By Chris Miller, Esq.
After the initial shock and loss of losing a loved one, families ask questions about the mechanics of asset transfer. What happens to the house? What happens to the life insurance and retirement accounts? The answers to those questions are sometimes found in a Will that the decedent has signed and stored in a safe place, but they are more often determined by planning steps outside the Will. Beneficiary designations and asset titles play a big role in how property is dealt with at death. That is because a Will only controls “probate” assets. Probate assets are resources owned by an individual without a beneficiary designation at the time they die.
A house, for example, might transfer to a joint owner without claim of any other family member if the Deed was written as “joint tenants with rights of survivorship.” Likewise, a retirement account or an insurance policy gets paid to the beneficiary designated on that account, even if a Will signed later tries to steer those assets to someone else. These unintended consequences can cause hurt feelings and resentment among family members that lasts for decades.
Avoiding those hurt feelings means expressing an intent in consistent and multiple ways. In addition to having an updated Will, it helps to double check your beneficiary designations and review the language of the deeds to your properties. A Will can provide big picture instructions to an Executor you know will be fair and professional. Beyond the Will, though, you should also guide your Executor about how to distribute your personal effects and who to call after you pass away. That guidance is best done in a separate letter that does not become part of the public record when the Will gets filed for probate.
A new federal law known as the SECURE Act took effect on January 1, 2020. The new law makes changes to the rules governing retirement accounts like IRAs and 401(k) plans. Three changes that affect the most people are:
- Individuals can contribute to traditional IRAs at any age, even after they retire.
- The age when required minimum distributions begin has been raised from 70.5 to 72.
- Qualified retirement plans and IRA benefits generally have to be distributed within 10 years of the employee or IRA owner’s death.
The first and second changes are self-explanatory. However, the third change needs further explanation. Under the old rules, if a retirement account had a designated beneficiary, then the beneficiary’s life expectancy could be used to “stretch-out” the distributions of an IRA (and the tax consequences of those distributions) over the beneficiary’s remaining lifetime. The SECURE Act ends the beneficiary’s ability to “stretch-out” the distribution of the IRA, and instead mandates distribution within 10 years after the death of the owner, with a few particular exceptions, such as in the cases of a surviving spouse, a minor child, or a disabled beneficiary.
The new rules do not require annual distributions over the 10-year period, but just that everything in the IRA or retirement plan be distributed within 10 years. Some people may have created trusts that took advantage of the “stretch-out” rules by requiring annual distributions of income to the beneficiary. It might be worth reviewing your estate planning documents with the drafting attorney to make sure that the documents still achieve your goals.
Marianna is an associate at the Law Offices of J. Christopher Miller, PC. 678-746-2900 NorthFultonWills.com
Part of estate planning is having a well-drafted Will signed and ready to-use. Just as important, though, a good estate plan makes sure that beneficiary designations are in place and up-to-date. The reason is that a Will only controls assets that are owned by an individual when they pass away that are NOT designated to a beneficiary. Old beneficiary designations and hastily completed forms can have serious consequences on how assets get distributed when a person passes away.
Name adults or Trusts as beneficiaries. One common pitfall we see is people naming minor children as beneficiaries of life insurance policies or retirement accounts. This is a problem because when a minor is put in the place of owning assets in his or her own name, then the Probate Court will require a conservatorship. A conservatorship is a court-supervised account that cannot be accessed without court permission and then is distributed to a child on his or her 18th birthday, whether the child is ready to manage those funds or not. A Trust can be created inside of a Will or in a separate document to let a named Trustee manage the funds for a minor and follow specific instructions about how and when to distribute the funds to their intended beneficiary.
Name contingent beneficiaries. Another mistake that people make is to name a primary beneficiary on their accounts and then leave the contingent beneficiary designation blank. We find this especially true when clients are married without children. A contingent beneficiary is a person (or people) who stand next in line to receive assets after the death of an account holder if the primary beneficiary is not alive. If no contingent beneficiary is named, then those assets often fall back into the probate estate of the decedent, and get distributed as part of a Will’s directions, or to the closest living relatives of a decedent.
Name new beneficiaries as life events unfold. People who have second and third children should pay attention to the beneficiaries they have designated, because beneficiary designations do not automatically include subsequent children. Likewise, beneficiary designations should be updated after a marriage or a divorce, because Georgia law tries to interpret your wishes about how your estate distributions should be impacted, but Georgia law does not yet automatically revoke or change beneficiary designations that apply to bank accounts flowing outside of probate.
Every now and again, a person will die with a Will signed long ago. The Georgia Probate Code recognizes this possibility and gives Executors and the lawyers they hire a path to admit old Wills to probate.
