7 Types of “Helpers” You Need to Watch Out For

As you age, or as you complete your estate plan, you’ll need to name different kinds of “helpers” who will carry out your plan when the time comes. These helpers are officially known by different names depending on the job they’re given. They can be known as trustee, executor, power of attorney or guardian, but no matter what their legal name is, their job is to act for you when you can’t act for yourself. This can happen in cases of stroke or other debilitating illnesses as you age, or after a death. It’s very important you choose the right person.

Our founding attorney, David Edwards, has been in the estate planning field for almost two decades now. When you’re that experienced, you start to notice trends. Here are some kinds of helpers David has seen over the years – helpers you may want to avoid if you have any of these “types” in your family:

1. The Do-Nothing – Mom died 2 years ago, but her house is still sitting empty, crumbling. Tax bills and utilities eat up the estate, while the rest of the family waits. He says, “I’ll get to it soon.”

2. The Messy One – In grade school, this person couldn’t find her homework. As a teenager? Clothes piled a foot deep in her bedroom. As an adult? She’s often late to appointments (if she remembers them at all). And finances? Her checkbook has never been balanced, and she gets monthly overdraft notices. Now she’s been named a trustee…

3. The Fighter – His competitive spirit was great while playing sports in high school. But it has not worked out so well with his family or his marriage. Being right is more important than anything else. And now, as a trustee, he gets to decide what’s “right.” There’s no talking to him about it, because it’s his job, and it’s “none of your business how I do it.”

4. The Romantic – “I’m just not ready to sell grandpa’s car or fishing cabin yet.” This trustee lets her emotions get in the way of the job – which is to sell or distribute trust assets. And it’s not just the car and cabin – what about personal property? How do you sort out or (gasp!) even throw stuff away? “It’s just too hard. I can’t do it yet.”

5. The Bossy One – The parents named Junior and Sissy as co-trustees, wanting both of them to have a say and to work together. But big brother is used to being in charge and taking over. He won’t even talk to his sister about what is going on. “If you don’t like it, go get a lawyer… I don’t care if we spend the entire estate on legal fees!” Bossy brother pushes and threatens, leading the more reasonable sister to let him have his way. “It’s just not worth it to try to fight.”

6. The Stress Ball – She’s always running here and there, never any time to sit and talk about the estate. IF you get her on the phone she says, “Sorry. Can’t talk now. Can I call you back?” She means to do her job as trustee, but she can’t find time for the things in her own life, much less this added duty. The family isn’t sure what to do – take legal action or just wait a little longer.

7. The Broke One – His ends never seem to meet, and he’s always in financial crisis. Bill collectors call all the time. Now he’s named as a trustee and gets a checkbook showing a nice balance. It’s easy to rationalize – “I’ll just take some of my inheritance early, to get past this crisis.” But then he needs a little more and a little more. As time passes, the family wonders what has happened to their parents’ money.

So, what types of people make good helpers? Here are some things to consider in naming “helpers.”

We understand that this can be a very daunting task. As always, we are here to help you create an effective estate plan. You don’t have to do it alone. We’ll guide you along every step of the way. Give us a call at 217-726-9200 to get started, or attend a FREE workshop.

Call 217-726-9200 to RSVP for an upcoming workshop today or to schedule an Initial Meeting.

Estate Planning is Like… Birthday Cake

Much like your favorite birthday cake flavor, everyone likes different things when it comes to estate planning.

Well, as of March 5, I’m another year older! And to celebrate I got to have the best birthday cake in the world — spice cake with chocolate icing! What kind of cake do you request on your birthday?

Dave Bday cake 2015

In our family, everyone seems to have their own favorite. For my wife Michelle, it’s spice cake with white icing. (And she is forever trying to talk me into changing the icing on my birthday cake!) 8-year-old Bailey asks for white cake with white icing, and I’m not sure 4-year-old Cole has settled on a choice yet. My dad likes yellow cake with chocolate icing. My mom? Carrot cake with cream cheese icing. My brother, Jay, for decades requested turtle cake. (Which Michelle and I found out firsthand, does not turn out well if the recipe is copied down wrong!) Jay’s wife, Beth, likes white cake with white frosting just like Bailey.

