Ohio Estate and Special Needs Planning

Retirement Accounts and Beneficiary Designations--Myths and Misconceptions

The following is a great post from "You and Yours Blawg" about myths and misconceptions regarding designating a beneficiary for your retirement plans.

At the start of the new year, many people take a look at their qualified retirement plans (IRA, 401(k), etc.) as they plan savings goals for the new year. But what if you aren't the one getting the benefits, because you have died? How are the benefits getting to your family? Below is a list of some Myths and Misconceptions about Retirement Plan benefits (which can also be thought of a as a list of what NOT to do).

1. My Retirement Plan is distributed the same as my Will. WRONG! Your Retirement Plan is distributed according the Beneficiary Designation you complete for each Retirement Plan.
2. If I don't name a Beneficiary, my Retirement Plan will be distributed to my Estate. MAYBE. Some Retirement Plans say that if there is no beneficiary, it will pass to your Estate. Others give a list of people who will receive the plan in order of priority (spouse, children, etc.). However, if a Retirement Plan is payable to your Estate, there are negative income tax consequences (remember - you haven't paid any income taxes on these assets yet) that are best avoided. Also, for domestic partners or similar, there are never any default provisions for payment to the surviving partner - a Beneficiary Form must be completed.
   
3. If my spouse is named as Beneficiary and we are divorced, she is automatically no longer the Beneficiary. WRONG! Unless you act to change your Beneficiary Designation, your ex-spouse is still your primary beneficiary - not a situation you want to be looking down on from the great beyond. File the Change of Beneficiary when you file for separation.
4. If my minor children are named as Beneficiaries, and I created a trust for them in my Will, then the Retirement Plan will be distributed subject to those trust terms. WRONG! Unless you name the trust created for your children as the Beneficiary of the Retirement Plan, your darling angels will get access to all the Retirement Plan funds at the mature age of 18 (or 21).
5. I know who are my Designated Beneficiaries. MAYBE. Many times a person thought they filed out a Beneficiary Designation, but didn't, or thought they named Contingent Beneficiaries, but didn't, or thought they named a trust for this children, but didn't. You should check or change your Beneficiaries today. A Change of Beneficiary form can usually be downloaded right from the website holding the assets.
   

Financial Planning for a Special Needs Child

Financial planning is essential to estate planning for a special needs child.  Local financial planning expert Judd Clark wrote an excellent post for the Autism Puzzle blog.  Click here to read his article.

Why You Need a Properly Executed Will

Most people have heard of Byrd and Melanie Billings, the Florida couple who were murdered in their Florida home, and left behind 12 special needs children.  Byrd Billings left no will or trust, but Melanie Billings left a will.  Unfortunately, the Court found that the will was invalid under Florida law because it was not executed properly (it was not signed in front of two witnesses).  (Slain Couple Leaves Behind Twelve Special Needs Children and No Valid Will, Wills, Trusts & Estates Prof Blog, October 12, 2009.)  Now, Florida intestacy law will determine how the Billing’s assets are distributed and a Court will determine who will serve as the children’s guardian.  

If you have no will, the state of Ohio has intestacy laws that will determine how your assets are distributed, and the Court will determine the guardian of your children.  If you would like to make these decisions instead of the state, have a will prepared and properly executed.  In Ohio, a properly executed will be signed at the end by the testator (person who made the will) and witnessed and signed by two competent witnesses.

Estate Planning with Limited Liability Companies

Thank you to Powell, Ohio attorney Matthew W. Gibson for today's guest post:

Limited liability companies (LLCs) are typically thought of in the context of business formation, but they can also be a valuable tool in estate planning.  To understand how the use of an LLC might work in estate planning, consider the following hypothetical:

      A 55-year-old individual, who we will call John, owns a house worth $500,000, has $1,000,000 in a savings account, has $2,000,000 in a retirement account, and owns five multi-family rental properties, each worth $300,000.  John has three children who are between the ages of 15 and 25.  He would like his children to inherit his estate and eventually take over the rental properties, but John is not ready to pass control of the rental properties onto them just yet. 

      If John transfers the rental properties to an LLC, he can take advantage of otherwise unavailable (1) liability protection, and (2) gifting possibilities. 

•  LIABILITY PROTECTION:  If a tenant is injured on a rental property and John was not personally negligent or otherwise responsible, only the LLC is liable, and John’s house, savings account and brokerage account cannot be reached by that tenant.  John can even shield the other rental properties from such claims if each of the rental properties is placed into its own separate LLC.  Conversely, if John ever has creditors of his own, those creditors will have a difficult time reaching the rental properties, especially if John gifts interest in the LLC to his children. 