A change of circumstances does not automatically revoke a Will. If a Georgia resident gets a divorce and then dies before changing his or her Will, then the former spouse is treated as deceased for the purposes of interpreting the Will, but the other terms of the Will are still respected. That means a former spouse’s relative might still be an Executor or beneficiary of the Will.
If a person gets married and then dies before changing his or her Will to include the new spouse, then the new spouse is entitled to claim the same share as if the decedent had no Will. However, the rest of the Will, including the choice of Executor, is still is a valid instruction and remains in full effect.
If a person has a new child and doesn’t mention that child in his or her Will, then that child has a right to claim a part of the estate, even if a spouse survives and inherits the estate while the other children receive nothing. People who might have children should make sure that their Wills include a sentence that contemplates future children, and that way, the future children will be treated the same as children named in the Will.
A faded old Will can still be used to control a person’s estate. If the Will is accompanied by a Self-Proving Affidavit, which is a document showing that both witnesses were in the same room as the person signing the Will and the person signing the Will knew what they were doing and were acting on their own, then probate can flow smoothly. Alternatively, the Executor can either track down one of the witnesses, or if they are both unavailable, then supply affidavits from two people who can attest to the decedent’s signature. This alternative honors the wishes of someone who signed a Will and then lived a long and interesting life.
Estate planning for single parents is sometimes twice the work. It is not only important to think about providing care for your children, but also providing care for yourself. In a two-parent household, it is understood and preferred that the surviving parent take care of the children or an ailing spouse. However, it is not as clear cut in a single parent situation.
When thinking about estate planning, parents tend to think about their children first. If they have young children, they want to appoint a Guardian for the children in their Wills. An appointment through the Will does not automatically make the nominated person the Guardian, but it does serve as strong evidence during a Guardianship process that the nominated Guardian is the best person for the job.
The next thing to consider is who will be taking care of the children financially. When you leave behind money to a minor, you want to create a Separate Trust in your Will and name a Trustee to hold the funds until your child is old enough to manage the money on their own. If trusts are not created, then the probate court will set up a conservatorship. The Judge decides who holds the funds for the child, restricts the investment of those funds, and hands the money to the child after their 18th birthday. The surviving parent is first in line to serve as conservator, which is not always preferred, especially in the case of a divorce.
Single parents often do not think about taking care of themselves, as the focus is on the children. However, it is also important to think about appointing financial and health care agents for you during your lifetime, so that there will be someone acting for you in a time of need. Some good agent candidates are a sibling, trusted friend, or an adult child.
Marianna Chaet is an associate at the Law Offices of J. Christopher Miller, PC.
We all like to get away. Many people purchase out-of-state vacation properties to do just that. They often consider the tax consequences of the purchase, but do not give much thought to the effect it will have on their estate planning.
If a person passes away with real estate in his or her name, then their Executor may have to get authority to act on behalf of the estate in that particular state. Some states accept the doctrine of “muniments of title,” which means they accept the home state’s probate and do not require a new probate for the Executor. Other states require the Executor to open a second probate matter entirely. In either case, the Executor has to deal with multiple attorneys in multiple states to transfer the property.
A common way to fix this problem is to create a trust and record a deed placing the out-of-state property into the trust. The property owner still has full control of the property during his or her lifetime as trustee of his or her trust. However, when he or she passes away, the property flows outside probate because it is in the name of the trust. The successor trustee can then deal with the property without having to open multiple probates.
If a person owns property in multiple states without a trust then the Executor’s job becomes exponentially more expensive and time consuming as he or she has to get court permission to act in multiple states. Putting out-of-state property into a trust saves that person much time and headache.
In Georgia, a surviving spouse gains rights because a spouse is an heir-at-law, or a closest living relative, of someone who passes away. However, a surviving spouse does not automatically get everything. That is really an urban myth, even though there is a grain of truth in it. That grain of truth only arises if all the facts align just right.
In many cases, people want a surviving spouse to get everything, and that is why the default rules are built that way. For example, if a person dies without any Will and without children, then a new spouse can claim the estate because the surviving spouse is the only closest living relative and the deceased spouse has written nothing different.
If a new spouse is not mentioned in an existing Will which does not specifically state a future marriage is contemplated, and if that person has no children, then the probate code gives a surviving spouse the right to claim the decedent’s estate after debts and expenses are paid.
People can override the default rules by signing a valid Last Will and Testament. A Will spells out who takes charge of the estate and who receives property from the estate. The Will can be signed either before or after the marriage, and it should specify that a person is either already married or about to get married. By mentioning the marriage, a Will’s directions then control the estate and the default rules fall away.