Everyone’s got an opinion. Of course, the rest of them are all wrong! Spice cake with chocolate icing is clearly the best choice for a birthday cake.

And we haven’t even gotten to the ice cream! Some want chocolate. Some want vanilla. Others like cookie dough or cookies ‘n’ cream. We’ll save that for another blog post!

Everyone likes different things. The same choice does not work for everyone, even if they’re from the same family.

With your estate plan, you need a plan that fits your family – not a fill-in-the-blank form that doesn’t reflect your unique values, wishes, or family challenges.

And within your plan each child or loved one may have a different challenge or need that should be addressed. Don’t treat them all the same. Some want white icing. Others need chocolate. A good plan will take into account their personality, financial wisdom, and the unique situation of each heir.

If you need a more personalized (and therefore, more effective plan), our free workshop, Getting Started With Wills and Trusts is a great first step. Call us at 217-726-9200 to RSVP for the next workshop. Find out our upcoming workshop dates here. Learn more about the workshop and what you’ll learn by attending, here.

6 IRA Planning Tips

Here are 6 IRA planning tips you should consider for your family:

1. Help your grandkids with their own IRA

Anyone who starts an IRA early, in their teens or 20’s, will see it grow to huge amounts by retirement. But young people often don’t have the funds to put into an IRA in the early years. The solution? If you have the means, help your grandchildren put money into an IRA as soon as they start working their first part-time job, or as soon as you can. What do I mean? If you have the means, give each grandchild with a job (they have to have income to do an IRA) $5500 with the stipulation that they put it into a Roth IRA. Even if you only do this for a few years, it will make a HUGE difference in their retirement later.

2. Use your IRA for charitable giving

Do you plan to leave money to a charity or church at your death? If so, use IRA funds to do it. If you leave the IRA to charity, there will be no tax on the IRA because the charity is tax exempt. Uncle Sam will be out of luck. How do you do this? Name a charity on your IRA beneficiary designation or consider using a donor advised fund at the Community Foundation for the Land of Lincoln (to direct funds to the charities you choose).

3. Explode your wealth with those unwanted RMD’s

Once you are age 70, you have to take out a minimum amount (RMD) from your traditional IRA each year. What do you plan to do with that money? Do you need it? If not, what about using it to create more wealth for your family? One option is to buy a life insurance policy using your RMD every year to pay the premium. The benefits? More money at death, plus the life insurance death benefit is income tax free! (Unlike the IRA that has a built-in tax bill for your family.)

4. Again, consider your grandchildren (and children)

Why not leave some (or all) of your IRA to your grandchildren? Worried about skipping your children? What about getting life insurance to make up the difference? The result? Save income taxes, bless the grandkids, and leave your kids tax-free life insurance funds (instead of an IRA with a tax bill).

5. Consider a trust for your IRA

Want to avoid your kids or grandkids IRA “blowout” (taking IRA quickly and incurring a lot of tax)? Leave the IRA instead to a trust, so the trustee will make sure the “stretch out” happens. Read more about “blowouts” and “stretch outs” in last week’s blog post.

6. Convert to a Roth IRA

If your family will stretch the IRA, the biggest bang is to use the Roth IRA. Convert the IRA now to a Roth, avoid the RMD’s during your life, then give your family tax free distributions for years or decades. Poor Uncle Sam will be left out! (But remember to consult your tax advisor regarding the timing and amount of those Roth conversions.)

IRA

7 IRA Planning Traps to Consider

When it comes to your IRA, there are some planning traps you need to look out for…

Here are 7 IRA planning problems to consider:

1. Incorrect beneficiaries – This is very basic, but often overlooked. Confirm that the beneficiaries are set up correctly. If you lack a beneficiary, then the account will go to your estate, limiting your “stretch” to as little as 5 years. Have you named the wrong beneficiaries or are you missing someone (like a new grandchild)? If you have named a trust as the beneficiary, was that done as part of a detailed plan with an attorney experienced in IRA trust planning?

