Estate Planning for Couples with Step-Families

“Managing family finances is difficult to begin with, but when you add in stepfamilies and half siblings, family planning becomes increasingly complicated,” Jane King and Caroline Hedges write in Financial Planning. This is no limited problem, the authors note: According to the U.S. Census Bureau, over 50% of U.S. families are remarried or recoupled after a divorce, and the “blended family” is on track to become the predominant family structure in the U.S. At Geyer Law, we know that, from an estate planning point of view, blended families have many complex areas that need to be discussed and formalized in planning documents.

Start by knowing all your existing obligations, King and Hedges suggest, including:

• alimony payments
• child support
• responsibility for college tuition payments

The next important step is drafting a prenuptial agreement.  That document makes it clear who owns what assets, King and Hedges emphasize. Then, even more important, each party’s intentions are in terms of not only current payments, but future bequests.

As estate planning attorneys, we remind our remarried couple clients that, if not waived in a prenuptial agreement, a surviving spouse has a legal claim against a portion of the spouse’s estate, and that claim has priority over the bequests made in the will (very much like the claims of a creditor).
Spouses automatically becomes the primary beneficiaries of each other’s spouse’s ERISA retirement account. Pre-retirement, neither spouse can choose otherwise without the other’s consent. In an annuity payout, the form of payment must be a joint and survivor annuity. If a spouse wishes to leave his or her qualified retirement plans to a beneficiary other than the spouse, the prenuptial agreement should address this issue and provide that the spouse agrees to execute a consent to allow a different beneficiary on the plan.
 
Estate planning needs to include powers of attorney. In the absence of a power of attorney appointing a different decision maker, the current spouse has the highest priority to serve as a guardian over the assets and over the person of an incapacitated spouse.

Prenuptial agreements must cover three possibilities:

• Divorce
• Incapacity
• death

When there are minor children involved, the planning must be highly specific, taking into consideration divorce and child support agreements from former marriages. When one or both spouses has power of attorney for a parent, that consideration needs to be woven into the fabric of the overall plan.

Planning for step-families is both highly complex and highly rewarding (for us as advisors, but also for the newly blended couple themselves. “Enable family members you trust to provide for future generations.  Think ahead,” advise King and Hedges.

- by Rebecca W. Geyer

Reverse Mortgages for Now-and-Later Estate and Retirement Planning

Many times, lawyers are asked by clients about financial decisions before they are made, and sometimes we’re told about them after they’ve already occurred.  One example of such a decision concerns reverse mortgages.  Reverse mortgages are home loans also known as home equity conversion mortgages, or HECMs (pronounced Heck-ums). HECMs, as bankrate.com explains, allow seniors aged 62 and older to access some of the equity in their homes without having to move.  At Geyer Law, clients will often discuss the wisdom of using a reverse mortgage as part of their retirement planning.  Other times, new clients will inform us that they’ve already entered into a HECM arrangement.

“The HECM is a safe plan that can give older Americans greater financial security,” says Ben Carson, Secretary of the U.S. Department of Housing and Urban Development. In answer to the consumer question “Will we have an estate that we can leave to heirs?”, the HUD website provides the following answer: “When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid.  All proceeds beyond the amount owed belong to your spouse or estate.  This means any remaining equity can be transferred to heirs.  No debt is passed along to the estate of heirs.”

At Geyer Law, we find it important to explain to those contemplating a reverse mortgage that of course a HECM transaction lowers the value of their estate, because they themselves are using part of their assets. The same would be true were they to tap any of their assets other than home equity.  Anything you cash in and spend reduces your estate.

