How to Choose Your Beneficiaries

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How to Choose Your Beneficiaries | NOVAEstateLawyers.com

When you’re young and have few (if any) assets, you may not put much thought into estate planning or choosing your beneficiaries. But no matter what age you are or how small or large your estate is, it’s important to designate beneficiaries for your various assets and accounts, just in case something were to happen to you. Failing to do so might create costly probate expenses for your loved ones.

Below, we explore what to consider when naming your beneficiaries and how to make a choice you can feel good about.

What is a beneficiary?

If you are trying to protect your assets from the headaches and costs of probate, it’s smart to take the time to assign at least one beneficiary to those assets where you are permitted to name a payable on death or transfer on death beneficiary rather than relying on a Will alone.  Remember, what passes through your Will passes through the probate process, which brings additional (needless) costs to our estate as well as paperwork headaches for your loved ones.  It also exposes your assets to creditors, who may try to file claims in probate in order to access your assets if you rely on your Will alone.  By naming a primary beneficiary and even a contingent secondary beneficiary, you allow whomever you name to promptly and easily receive your assets without these concerns.

There are two different types of beneficiaries: primary and contingent.

What is a primary beneficiary?

A primary beneficiary is the first person who is entitled to your assets. If you don’t name a primary beneficiary, in some states what happens to your assets will be determined by the state in which you reside.

For certain types of accounts, a surviving spouse is automatically assigned as the primary beneficiary unless you say otherwise. In some cases, you may be able to name more than one primary.

What is a contingent beneficiary?

A contingent beneficiary is the second in line beneficiary who would be entitled to inherit your assets if your primary beneficiary predeceases you.  You can choose to name more than one contingent beneficiary and split a percentage of your assets among them.

Choosing your beneficiaries: Questions to ask

You can select any person by simply naming them on the proper designation forms.  However, you can also name an entity, such as a revocable living trust.  It depends on what your overall goals are for your estate plan and the age of your beneficiary or beneficiaries.  If the person you choose is under the age of 18 and not inherited under the terms of a trust, their inheritance will be subject to additional legal requirements with a court to have that child’s legal guardian qualify as a court-appointed guardian for those assets until the minor reaches the age of majority.

If you’d prefer to avoid family drama, you do not need to name a child or family member; you can elect to name a charitable organization as your beneficiary.  It is not unusual to name a charitable organization as a secondary beneficiary after naming a spouse or children as primary, just in case none of them survive you.

Choosing a beneficiary can be a very emotional process.  For example, if you choose one child over the other, you may fear that the child who is not chosen will feel like they are less important. It’s important that you don’t let anyone persuade you when choosing a beneficiary. Just because choosing a spouse or the oldest child seems like the obvious choice does not mean it’s the right one.

When choosing a beneficiary, consider the following:

  1. Which loved ones may need financial help upon your death?
  2. Which assets would you like to keep in the family?
  3. Which charities and organizations are important to you that you’d want to financially help?
  4. Who has your best interest in mind?
  5. What are your account provider’s rules for naming beneficiaries?

As a good rule of thumb, review your beneficiaries and your overall estate planning goals every few years to re-evaluate them. It’s likely you have accounts you set up years ago and don’t recall which beneficiaries you named. Change happens — people get divorced, children are born, and families lose contact. Be sure you always know exactly where your assets will go when you die.

For assistance with choosing beneficiaries and other Virginia estate planning needs, schedule a free consultation with the Law Office of Patricia E. Tichenor.

Getting Remarried? 5 Estate Planning Steps to Take

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Estate Planning When You’re Getting Remarried | NOVAEstateLawyers.com

Many people who have experienced divorce choose to marry again in the future. While remarriage is a common occurrence, a divorced individual may not think to update their Will when they take a new spouse. If that person then passes away, their assets may be divided in a way that doesn’t necessarily reflect their current wishes and family situation.

If you’re getting remarried, you’ll want to keep your estate plan up-to-date to properly protect both your assets and your loved ones. Here are some estate planning considerations and steps to keep in mind.

1. Protect your spouse.

If you die without a valid, updated Will and have children from your previous marriage, Virginia’s intestate succession laws dictate that two-thirds of your assets — possibly including the house you and your partner share depending on how it was titled in the deed — may bypass your spouse and pass directly to your children. At best, your family may have to navigate your Will and divide the assets amongst themselves. At worst, your spouse may be left without the resources they need, if your children decide not to provide for your spouse or they force them out of your marital home.

