3 Tips When Including Caregivers in Your Estate Planning

November will mark National Family Caregivers Month. You may have a caregiver in your life to whom you wish to bestow your gratitude by designating them as an heir in your estate plan. Whether your caregiver is your own child — or a niece, nephew, grandchild, godchild, stepchild, or even a caregiver who is not related to you — how can you ensure your wishes are fulfilled?

It is your prerogative to leave your property and assets to anyone you would like. Often, the best way to do this is through a will or estate planning. However, you should be aware that in many instances, money or assets left to a caregiver can be viewed with suspicion and potentially subject your planning to legal challenges. To avoid this, consider the following tips:

1. Make your family aware of your plans.

If you would like to leave a financial or other gift to a caregiver, inform your family of your wishes and reasons for your decision. This is especially important if your children or loved ones who don’t live close by cannot witness in person the impact a caregiver may have on your day-to-day life. Without this familiarity, they may be suspicious about a caretaker’s sway over you and believe that person improperly influenced your decisions.

In some states, there are laws that set forth that property exceeding a particular value left to a nonrelative caregiver is presumed to be fraudulent if a will or trust is challenged. If your family is unaware of your wishes, they may assume foul play. Your estate may be subject to an expensive and unnecessary will contest.

2. Don’t wait until the last minute to make changes to your will.

If you wish to give a financial gift to a caregiver who improved the quality of your life, it is best to make any changes or updates or prepare a will when you are not ill or in cognitive decline. Family members who may not be happy with your choice may try to object to your will and use these circumstances to argue you were not of sound mind or there was undue influence on your choices. The earlier in your estate planning journey you make any decisions regarding inheritance to caregivers, the better.

Another item to consider is getting a letter of competency from a physician that certifies you can make informed decisions about your health care, finances, and other matters. It is best to do so contemporaneously with the execution of a will, estate plan, or any revisions to existing documents.

3. Gift money or assets during your lifetime.

You may wish to consider gifting money or assets while you are alive if it would not negatively impact your needs or care. Currently, there is a federal gift and estate tax exclusion of $12.06 million ($24.12 million for married couples). A person can give away — during their lifetime or at death — up to this amount, tax-free. However, there are some items that you should consider before making any significant gifts.

One issue is that many states have their own gift tax rules. For example, New York does not have a gift tax, but it does have a three-year clawback rule. So, any gifts a person made three years before their passing could be “clawed back” and included in calculating the value of a person’s estate for purposes of estate taxes. This could financially affect heirs in your will.

Gifting or transferring assets may also affect your Medicaid eligibility for nursing home or at-home care. Some states allow certain assets to be transferred to caregivers who meet specific criteria without these transfers affecting eligibility. However, do not assume this is applicable in your state without consulting with an attorney.

If you are thinking about bestowing a gift or inheritance on a caregiver, consult with your estate planning attorney.

What Does It Mean to Be Estranged?

Estrangement refers to a breakdown in a relationship, such as a relationship with a spouse or family member, where there is no longer any communication, or communication has become hostile, and the individuals lead separate lives. Although estrangement can significantly impact individuals’ lives, it is not a legal term and, in many cases, might not have a legal effect.

Suppose a man is estranged from his son. They occasionally speak on the phone, but the conversation always ends in a fight. They no longer get together for holidays and do not feel close. However, the father does not have a will, and the son still has the legal right to inherit under his state’s intestacy law. For the father to disinherit his son, he must make a will.

Estate planning lawyers recommend explicitly disinheriting an estranged family member. In many cases, mere bad feelings and lack of contact likely are not sufficient to remove legal rights.

Estranged Spouses

Imagine a couple gets married, but after a few months are not getting along. Rather than getting divorced, one spouse moves away and stops contact. The spouses are estranged.

Estranged couples are still legally married. Although the romantic relationship may have ended, they remain married under the law. Two people could be estranged for decades but nevertheless be officially married. They might live separately and have limited to no communication, but are not divorced or in the process of dissolving the marriage.