2. A “blow out” instead of a “stretch out” – Remember, a big goal of IRA planning is to pay the taxes later by doing a “stretch” IRA. This means that we want your child to be able to take out the IRA over their life expectancy. But many kids don’t do it. In fact, the vast majority of kids take out the entire IRA within a couple years of death. Why do kids take it out (and pay the taxes now)? Here are a few reasons:

  • They want to spend it!
  • They don’t know the benefit of the stretch.
  • They wrongly think they can roll it into their own IRA (so they take it all out, triggering tax, then it’s too late to put back in).
  • They cash out a Roth IRA because it’s tax free, not realizing they are missing out on years of tax free growth in the future.

3. Not getting good advice – Many families have cashed out retirement funds or annuities and are later surprised by a big tax bill. Good advice from your attorney and tax advisor after death will help the family understand the options.

4. Not considering younger generations – Do you like your grandkids? Well, what about saving tax while helping out your grandchildren? The younger the beneficiary of your IRA, the longer the stretch and the bigger the tax savings. You might consider giving your IRA’s (or part of them) to your grandchildren.

5. Naming grandchildren as direct beneficiaries – What if someone took our advice about younger generations and decided to name grandchildren as IRA beneficiaries? That’s good, right? Well, yes, but there could also be problems. If you name a minor child as beneficiary, the IRA company may require a court guardianship before the grandchild can benefit from the IRA. Then, at age 18, the grandchild gets control of the IRA, regardless of the remaining amount. (And we all know what happens when 18-year-olds inherit large sums of money.)

6. Not considering a trust to hold IRA funds after death – Many people incorrectly think that leaving an IRA to a trust will trigger tax on the entire IRA. But this is not true. IRA funds and trusts require special expertise and planning, but a properly drafted trust can hold an IRA and still benefit from the stretch out. And using a trust can help avoid the “blow out” mentioned in #2, while protecting the money from young heirs, future divorces or other unforeseen risks.

7. Not converting to a Roth IRA – Converting to a Roth IRA means you pay taxes now and then future growth of the IRA is tax free. If you don’t need the money, and you can afford to pay the taxes, converting to a Roth may give your family more money later. Let’s ay you convert to a Roth at age 70. A Roth IRA has no RMD (required minimum distributions) so if you live to be age 95, you will have had 25 years of tax free growth that you can leave to the family. And the kids (or grankids) can have another 30-50+ years of tax-free growth if they “stretch” the Roth IRA. Converting to a Roth IRA is a great tool, but please consult your tax advisor first. Make you know how much tax will be owed before you move funds to the Roth IRA.

Are you ready to find out what you should do when it comes to your IRA? And not just what to avoid? Read our article, 7 Questions to Ask in Order to Do Effective IRA Planning.

IRA

7 Questions to Ask In Order to Do Effective IRA Planning

IRA planning can be tricky. In order to make sure you plan as best as you can, you should discuss the following questions with your attorney and other advisors:

1. Will you need the IRA funds during your life? If not, you may want to convert to a Roth or use the RMD’s to purchase life insurance to grow the wealth going to your family.

2. Will your heirs need it shortly after your death? If so, then the stretch out is not relevant.

3. Are you doing any charitable giving? If so, use the IRA to do it, if possible. That way the contribution is tax free.

4. Do you want to protect what you are leaving to family from their future divorces, lawsuits, creditors, poor judgment, wild spending, etc.? If so, you need protective trusts for each of your heirs. An IRA can go to a properly set up trust and still get the “stretch out”.

5. Are you facing estate tax at your death? If so, you need careful planning to avoid a double tax. An IRA subject to both estate tax and income tax can sometimes lose 75% or more to taxes!

6. Are you in a 2nd marriage? His kids and her kids? If so, be careful leaving your IRA to your spouse. You want to balance out your wishes for your kids with your desire to provide for your spouse. You can’t assume you can leave the IRA to your spouse who will later leave it to your kids. First, it may be spent and gone. Second, your spouse has every legal right to change the beneficiary after your death (to his/her own children).

7. Is your IRA (or other tax deferred retirement plan) a large percentage of your total estate? If so, then even more is at risk. You need careful planning, and it’s vitally important you consult with a professional.

Effective IRA planning is very important in effective estate planning. Give us a call today at 217-726-9200 if you have any questions, or check out one of our upcoming workshops to find out more about effective planning.