Other ways to exercise more control over how assets flow are by designating beneficiaries of retirement accounts or insurance policies and by adding joint owners to various assets. Beneficiary designations transfer assets outside a Will, and take priority over the probate laws. Software programs and on-line services that help you draft a Will for a low cost often leave out language that describes these rules, and they don’t tell you about options that might exist outside the Will. They are not as effective as a professionally drafted document, so getting married is yet another reason to sit down with a good advisor and make changes to your Will.
Benjamin Franklin and Daniel DeFoe taught us to rely on two certainties: death and taxes. However, dying does not necessarily lead to taxes. In fact, the federal estate tax exemption in 2019 is $11.4 million per person, which means that assets flowing through more than 99% of the estates this year will not be subject to estate taxes. A handful of states impose their own estate and inheritance taxes, but Georgia is not among them.
As a general rule, assets received as an inheritance do not typically show up on a person’s income tax return. Usually, it is only the dividends and interest earned on inherited property that count as income.
The biggest exception to this rule applies to traditional IRAs and 401(k)s. Because the income flowing into these retirement plans is not taxed at the time it is earned, distributions from those plans are treated as taxable income to the beneficiaries. Just as income tax is due if a retiree pulls money out of a traditional IRA, income tax is also paid by a beneficiary in the year that a beneficiary withdraws funds from that IRA.
The income tax burden on traditional IRAs (as opposed to Roth IRAs), means that the slowest distribution schedule is also the most tax efficient. Individual beneficiaries can use their remaining life expectancies to calculate the minimum IRA distributions and defer most of the income tax liability into future years. Leaving an estate as beneficiary or having no beneficiary at all is sometimes the worst plan because the entire IRA is subject to the “five-year rule” and must be distributed within 5-6 years. The estate then pays the income tax on each of those distributions in the year that they are made. Trusts can also be named as beneficiaries, but the rules there get complicated fast. Some Trusts are subject to the five-year rule, and other Trusts qualify to let the life expectancy of the oldest beneficiary stretch out the IRA distributions. It is a good strategy to review your beneficiary designations with a competent adviser and think about how your legacy could be more tax efficient for your beneficiaries.
To bury or cremate? That is the question that family members ask as they step into the funeral home after a loved one has passed away. In the ideal scenario, you have answered that question for them during your lifetime.
Pre-arranging burial or cremation with funeral homes and buying plots at memorial gardens ahead of time is a great idea, but it is not effective if a conversation with family does not take place ahead of time. Your family will have no way of knowing that the preparations were made unless you tell them.
Final disposition of bodily remains is not something that people like to talk about or even think about. Some people feel strongly about cremation, others want a full body burial, while some like the green burial plan. One question that frequently comes up during an initial estate planning meeting is whether or not those wishes should be expressed in a will.
There is no legal problem expressing burial or cremation wishes in a will. The only concern is that the Testator expresses those wishes to the people who will be taking care of the arrangements. It comes down to whether your family is going to take care of your funeral arrangements first or track down your will. Wishful thinking (and what typically happens) is that the funeral arrangements will come first, and then the will second. It would be heartbreaking for the family to find out that what they chose to do is not what you expressed in your will.
If you truly want to make it easy on your family, then have those hard conversations about burial wishes sooner rather than later.
Marianna is an associate at the Law Offices of J. Christopher Miller, PC. 678-746-2900 NorthFultonWills.com
Managing an estate is a lot like running a vacuum cleaner . . . it works better if only one person does the job. Families choosing Executors to take charge of an estate often ask whether all of the children can serve together as Co-Executors. The legal answer is not the practical answer. Yes, it might be legal to give more than one child the power to act simultaneously for the estate, but that shared gift can lead to bitter fights and resentment. It is also much more complicated to have two Co-Executors serving together because of the logistics involved.
When two Co-Executors are named to serve together, then both of them have to visit the probate court to sign an Executor’s Oath. Then, both of them have to meet at a chosen bank to open an account in the name of the estate and coordinate the application for a tax ID number from the IRS. Some bank branches will even decline to open an estate account with two Co-Executors, for fear of the liability they might have in letting two people spend the estate’s funds independently.
This is only half of the story. When two Co-Executors have to clean out a home, even the smallest differences of opinion can turn into vicious arguments. Without a pecking order described in the Will, no effective tie-breaker is available to calm things down. Experience teaches us that no matter the age or maturity, children coping with the loss of a parent have high emotions. A good way to prevent arguments is to choose an individual Executor and write that person a letter with clear instructions about who you might want to receive certain items.
Another topic where Co-Executors frequently find themselves at odds with one another is in deciding whether to sell the house that a deceased parent lived in, especially if that house sits on land owned by the family for generations. With Co-Executors, the decision to sell might be easy, but disagreements arise about the right listing price or which real estate agent to use. For these reasons, and a few others, one Executor can push an estate faster and more efficiently than two.