If you and your spouse are estranged, you need to get a divorce before you can remarry, divide your marital assets, or disinherit your spouse. Estranged spouses may retain their rights under the marriage, such as inheriting from their spouse, making health care decisions for their spouse as next-of-kin, and having rights to marital assets.

In some states, couples can become legally separated. Under legal separation, a couple may live separately, yet keep the right to be on each other’s health care plans, make medical decisions, inherit property, and reconcile the marriage. In states that do not allow legal separation, spouses may elect estrangement without committing to divorce, thinking they might repair the relationship in the future.

In abandonment cases, one partner leaves the other and might cease all contact, or contact might be sporadic. Abandoned spouses might not dissolve the marriage because they cannot afford an attorney or do not understand the law and think they are already divorced.

Even if you cannot find your marital partner, you can get a divorce. Most jurisdictions require that you or your attorney attempt to locate your estranged spouse to notify them of the divorce filing.

For example, your attorney might research your spouse’s possible addresses and send letters to these addresses informing them of your divorce. If your spouse does not respond, your divorce will be uncontested, and the court can grant your divorce, particularly if you and your spouse do not share assets, which is common in cases where spouses haven’t been together in years.

To learn more about the legal effects of estrangement, speak to an attorney.

Don’t Yet Want Your Heirs to Know About Your Assets? Use a Quiet Trust in Your Estate Plan

Trusts are great tools for leaving assets to your heirs while maintaining control over their access to those assets. In many cases, you would tell your beneficiaries that you have made a trust for them. However, this is not always desirable — and this is where a “quiet” trust may be helpful.

A quiet trust is a trust created much like other trusts, but with little to no notice given to its beneficiaries. A person, called a grantor, places assets in a trust managed by someone who is appointed as a trustee.  

The trust document may provide that income will only be distributed to a beneficiary once specific conditions are met — for example, when the grantor passes away or the beneficiary reaches a certain age. It may further require that no information regarding the accounting of the trust, what the trust owns, or other details will be provided to a beneficiary until certain conditions or timeframes occur.

Advantages of a Quiet Trust

Many people turn to quiet trusts for their children or grandchildren. They want to avoid their heirs relying on these future resources and becoming complacent instead of developing themselves financially or professionally. The idea is that if the beneficiaries don’t know about the money, they will work harder to create their own wealth and develop good financial habits. Many trust grantors hope that this personal development will make it more likely that once their heirs receive income or assets in a trust, they will be better equipped to manage and preserve these resources.

In other situations, you may wish to keep a trust a secret as a matter of privacy. A quiet trust can control the number of people who know about the trust. This can prevent family disputes if one person will receive more than another. It can also prevent heirs from talking too much about what they may receive, misusing the information, or being taken advantage of. For example, some parents may be concerned about their children’s creditors or anyone trying to get close to them for the wrong reasons.

A quiet trust can shield your loved ones from these problems and help them overcome any disincentive to develop themselves to be the best they can be. In addition, just like an ordinary trust, a quiet trust can be used for estate tax planning and avoiding the lengthy and expensive probate process. Depending on how they are set up, quiet trusts can also delay when the assets are taxed as income.

When a Quiet Trust May Not Make Sense

However, there are situations where a quiet trust may not work for you or your family. For one, you may wish to involve your children in your financial planning or discussions about your assets.

Sometimes keeping information secret can also backfire. Your heirs may not be prepared for suddenly receiving large sums of money or investments if they are unaware of them. For example, if you leave them rental property and they have moved to another state by the time they receive it, they may not be able to manage the property easily.

The lack of disclosure may also create a certain amount of distrust or resentment.

Setting Up A Quiet Trust

How you set up a quiet trust will likely vary based on state law. The basic process involves drafting a trust agreement, transferring assets, and implementing the terms of the trust. You should ensure that the person you choose to manage your trust is someone on whom you can rely. The wrong person could mishandle assets, fail to keep proper accounting, or miss deadlines for filing tax returns.