Estate Planning is Like… Dave’s Favorite Sweatshirt

I have a piece of clothing we simply call “my favorite sweatshirt.” I think it’s about 20 years old. I may have had it when I graduated from law school in 1995. If not, I got it shortly after that. (The picture to the left is from 1998.) We have a family friend who swears I was wearing it when she first met me in 1997.

It’s gotten a lot of use over the years. Especially on Christmas! What else does a guy grab to wear when relaxing over the holidays? His favorite sweatshirt, of course.

Looking back at Christmas pictures this past year, you could see the sweatshirt showing up year after year… after year.Dave sweatshirt 2006 small

It’s still my favorite sweatshirt. But I fear its days are numbered. The “Illinois Law” is getting more and more faded. The ends of the sleeves are unraveling and ripped. But it’s so soft and comfortable!

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About 10 years ago, I got a “replacement favorite sweatshirt.” Same design, same color. I still have it, but it’s somewhere in the back of the closet. It looks the same (a little brighter) but it definitely doesn’t feel the same. So it doesn’t end up getting worn.

20 years ago my favorite sweatshirt was new. I bought it at the bookstore at the U of I College of Law. Now it’s ragged and my wife has grounded me from wearing it outside the house.

A lot has changed in 20 years — for my sweatshirt, for me, for our family.

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How about you? What has changed in your life in the past 20 years? Has your estate plan kept up with the changes?

Life is constantly changing. And that means your plan needs to be regularly updated. With our Dynasty Program, things like that happen automatically. When you’re on your own, it’s very important to regularly assess what updates might be needed.

Most changes any estate plan faces can be summed up by the 3 L’s: life, law and learning. Read more about that and whether your plan is out of date here.

Take Action Now: Update Your Beneficiary Designations

It is vitally important that you review all your beneficiary designations (life insurance, 401(k)s, etc.) every 2 years, or sooner in cases of births, deaths, marriages, divorce, job changes or retirement. Download our beneficiary designation form here. Read on to see real court cases that show why it is so crucial.

We talk about beneficiaries A LOT around here, and the following court cases will show some of the reasons why, but first, let’s review what a beneficiary is and why it’s so important.

There are a few financial planning tools that are not passed down in wills. Things like life insurance and 401(k)s are passed down to whomever you write on the beneficiary designation form when you sign up for them. And sadly, many people NEVER change those names ever again despite the changes in their life circumstances. There are a significant number of people who take the time to care for their loved ones by taking out life insurance policies, but then don’t pay attention to who really owns it or who the beneficiary is. The tragic consequences of this oversight, impact those they love most.

Life is not a fairytale. Things do not automatically work out for the best. The law is the law, and therefore, will not be swayed by what seems reasonable for your family. These two federal cases illustrate that:

In Hearing v. Minnesota Life Insurance Company, a single father named his sister as beneficiary of his life insurance policy so the sister could take care of the daughter. He intended to change the beneficiary to his daughter once she turned 18. But he never got around to it. Sadly, the father died and the sister claimed the life insurance. Despite a handwritten note stating that he wanted his daughter to be the new beneficiary, the court found that the only thing that mattered was the name on the beneficiary designation. The sister, not the daughter, got the $100,000 pay out.

Again, in The Lincoln National Life Insurance Company v. Ruybal case, we have another “sister” situation. A single dad named his sister beneficiary because she was supposed to take care of the kids. Upon death, the decedent’s sister, his executor, and the two daughters all claimed the life insurance. The court ruled in favor of the sister, noting that, “Anyone attacking the right of a named beneficiary to receive the proceeds of an insurance policy has the burden of proving that the beneficiary is not entitled thereto.” In other words, the sister was on the form – plain and simple. Would it have been more fair for the estate or the daughters to get the money from the policy? Probably. But it is not the duty of the courts to do the reasonable thing. It is their duty to uphold and interpret the law. It is your duty to keep up to date with your beneficiary designations.

As you can see in each of these real-live cases, the court ordered payment to the named beneficiary, even to the detriment of the children of the deceased.  The clear message from the courts in these decisions is that the named beneficiary of a life insurance policy will get the death proceeds regardless of what other competing claims exist, or what one’s sense of fairness seems to dictate.

