When a loved one has died, ask these three questions

Darol October 22, 2021

When a loved one has died, ask these three questions

This guide is intended to assist the surviving spouse when the first spouse dies and/or surviving family members or beneficiaries when the second spouse dies. A guide is not able to predict every situation when either death occurs. However, the steps in this guide are likely necessary in all cases with nuances in some cases. The legal first steps are to ask three questions.

Is the Estate Taxable?

If the gross estate is large, i.e., the value of all of the assets of the deceased person to include the surviving spouse is larger than the estate tax credit of the state in which your property is located, currently two million in Washington state, then you should contact an attorney to see if there is a potential estate tax liability. An estate tax credit is the amount a state will allow to pass from the decedent to an heir without imposing an estate tax. For example, at the time of this writing, Washington State had an estate tax but allowed about two million to pass tax-free. If the estate of a decedent was larger than two million, in some cases, a tax liability would incur.

If There is a Surviving Spouse, is He or She Ill?

If you are reading this at the occasion of the death of a family member and there is a surviving spouse, probate might be necessary if the surviving spouse is currently or imminently in need of long-term care. The objective of the probate would be to create and fund a “Spousal Protection Trust.” Such a trust is created when the first spouse has died and the surviving spouse is or might need assistance, has high long-term care costs or has a diagnosis of dementia or another disease or condition. The Personal Representative of the deceased spouse’s estate will make this determination. In many cases, it is advisable to open a probate and fund the Spousal Protection trust even if the surviving spouse is aged, i.e., over the age of eighty (80) or, clearly, “frail”. The objective is to divert the deceased spouse’s estate to an asset protection trust for the benefit of the surviving spouse in such a way that the amount in the trust is not an asset of the surviving spouse for tax or long-term care purposes. Thus, the amount in the trust, will not be subject to Medicaid liens, spend downs or transfer penalties. The amount in the trust is also not part of the surviving spouse’s estate for tax purposes.

Is a Trust Established for Other Family Members?

Every estate plan is different. If you are a child, attorney in fact under a Power of Attorney, a Trustee or Personal Representative of the estate, you should immediately determine if the estate plan creates a trust for any other family member other than the surviving spouse. In some cases, trusts are established for heirs who are underage or disabled. In other cases, trusts are established to protect family assets for the common good. If this estate plan contains such a trust, it should be set funded before any outright distributions are made.

Categories: Free Article

Darol

Attorney. Podcster.

How to Create a Bullet-Proof Family Bank and Why

In this episode, we will be talking about ways to create the family bank, why it’s important, the benefits and the job descriptions attached to the family bank, which is an irrevocable non-grantor trust, which will protect your assets.

Ria October 19, 2021

How to Protect Your Wealth in a Time of Crisis

This episode marks the first of 30 daily episodes to help listeners build a true asset protection system. Published on the same date the host’s home state issued a quarantine, stay at home order, the episode describes the emphasis on publication of reliable information rather than perfectly produced podcast episodes.

Learn how medieval lawyers devised the first asset protection trust to save the estates of England during the bubonic plague and how this legal construct still exists today.

Ria March 25, 2020

The 2020 Secure Act and the Three Money Models To Help You Work Around It

This episode is a legal update with a higher view of planning to include three necessary philosophies of wealth planning to help you make the appropriate decisions. The episode describes the 2020 Secure Act but in the context of estate planning law, dating back to British medieval common law, three other important legal changes in the preceding five years and the new reality of planning with retirement accounts. This episode introduces you to idea of “workarounds”. Yes, that’s right! We can mitigate the negative impacts of the SECURE Act.

On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The SECURE Act, which is effective January 1, 2020. The SECURE Act has several positive changes: It increases the required beginning date (RBD) for required minimum distributions (RMDs) from your individual retirement accounts from 70 ½ to 72 years of age, and it eliminates the age restriction for contributions to qualified retirement accounts. However, one provision of SECURE nullifies all of the benefits of the act and is a threat to your family’s generational wealth. That is a bold statement, I realize. I stand by it.

The SECURE Act does provide a few exceptions to this new mandatory ten-year withdrawal rule: spouses, beneficiaries who are not more than ten years younger than the account owner, the account owner’s children who have not reached the “age of majority,” disabled individuals, and chronically ill individuals. However, proper analysis of your estate planning goals and planning for your intended beneficiaries’ circumstances are imperative to ensure your goals are accomplished and your beneficiaries are properly planned for.

