want to have an outside party come in to run the company or have a longtime employee assume leadership, be open to ideas. Don’t overlook someone who may be a good leader and a good fit for the position. As business climates shift, technologies advance and workplace skills change, make a selection of a leader who can adapt to those changes.  Remember to pick someone who will be in the best position to keep your business profitable, especially if the business will help fund your retirement.

As you work on business succession planning, leverage a team of experts, such as an estate planning lawyer, business lawyer and an accountant. You should also work with a business broker who can provide a realistic valuation of your company.

Reference: Houston Business Journal (September 3, 2019) “Three tips to employing establishing a strong succession plan”

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