This means the burden is yours to keep up with your beneficiary designations. It is vitally important to make sure they are up to date. At the very least, you should review your beneficiary designations every 2 years. But in the case of the following life events, you should review your beneficiary designations right away:

  • Family events such as births, deaths, marriages and divorces all should trigger a review of ALL beneficiary designations.
  • Work events such as changes in business, change of job or retirement ALL should trigger reviews.
  • External events such as significant tax changes or other legal changes should also trigger a review.

Some mistakes are just not fixable. Please, double check your beneficiary designations if you have not done so recently, and use this form to help get the job done effectively. Edwards Group clients can rest easy because we help make sure assets are set up properly (and stay that way through our Dynasty Membership program).

If you’re not a client and are concerned that your plan may not be as effective as it could be, we encourage you to check out an upcoming Aging With Confidence workshop where you will learn about effective planning at every stage of life. As always, if you have any questions, we’d love to chat with you! Just give us a call at 217-726-9200.

reverse mortgage

Are Reverse Mortgages EVER Okay?

Reverse mortgages should only be used as a last resort.

You know the old saying, “If it seems to good to be true, then it probably is.” Well, it seems that saying could easily apply to the reverse mortgage industry. Because of that, if you are considering one, you need to proceed with extreme caution.

Being able to borrow against the value of your home can seem like a really good idea at the time, but when it comes time to repay the loan (because that’s what this is after all), it can create real problems for your heirs or even yourself if you end up having to move out of your house unexpectedly.

As chronicled in this article from the New York Times, many lending companies are not behaving on the up and up when it comes to repayment of reverse mortgages. These shady practices create a lot of extra stress (emotional, financial and otherwise) on those left behind. After reading the full article, one has to wonder, “Is a reverse mortgage EVER a good idea?”

They can be. According to the website, eldercarelinkreverse mortgages can be a good idea when:

  • you own your home free and clear or have a low mortgage balance.
  • if you’re over 70.
  • if you need extra money for medical costs or other bills.
  • if you want to use the proceeds to downsize to a smaller home.

But sometimes, reverse mortgages can be a bad idea. This is especially true if:

  • your home lost a lot of equity in the housing downturn.
  • you aren’t that old.
  • the mortgage lender pressures you and also asks you to buy annuities or expensive financial services.
  • you plan to move in a few years.
  • you want to leave the home as an inheritance.

Bottom line from Dave: In most cases reverse mortgages should only be used as a last resort! The costs of these loans make them a very expensive way to get funds. A home equity line of credit should be considered before a reverse mortgage. And you should definitely get advice from an experienced elder law attorney before doing so. It’s possible that other benefits such as VA or Medicaid could be a better option for care than a reverse mortgage. Give us a call at 217-726-9200 if you have questions about this topic.

non-financial estate planning issues

10 Non-financial Planning Issues You Should Consider

Effective planning doesn’t just involve money…

We tend to do things a little differently around here. After years of doing planning the traditional way (and seeing ways that the process could be improved), I started my own firm. Not only is it important for me to educate you about planning financially, I also want you to think about the non-money planning issues that are often overlooked by more traditional estate planning.

Not planning for non-financial issues can be just as tragic as not planning for more traditional money issues. This lack of planning can lead to poor quality of life for you, extra stress for your kids and loss of a legacy.

Here are 10 non-financial planning issues to consider and their solutions:

1. Healthcare. Who will make your healthcare decisions if you can’t? And will they know when to “pull the plug”? When they do pull the plug, will your organs be donated? Solution: You need to cover the proper legal authority through a healthcare power of attorney and a living will. Also, have conversations with your family about your wishes so they know, without a doubt, how you want them to act on your behalf.

2. Pets. Without a plan, your special dog may be bounced around from relative to relative or even put down because there is nowhere for him to go. Solution: Your will or trust can specify who will care for your pet and how the pet’s expenses will be paid after you are gone. (Which reminds me of one of my favorite estate planning jokes.)