This process is best overseen by an attorney and other professionals, such as a financial planner and CPA familiar with trusts.

For guidance on quiet trusts, consult your attorney.

5 Smart Estate Planning Strategies for High-Net-Worth Families

If you are a high-net-worth individual, it’s essential to have a comprehensive estate plan in place. However, every family’s circumstances are unique, and there is no one-size-fits-all solution for estate planning.

Below are five estate planning strategies that may be right for you:

1. Make Sure You Have An Estate Plan

For higher-net-worth individuals or families, it is essential to have basic documents in place, such as a will, power of attorney, and advance directives. However, it is equally important to consider whether you need to take additional steps to avoid estate taxes or ensure long-term care, should you need it.

Start planning sooner rather than later. More options are available to you when you have time on your side.

2. Consider Options to Avoid Estate Taxes

There are numerous ways to avoid estate taxes, many of which require you to make an “irrevocable” transfer of your assets. This does not mean you cannot benefit from the income generated by your assets, but rather that you title the assets to a trust managed by someone else.

Here are some examples of options that can help lower your estate taxes and accomplish other goals you may have:

• Charitable Remainder Trusts: These irrevocable trusts can pay you or beneficiaries annual income from assets you donate to the trust. The remainder of the assets will go to one or more charities you designate. They can help you plan for retirement, reduce your taxable estate, and accomplish your philanthropic goals.
  

• Spousal Lifetime Access Trusts: A spousal lifetime access trust (SLAT) is one way to transfer your wealth to the next generation. In a SLAT, a spouse makes a gift into the trust to benefit the other spouse. As a result, this removes the gifted asset from the spouse’s combined estates.
  
  This allows you to take advantage of the current federal lifetime gift and estate tax exclusion(currently $12.06 million per person, or $24.12 million for married couples), which is set to expire in 2026. The spouses can still retain some access to the assets. Any post-gift appreciation in value is excluded from federal taxation for both spouses’ estates. However, federal rules permitting this trust will sunset on December 31, 2025.
  

• Grantor Retained Annuity Trusts: A Grantor Retained Annuity Trust (GRAT) is a trust through which you may transfer appreciating assets to your heirs and minimize gift or estate taxes. High-net-worth individuals and couples can use GRATs to freeze the worth of their estates and transfer any increase in the value of their assets to their loved ones, all with minimal tax consequences. A GRAT is also another way for you to plan for your retirement.
  
  To establish a GRAT, a donor creates a trust for a certain number of years and, during those years, is paid an income stream or annuity from the GRAT. When the GRAT ends, whatever assets remain will pass to your chosen beneficiaries. If certain conditions are met, you can minimize estate and gift taxes.

3. Engage in Gift Planning

Gifting wealth up to your lifetime exclusion may be a smart estate planning strategy for many high-net-worth families. This allows you to gift up to your lifetime exclusion before your death and not owe any gift tax on gifted amounts until you exceed this threshold.

Based on 2022 gift tax exclusions, a married couple could give away up to $24.12 million without tax consequences. In addition, after they exceed the lifetime amount, they can continue to gift at the annual limit of $16,000 (as of 2022) every year without owing gift taxes.

However, you should gift cautiously while fully informed of your state’s rules. Many states have their own rules regarding gift and estate taxes, which may be incompatible with federal tax rules.

4. Invest in Life Insurance

Another strategy to consider is investing in a good life insurance policy. Life insurance can be used to pay estate taxes and to devise assets or specific amounts to your loved ones.

For example, if a large part of your family’s estate will be illiquid assets, such as real estate or a business, your estate could owe more in taxes than is available to it in liquid funds. Your estate can use the proceeds of a life insurance policy to pay these taxes, so your heirs do not have to sell a family business or investment properties.

You can also use your life insurance policy to “equalize” inheritance. For example, perhaps one child is better suited to run a family business. In this case, you could leave this child your business and another child a life insurance policy equal to the company’s value.