To avoid this issue, you’ll need to write a custom plan that clearly outlines the proper distribution of assets to both your children and your new spouse. For example, you may write in a clause that gives your spouse a life interest to remain in your home for the rest of their life.

2. Protect your children from a previous marriage.

On the flip side, if you do update your Will to leave assets to your new spouse, you may have the expectation that they will use at least some of those assets to provide for your children (their stepchildren) after your death. However, making this assumption without explicitly stating how assets are to be divided can be a financial detriment to your children.

There are a few strategies that you can use to prevent any unwanted outcomes for your children from a previous marriage. Creating a revocable trust, which allows you to easily change instructions and assets during your lifetime, can give you the flexibility to make sure both your children and your current spouse are protected no matter what your circumstances may be.

You can also create a separate marital trust, which allows you to set aside assets specifically for your spouse rather than having an undesignated pool of assets to be divided amongst your spouse and children. This can ensure that both your spouse and your children have access to the assets they need, without worrying that either will be left in a difficult position.

In your marital trust, you can also instruct that all remaining assets in your trust pass on directly to your children when your spouse passes away, giving them further financial protection.

3. Consider a life insurance policy over marital trust.

Although a marital trust can be used to ensure both your spouse and children receive their share of your assets, funds can be depleted with life circumstances. For example, if your spouse suffers an accident or other health condition that leads to extensive medical bills, the funds will likely have to come out of the trust — leaving your loved ones with little to protect their financial interest.

To prevent this outcome, you can leave your life insurance policy to your spouse, while passing your funds and other assets to your children. This ensures that both your children and your spouse will be provided for after your death.

4. Update beneficiary designations.

While signed settlement agreement or final divorce papers may allow you to remove your ex-spouse as a beneficiary or executor of your estate, you will still need to manually switch the beneficiaries on your retirement account or any company life insurance plans. If you have a 401(k), your surviving spouse is set as the automatic beneficiary unless they state otherwise. However, life insurance and individual retirement accounts must be updated to include your current spouse and/or your children.

5. Contact an experienced estate planning attorney.

Estate planning can be complex, especially after a remarriage. An experienced estate planning attorney can help you navigate the process and ensure that your current spouse and your children receive their fair share of your assets.

The Law Office of Patricia E. Tichenor, P.L.L.C., is here to help you with all of your estate planning needs. Schedule a free virtual consultation to discuss your needs.

Will the 2020 Presidential Election Impact Your Estate Plans?

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How the 2020 Election May Impact Estate Planning | NOVAEstateLawyers.com

With the 2020 Presidential election fast approaching, many Americans are wondering about the potential legislative impact of either outcome.

One area people are watching closely is estate planning, which could be affected by changes to laws around estate taxes and capital gains. Here’s what you need to know about how your plans could be impacted, depending on whether Trump is re-elected or Biden wins the presidency.

What current laws impact estate planning?

Current laws regarding estate taxes and gift-giving can impact your estate planning. Understanding these laws and the exemption limits can help you more effectively plan your estate over your lifetime.

In 2007, the Commonwealth of Virginia repealed its state-level estate tax. However, estates of a certain size (larger than $11.58 million per individual, or $23.16 million per married couple) are still subject to federal estate tax laws. The exact amount your estate must pay will depend on how much larger it is than the federal exemption limit, with higher taxes being placed on bigger estates.

To reduce their taxable estate, many individuals choose to use gifting of assets throughout their lifetime. Gift taxes are paid by the individual who gives another person assets over a certain amount (currently $15,000 per individual per year, which will remain the same in 2021); gifts under this amount are tax-free and do not need to be reported as income. You would only need to monitor your non-exempt lifetime giving (the combined amount you give away prior to death and leave to others after death) falls under the current federal limit.

What might change based on the 2020 election?

Depending on whether President Trump or former Vice President Biden wins the election, the following aspects of estate planning could be affected:

1. Exclusion amount

The current exclusion amount is $11.58 million per individual ($23.16 million per married couple), and estates in excess of the exclusion are currently taxed at 40%. Under Trump, the current exclusion amount will be in effect until 2025. At that time, exemption amounts will be reduced to $5 million per individual ($10 million per married couple), indexed for inflation.