Most people do not care enough to spend time let alone money on taking specific actions to adjust their plan, if they have one, to account for the changes brought to us courtesy of SECURE. Perhaps, there is nothing wrong with this attitude. If you view SECURE from the perspective of the government, it makes sense. Too much money is being protected for the benefit of families and not taxed. The government and even the economy is better off to get that money back into circulation.

However, I doubt that people decide to pay unnecessary taxes, fees and stand idly by as wealth is lost because they are on the government’s side. During most of my career, I thought this attitude, that action should not be taken to avoid a financial loss, was just a mental hiccup, a cognitive bias that prevents some people from making correct decisions about wealth. However, as I have grown in my profession, I now see that it is more related to one, of three, philosophies about wealth. Unfortunately, the attitude that is passive about protecting wealth is the traditional and, therefore, prevalent model. The reasons it is traditional is all about human longevity. Throughout all of human history, humans have lived short lives. In the Middle Ages, when probate and trust law invented, men lived, on average, to be just twenty-five years. That average age was not doubled until the early 1900s, over a thousand years later. However, in the last century, the average life expectancy of an American male has almost doubled again. Biologically, there are more opportunities and different challenges than the current perspective of the Law even realizes.

The law is reactive, not proactive. As such, the traditional model has only sought to pass wealth from an asset owner to the next generation because the asset owner would live a short life as would the next generation. Life has been so difficult in terms of survival, the Law has simply left it at that. As such,

There are three models in planning, the traditional model is estate planning and views life and, therefore, wealth, as short. The other two models do not. I will refer to these models often and you should always think in their terms because the model you choose will require actions specific to that planning model. If you view the purpose of your money as a simple, outright transfer to the next generation, then estate planning is your swim lane. SECURE Act is not a threat because the estate planning model is not focused on the protection of wealth beyond just your lifetime. However, if you view wealth as the means by which you plan to empower your family for more than your life plus ten years, then one of the two other models are applicable to you.

THE THREE MODELS OF PLANNING

Estate Planning

The objective of estate planning is estate transfer. The word “estate” is a legal term that refers only to the assets once owned by a now deceased person. The Law is reactive, not proactive. Therefore, traditional estate planning limits its objective to the transfer of assets of a person to either a spouse or the next generation in a limited way.

Asset Protection

The objective of asset protection is different. Asset protection, as I define it, includes all of estate planning but has the focus is on the protection of assets while the assert owner, his or her spouse are still alive. The trigger event for estate planning is the death of the asset owner. The trigger event of asset protection is now!

Generational Family Wealth Planning

The objective of family wealth is to strengthen a family around a set of core values and a vision for the future. The assets of a successful family finances the family using all of the tools of estate planning and asset protection but the time horizon is seven generations. There is an entire course dedicated to the devices you used to this model.

Ria February 6, 2020

What A Rooster, A Beach And Earthquakes Taught Me About Resilience, What Is Important And Investing

What would you do if, suddenly, you could not buy food. And you were afraid to sleep inside your home. Your neighbors decided to leave. A man who lived a block away committed suicide? How would you plan for the future if you just lost your job?

A swarm is what geologists call the grouping of earthquakes that have hit Guanica, Puerto Rico. Swarm is as good a name as any to describe over a thousand earthquakes in such a small area, many above 5.0 and at least two above 6.0. While there has not been a “big one”, a single massive quake to bring sudden and dramatic devastation, the constant month-long shaking of the homes, road, stores and spirits of Guanica has been even more cruel if not as renowned.

This tragedy is also headquartered in the one place on earth I intended to call home. I had spent impactful moments there. Playa Santa, just outside of Guanica, was the location of a lovely apartment with a view of the Caribbean. The landlord had my deposit in escrow and only my signature on a lease awaited. I had gone to a remote beach every other day to clean the plastic from it. I yelled at Playa Santan roosters that just had to wake at the playful satanic hour of 4 am. A lot had happened in such a short-time in Guanica and Playa Santa, the launch of this very podcast as one example, that I just had to tell the story of my time there and the friends who still struggle there.

As if on cue, however, the episode does succeed in laying out an investment idea. Really, this idea is an investment method. I first heard of it from a client about a year ago. I keep this method tucked away until the very last moments of the podcast.

Ria January 28, 2020

Is the Estate Taxable?

If There is a Surviving Spouse, is He or She Ill?

Is a Trust Established for Other Family Members?

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