5. Don’t Forget About Portability

Consider whether you may qualify for portability before the current federal estate and gift tax exclusions expire in 2026. If your spouse passed away within the past five years, you might be able to file an estate tax return and transfer their unused estate tax exclusion to yourself. So even if you do not pass away until after 2026, you may be able to add millions in tax exclusions to the benefit of your heirs.

You must follow specific procedures to elect “portability” of your spouse’s unused gift and estate tax exemption, and there are exceptions to which estates may qualify. However, if this is an option in your family’s case, it could result in hundreds of thousands of dollars in tax savings.

Speak With a Professional

In considering all the estate planning strategies available to you, it is important to speak with an experienced estate planner. Keep in mind, too, that when it comes to trusts, each state has its rules and laws that govern which ones are or are not permissible, in addition to varying estate or gift tax rules.

A qualified estate planner in your area can help determine which strategy is best for your circumstances.

Estate Planning After Divorce

So, you’re officially divorced. In starting this new chapter of life, you should update your estate planning documents as soon as possible. You may no longer be legally married, but divorce does not automatically remove your prior spouse from your will, trust, or beneficiary designations. Here are some items to consider updating:

Change Your Advance Directives

When you engage in estate planning, it is standard to complete forms such as a health care proxy or living will. Often, spouses will choose each other as their agents for making health care decisions if they become incapacitated. After a divorce, your ex may be the last person you want handling these matters. Change your documents to appoint someone you trust.

Update Your Power of Attorney

Another document you may have previously executed is a power of attorney. This can give another person a great deal of control over your assets and personal and financial affairs. If your current power of attorney names your prior spouse as your agent, you can revoke it and sign a new one choosing a different person to act as your agent.

Amend Your Will and Trust

Many couples designate their partner as the executor of their will. Your ex may also be listed as a beneficiary of your will. If you do not want your former spouse to have a say over how your assets are handled or to receive any inheritance, it is important to review and amend your will now to take them out. The same goes for any trust you may have created where your ex is the trustee or a beneficiary.

Guardianship of Your Minor Children

If you have concerns about your prior spouse’s ability to be a guardian to your minor children, there may be steps you can take to mitigate any instability a divorce may have brought to the situation.

One option is to set up a trust for your children that will protect assets from being irresponsibly depleted. Life insurance amounts or other assets placed in a trust will be managed by a person whom you can name as trustee. This will prevent the other parent, who could otherwise be in control of minor children’s finances, from accessing certain funds.

Be Aware of What Insurance You Are Required to Maintain

Many divorce settlements set forth that one spouse maintains life insurance and specifies who shall be a beneficiary of the policy. You should ensure your current life insurance policies not only comply with your divorce agreement, but also are not in danger of lapsing.

The same goes for medical insurance. If you are required to maintain medical insurance in a certain manner, review your plan to ensure the correct parties are covered and that it is in good standing.

Failure to comply with your divorce agreement can cause you to wind up back in court.

Review Your Beneficiary Designations

If you are not required to maintain your ex as a beneficiary on your life insurance or retirement accounts, now is the time to update your designations. You should contact your insurance company or retirement administrator to make these changes. Upon your passing, the funds will go to whomever is listed as a beneficiary, regardless of a divorce proceeding.

Consult a New Estate Planner

The best thing you can do after your divorce is work with an estate planner to review your current documents and update them appropriately. Ideally, this person should have no connection to your prior spouse. Keep a copy of your divorce decree and settlement agreement handy. An estate planner will need to review it to evaluate what you need going forward.

Three Estate Planning Options for Your Art Collection

Collecting art or other valuable items can be a passion for many people. Often such a pastime is more about enjoying the art or the medium itself than about ensuring financial gain. However, once you have accumulated a sizable collection, what do you want to happen to it after you pass away? 

It is important that your estate plan address your art separately from your other assets. 

The first step in estate planning for your collection is to document it. You should not only have the collection appraised, but also take photographs of each item and assemble any paperwork relating to the authenticity and origin of the pieces in your collection, including artist notes, bills of sale, or insurance policies. 