Conversely, Biden has suggested that he plans to return to a “historical norm” of a reduced exclusion amount. Though he has not provided specific dollar amounts, experts have interpreted the amount to be either $5 million or $3.5 million — a number that would significantly increase the number of estates that are subject to taxation.

2. Stepped-up basis

After an individual passes away and leaves an asset to another person, the basis (the original owner’s initial investment in the asset) rises to the current market value. The new owner inherits the asset at its “stepped-up basis,” and they are free to immediately sell the inherited asset with minimal to no income tax. Biden has proposed to repeal stepped-up basis, which has remained in effect during Trump’s presidency.

3. Capital gains

Biden’s proposed elimination of the stepped-up basis would increase capital gains taxes for those who inherit the assets. Capital gains refers to the profit made from receiving an asset at one value, and selling it at a higher value.  For most of the middle class, a home is the most valuable asset a family owns, and this repeal would be a serious setback to the ability to pass this part of a family’s built-up wealth to the next generation in the tax-free manner that has long been relied upon by families in the United States.

Have questions? Ask an experienced estate planning attorney.

Regardless of who wins the 2020 election, it’s a good time to look at your net assets and understand the size of your taxable estate. If you are close to the current threshold, you may wish to take action now to reduce your estate size in case the exclusion amount is lowered next year.

Have questions about your estate plans? The Law Office of Patricia E. Tichenor is here to help you. Schedule your free consultation today to discuss your circumstances and needs.

How Does the SECURE Act Impact My Estate Plans?

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The SECURE Act and Your Estate Plans | NOVAEstateLawyers.com

For many Americans, a retirement savings account becomes one of their largest and most important financial assets. 401(k) accounts and individual retirement accounts (IRAs) often come up during the estate planning process, as most plan providers require you to name a beneficiary in the event of your death.

If you have a retirement savings account or plan to open one, it’s important to understand the implications of the recent Setting Every Community Up for Retirement Enhancement Act (SECURE Act) on your estate plans, particularly its new rules about the payout of IRAs to beneficiaries. Here’s what you need to know, and how you should update your estate plans in light of these regulations.

What is the SECURE Act?

The SECURE Act is a bipartisan bill intended to assist Americans in their retirement planning. It was passed in December 2019 and has been in effect since January 1, 2020.

The Act contains a number of provisions that make it easier for Americans to save for retirement, including raising the age at which they must start taking a required minimum distribution (RMD) from the account and eliminating the age cap for making contributions to an IRA. It also incentivizes employers to sponsor retirement savings plans for employees.

How does the SECURE Act affect estate planning?

The SECURE Act could impact your estate planning strategy, depending on your relationship to your retirement account beneficiary.

Prior to the SECURE Act, a non-spouse beneficiary (e.g. a child, grandchild, or trust) could opt to stretch out the disbursement of a decedent’s retirement savings account funds over the course of their expected lifetime. By only taking the required minimum distributions (RMDs) from the account, beneficiaries could pay the minimum possible income tax on their payouts, while still earning tax-deferred investment returns on the account’s remaining balance.

Now, this “stretch IRA” strategy is no longer allowed for any beneficiary that is not the decedent’s spouse. Instead, the account must be paid out in full within 10 years of the account holder’s death. In most cases, this means beneficiaries will be receiving larger amounts of money at a time and will owe a larger amount of income tax in a shorter period of time.

There are a few notable exceptions to this policy to be aware of as you consider your estate plans:

  • Retirement accounts that name a conduit trust or accumulation trust as the beneficiary are subject to the 10-year payout rule, which means a spouse that benefits from the trust will not be able to take advantage of the lifetime distributions.
  • The 10-year payout rule does not apply to minor children who inherit an IRA until they reach the age of majority.
  • Beneficiaries who are chronically ill, have special needs, or are within 10 years of age of the IRA owner are not subject to the 10-year payout rule.

If you haven’t yet reviewed the beneficiaries on your retirement accounts and your trust setup (if applicable) in 2020, now is the time to do so. Understanding whether your beneficiary will be subject to the accelerated 10-year payout schedule can help you ensure they are prepared for their potential income tax liability when they inherit your account. An estate planning attorney can advise you on whether you can structure a trust in such a way that your chosen beneficiaries can still receive the tax benefits of stretched-out IRA disbursements.