3. Wisdom. What does your family stand for? What values were important to your parents and grandparents? Will your grandkids know about those? Solution: Take the time to reflect on these things and write them down. You can find resources for where to start online, or even hire someone to help you at the Association of Personal Historians.

4. Online or computer stuff. More and more of our lives are being lived online – Facebook, online photos, emails with your grandkids.  How will your family access that info after you’re gone? In this day and age it’s important to have a plan for this. (Read a real life story about it here.) Solution: You can store the information yourself in a safe deposit box, you can use one of the newly formed companies out there (SecureSafe or PasswordBox), or your attorney can keep the information for you.

5. Family heirlooms. Grandma’s old table, the shotgun with the homemade stock, the family Bible that’s over 100 years old. What will you pass on? And will you pass along the story that goes with it? Antique shops are filled with stuff that has some value to a stranger, but could have been priceless to family members, if only the story behind the item had been preserved. Solution: Take the time to clearly communicate your wishes or preserve the stories behind those special items. You can include the history of family items as part of your “special stuff list” or in a separate letter your family will get after you’re gone.

6. Guardians for kids. If people who don’t share your values end up raising your minor children, then the money you leave won’t really matter. Solution: We help clients make this tough choice through resources like our Child Raising Priorities Checklist.

7. Sibling relationships. If you become disabled and one child is the primary caregiver, will the rest of the family be prepared? Will the caregiver feel like no one else is helping out? Will the other siblings feel like the caregiver is overspending your money? Only you can know the answers to these questions. Solution: As part of our process we will discuss with you how to best choose helpers and how to make sure they know what to do when the time comes. Good planning helps avoid misunderstandings between siblings.

8. Burial wishes. Do you want to be cremated or have a visitation? What will your obituary say? Will you plan it out or leave it to your kids to decide (or fight about) during a time of grief and high stress? Creating a funeral plan or burial plan can be a real gift to your family and make the time of remembering you more meaningful. Solution: In Illinois, you can specify your wishes in your Disposition of Remains document, which provides binding burial instructions.

9. Living arrangements. If you’re near the end of your life, sick and unable to care for yourself, all the money in the world won’t matter if your living arrangements are not what you want for yourself. How important is it that you remain living on your own? Are there certain facilities you absolutely do not want to be placed in? Solution: As part of your disability instructions in your living trust, you can be very specific about how you want to be cared for and where you want to live.

10. End of life issues. Do you want to be kept alive with a feeding tube? Ventilator? Will your family know what your wishes are? If you are 85 years old with terminal cancer, would you want heart surgery just to prolong your life a few weeks or months? Solution: Your living will and healthcare power of attorney give the legal authority and instructions on those issues. But it is also very important to discuss these difficult issues with your family so they understand your preferences.

See our Infographic illustrating these issues HERE.

We are always happy to talk with you about any questions or concerns you might have. Just give us a call at 217-726-9200. And if you want to learn more about the process of planning, feel free to check out a free workshop. Our workshops are a great way to learn about our unique process.

The Value of Family Traditions

Ah, the holidays… a time when Michelle and I enjoy spending extra time with family. Family history and traditions mean a lot to us. Part of that family history involves names. Here are some interesting name connections in our family:

1. Otis – Bailey and Cole are the 5th generation in my dad’s family with a middle initial of “O.” My dad’s grandfather had the middle name Otis. My dad and grandpa had the middle name Oscar. Now I am David Otis and 4-year-old Cole has the middle name Otis as well. We kept it going with Bailey Olivia.

2. Bailey – Michelle’s Grandma Wilson had a maiden name of Bailey. Now Bailey is named after the family line.

3. Hall – Michelle’s maiden name is Hall. Her Grandma Hall was named Hall even BEFORE she was married. As she used to say, she was a “Hall and married a Hall.” Then came a lifetime of confusion about her maiden name and married name being the same!

4 generations picHere I am, circa 1971, with my Great Grandma Hise (whose husband had the middle name Otis), Grandma Edwards (holding me) and my father.

Does your family have a special naming history? Or any other traditions? This time of year is definitely a time when we think more often about those things that make our families unique and special. We’d love to hear about your family traditions. Share it on our Facebook page, and we might even feature it in a future email newsletter!