When considering what to do with an art collection, you have three main options: 

• Sell the collection. If your family is not interested in maintaining your collection after you are gone, then you may want to sell it.

If you sell the collection while you are alive, you will have to pay capital gains taxes on the collection’s increase in value since you purchased it. The capital gains tax rate on artwork is 28 percent, compared with the top rate of 20 percent for other assets. 

If the collection is sold after you die, it will be included in your estate, possibly increasing the value of your estate for estate tax purposes, but it will be “stepped up” in value. This means that if your heirs sell the collection, they will have to pay capital gains tax only on the amount by which the pieces have increased in value since your death. 

• Leave the collection to your heirs. You can give your artwork to individual family members, but a better approach may be to put the artwork in a trust or a Limited Liability Company (LLC). The trustee of the trust or manager of the LLC whom you appoint will be responsible for sustaining the collection, including maintaining insurance on the artwork, arranging storage, and making decisions about selling and buying pieces. You can leave instructions for care and handling of the collection. Any profits from the sale of items would be split among the beneficiaries of the trust or members of the LLC.
  

• Donate the collection. You can donate your artwork while you are still alive and receive an income tax deduction based on the value of the items. This can be a good way to pass on your collection while avoiding capital gains taxes. Should you choose to donate through your estate plan, your estate will receive a tax deduction based on the collection’s value.

Deciding which option to take will depend on your circumstances and your family’s interest in the collection. Talk to your attorney to figure out the best option for you. 

How You Can Help Your Loved Ones by Planning Your Funeral Arrangements

When an individual passes away without a funeral plan, responsibility for arranging the funeral often falls on the deceased’s close family members, such as surviving spouses and children. Planning your own funeral arrangements can assist your loved ones in an emotionally challenging time, while also protecting them from incurring extraneous costs.

According to the National Funeral Directors Association, in 2021, the average cost of a full-service burial was $7,848, and the average cost of full-service cremation was $6,971. When an individual dies without having outlined a funeral plan, surviving family members may be unsure of their loved one’s wishes. As a result, they may choose more expensive funeral options or feel pressure to overspend to demonstrate their love. Yet you can shield your family from these costs by prearranging the funeral and, in some cases, prepaying for funeral arrangements. (Always do your research before prepaying.)

Without a plan in place, grieving family members often face time constraints in making decisions. For instance, they may not have time to visit multiple funeral homes and compare their values after their loved one’s death. Often, they choose the first funeral home they see rather than exploring various options to find the best fit and value.

When individuals prearrange their funerals, they have time to research funeral homes and carefully decide the details of their end-of-life arrangements, ensuring that the services will follow their wishes.

Beyond choosing the funeral home, planning such arrangements ahead of time can include:

• Deciding what happens to the remains, including burial or cremation

• Determining the burial location, such as next to a loved one

• Letting loved ones know where to spread or keep ashes

• Deciding whether to donate organs or remains to scientific research

• Selecting the type of funeral or memorial service (For instance, a traditional funeral ceremony may be held in a religious institution and include viewing and burial, whereas direct burials happen soon after death and do not include a viewing)

How to plan your funeral arrangements

Often, planning funeral arrangements entails writing down your wishes in detail. You may wish to give your family members copies of your written wishes. Additionally, people with a reasonable idea of where they will pass away can prepay a funeral home for services, ensuring family members do not need to take on the cost.

Advance directives can document your desires regarding end-of-life care and what happens to your remains after death. You can choose a person to act as your healthcare agent and help you with healthcare decisions. Although your agent’s authority often terminates upon your death, you may provide your agent with your funeral wishes, along with the power to oversee the arrangements.

Wills may contain sections describing desired funeral arrangements. However, wills are not the best place for funeral arrangements, as family members often read wills after the funeral. Instead, a separate document, such as a prepaid funeral or burial contract, can describe funeral arrangements and end-of-life wishes.

Deciding funeral arrangements in advance and providing instructions to your loved ones makes your wishes clear, avoiding arguments within your family and giving them more peace of mind after you pass away.