Have questions about your estate plans? Contact The Law Office of Patricia E. Tichenor.

Estate planning can be complex enough on its own, and it becomes even trickier when you have to factor in new and changing regulations that impact your overall estate. A trusted estate planning attorney can guide you through these regulations and determine how you can best plan for your future beneficiaries to inherit your retirement accounts.

The Law Office of Patricia E. Tichenor has nearly two decades of experience helping Northern Virginia residents with Wills, trusts, and other estate planning needs. Schedule your free virtual consultation to discuss your circumstances.

What is a Personal Property Memorandum?

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What Is a Personal Property Memorandum? | NOVAEstateLawyers.com

In making a Will or Trust Plan, you’ve probably given some thought to your larger assets, such as your home or vehicle. However, as with many aspects of estate planning, the little details can make a big difference.

Smaller assets, such as sentimental items or family heirlooms that hold emotional importance to you, should also be considered as you’re drafting your Will or Trust Plan. To protect these assets or provide for their transfer to specific family and friends, you’ll want to use a Personal Property Memorandum.

What is a Personal Property Memorandum?

A Personal Property Memorandum is a flexible and easy to use document that permits you to freely put together a List of your smaller, tangible items – including clothing, jewelry or pieces of art – to be given to your intended beneficiary. It is a separate document from your Will or Trust, and it is one that you will be able to prepare on your own and amend as many times as you wish – without need of witnesses or a notary public.  As long as your Will or Trust state that you may leave such a List or Memorandum, and cite to the Virginia Code authorizing you to do so, then whatever List or Memorandum you leave with your Will or Trust is recognized as legally binding in Virginia.

Of course, you can also include a list of items inside your Will or Trust document; however, if you cease to own such an item or acquire new items of property, then you will find putting this into the actual Will or Trust will also mean having to incur attorney’s fees to amend and re-sign a Will, Codicil, Trust, or Trust Amendment – and, with the burden of needing witnesses and a notary. This can be a drawn out and more costly process, especially if you have multiple smaller gifts to distribute or you acquire more personal property after writing your Will.

A Personal Property Memorandum is much easier to change. It does not have to be witnessed in order to be legally binding, and can also be updated at any time without ever needing to amend or re-sign your Will or Trust, or an amendment to those documents.

Having a Personal Property Memorandum can also avoid conflict between family members. Rather than dividing everything equally amongst loved ones and forcing them to figure it out amongst themselves, giving specific directives as to who receives which item can eliminate any hard feelings or tension during the probate process.

What can I include in my Personal Property Memorandum?

Your personal property memorandum can include any tangible assets. These include furniture, household items such as silverware, artwork, jewelry, and any collections you might have. In certain states and circumstances, you can also include vehicles in the memorandum.

Real estate and intangible assets cannot be included in your personal property memorandum; these would instead need to be noted in your Will. Examples of intangible property include money and bank accounts, IOUs, stocks/bonds and copyrights.

Using a Personal Property Memorandum with your Will

To make your Personal Property Memorandum legally binding, you must also have a valid will in which you explicitly refer to the document. This can be as simple as a statement indicating that in addition to your will, you have included a personal property memorandum that indicates how your tangible assets should be distributed after your death.

The Personal Property Memorandum itself can be typed and printed, or it can be handwritten, so long as it contains your hand-written signature and a date on it. The document typically begins with the following statement (or similar): “I bequeath the following items of tangible personal property to the beneficiaries listed below.”

Then, list the assets along with the names of those who are to inherit them. Once you are finished writing, sign and date the memorandum. Keep the document with your Will, in a location where your executor can easily find it.

As you are writing your Memorandum, you should keep the following considerations in mind:

  • If you’ve specifically left an item in your Will, you should not also include it in your memorandum. At best, it is redundant; at worst, the two documents will contradict each other.
  • You should describe items as clearly as possible, especially if there is a chance they will be confused with similar items.
  • If your executor won’t know who a beneficiary is or how to get in touch with them, you should include contact information (such as an address or phone number) and their relationship to you.

If you’re looking for assistance with your Personal Property Memorandum for a Will or a Trust, or need help with another estate planning matter, you can schedule a free consultation with the Law Office of Patricia E. Tichenor, P.L.L.C. today.

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