• GIFTING POSSIBILITIES:  John should consider transferring non-managing membership interest to his children.  A careful gifting plan can (1) allow John to control the rental properties until he wishes to pass managing membership interest to his children, and (2) save John’s estate up to $800,000 in federal and Ohio estate taxes.

There are a number of other benefits to LLCs, including management flexibility and lower income taxes as membership interest is transferred to children in lower tax brackets.  As a rule of thumb, anybody concerned about federal estate tax or business/investment succession planning should talk with an experienced estate planning attorney about the use of LLCs.

Matthew W. Gibson practices law in Powell, Ohio with Jones, Troyan, Pappas & Perkins, 1472 Manning Parkway, Powell, Ohio 43065; www.jonestroyan.com.  He can be reached at (614) 888-8500 ext. 132.

What to Take to the Hospital

Going to the hospital is usually stressful, and when we are stressed, we often do not think clearly.  This is why I really like--and want to share--this blog post from Massachusetts attorney Leanna Hamill. 

Are You considering Naming a Trust as a Beneficiary of your IRA?

In “Trust as Beneficiary of IRA is Popular” (Wall Street Journal, August 29, 2009), this question is asked:

    "My wife and I are both over 65 and are doing some estate planning. Can I transfer funds from a traditional IRA to a trust without immediately being taxed? What would be the tax consequences of making the trust the beneficiary of my IRA?"

To read how a trust can be a beneficiary of an IRA, click here.

How to Choose a Guardian for your Children

No parent wants to think of not being around for his or her children.  But, dare I say, that being a responsible parent means planning for your child’s future if you die or become incapacitated.

Every parent of a minor child should designate, preferably in a Last Will and Testament, a guardian and two alternate guardians for their child or children.  (If you do not have a Last Will and Testament, put your wishes in writing.)  Do not assume that your children will go to the person you desire—if others petition the court for guardianship, it will be the judge who decides where your children go.

Factors to use when deciding who to name as a guardian include that person’s age, financial stability, lifestyle, religious preference, geographic location, and parenting style.  Read this article for more help in choosing a guardian.  Feel free to contact me if you have any questions. 

Please take some time out of your schedule to name a guardian and two alternates for your child or children!

What Every College Student Should Have

A smartphone?  An ipod?  A laptop?  No!  A HIPAA authorization form!

It does not sound fun but it is necessary.  Every year a college student gets hurt and every year a parent is refused any information about their hurt child because the Health Insurance Portability and Accountability act of 1996 prevents health care institutions from disclosing such information about anyone who is 18 or older.  Your 18 year-old is an adult now in the eyes of the law, and should complete this form before leaving for college.

For more information about a HIPAA authorization form, contact me.

Clarifying Donor Intent

Leona Helmsley left money in her trust for the care of her dog.  She apparently also wanted her trust to provide for the welfare of dogs.  If, in her will and, or, trust, she did not leave money to a specific dog welfare charity, then a court could determine her intent based on many factors including her own words and past actions.

Three animal welfare organizations are suing Mrs. Helmsley’s trustees and the state's attorney general for their failure to abide by her wishes (Wills, Trusts & Estates Prof Blog, Animal Welfare Organizations File Suit Over Helmsley Estate Administration, August 12, 2009).  She would likely be upset knowing that her trustees provided such a small sum of money to dog welfare charities if reports are true that her trust was also intended to provide help to dog welfare organizations. 

One way Mrs. Helmsley could have avoided this result was to have left specific sums of money or assets to specific charities.  Instead of stating her wish to benefit dog welfare organizations, she should have chosen one or more such organizations (here, the HSUS, the ASPCA, and Maddie's Fund would be obvious contenders) and listed them clearly, including the specific amount or percentage amount she wanted each organization to receive.  Her trustees would have to honor her wishes, and if clearly stated, could not argue that her intent is ambiguous. 

Clarity and specificity in your will and trust will make it easier to have your intent fulfilled and greatly reduce future conflict. 

Five Estate Tax Myths

Liz Pulliam Weston from MSN Money lists these five estate tax myths that won’t die:

    Myth #1:    Lots of people face the federal estate tax.

    Myth #2:    Average families are taxed twice.

    Myth #3:    The tax can be avoided.

    Myth #4:    The tax costs more to collect than it generates.

    Myth #5:    The tax endangers family farms and small businesses.

To read about these myths and Ms. Weston’s full article, click here.