Reverse mortgages provide financial solutions for homeowners, including:

• paying off debt
• settling unexpected expenses
• funding long term care insurance
• funding life insurance premiums
• improving current lifestyle
• helping adult children and grandchildren with current needs

In the course of discussing all these different needs and wants with clients who are thinking about entering into a HECM but have not yet done so, we encourage them to, wherever possible, involve the younger family members (their heirs) in the discussion. Why? A reverse mortgage doesn’t need to be repaid until the last surviving borrower no longer lives in the home, or the home is sold. However, both parents and adult children should consider the ramifications:

1. If the borrower doesn’t meet the tax and insurance payments or doesn’t maintain the condition of the home, the loan might need to be repaid earlier, which might impact the heirs.
2. Once the owner has died, the heirs have six months to pay off the loan or refinance the home with a conventional mortgage. (If the mortgage balance is less than the value of the home, the heirs will be able to keep that balance.)

A HECM represents one of many tools that can help older Americans plan for their own – and their heirs’ greater financial security,” but, as with all tools, a reverse mortgage needs to be used in the right way and for the right situation.

 by Rebecca W. Geyer

Awkward Conversations Can Be a Great Gift of Love

Conversations with people you love about money concerns can get awkward and tense pretty fast, writes Tobie Stanger in Consumer Reports, offering the following example:

You and your two siblings inherited the lake house where your family spent many cherished summers. But now, arranging who gets July 4th weekend – and whether you, your banker sister, and your struggling artist brother should all pay the same amount for the new roof – makes you behave like nursery schoolers.
Stanger lists 15 of the toughest money talks in descending order, with the toughest being about:

• a spouse who isn’t bringing in enough income
• a parent giving more financial help to one sibling over another
• one sibling asking another for financial help
• spouses disagreeing over big purchases

Of those who’ve had these conversations, Consumer Reports reveals, 29% were uncomfortable telling their parents it’s time for someone to take over the managing of their finances. A 2014 Wells Fargo survey revealed similar results: Americans find discussing personal finances the most difficult to do, with death a close second in terms of awkward topics.

At Geyer Law, we understand the challenges, fears, and family dynamics that often come into play with legal issues. After all, estate planning involves broaching three on Stanger’s list of sensitive topics: finances, death, and family affairs. As advisors, we take an empathetic and compassionate approach, assisting clients, yet still allowing them to address in their own way their particular goals and concerns.

So that the cost of legal services does not serve as a deterrent to having those vital estate planning conversations, the attorneys at Rebecca W. Geyer & Associates, PC make every effort to offer legal guidance at a fixed fee, even, under certain circumstances, entering into payment plan arrangements. That way, concerns may be addressed without the ongoing stress of an increasing legal bill.

Yes, conversations with people you love about death, long term care, elder law and inheritance can certainly get awkward. At the same time, those very conversations represent a gift of great love for both older and younger family generations.
- by Ronnie of the Rebecca W. Geyer blog team

Individualizing Estate Planning Using Life Insurance

Life insurance has many uses in an estate plan, observes investopedia, listing several of those uses:

• To provide liquidity in an estate (to pay expenses, provide access to cash for heirs while the estate is being settled)
• To repay debts
• To replace income that the deceased was providing to the household
• To accumulate wealth

Married couples and business partners can make use of special types of insurance policies:

First-to-die (also called joint whole life insurance)
When one of the couple (or of the group) dies, benefits are paid out to the surviving 
insured. Typically this arrangement is used to insure spouses or a parent and child.
 
Survivorship life (also called second-to-die)
This policy pays out upon the last death of the couple or group instead of the first one. This type of insurance is also typically used for spouses, in parent-child or business  
partner situations.

There are some circumstances where it makes sense to continue to carry life insurance past retirement, investopedia goes on to explain:

• You don’t have enough of a nest egg to provide for a surviving spouse
• Disabled adult children or other relatives rely on you for lifelong care
• You’re wealthy and need a tax advantaged savings vehicle (you’ve maxed out your savings in other tax-advantaged accounts)

Yet, failure to consider the estate and gift tax consequences of life insurance is a common mistake, Forbes points out. The decision as to how the policy should be owned and controlled can be complex and is highly individualized, the authors explain, with those decisions dependent on individual circumstances: family dynamics, net worth, financial position, personal preferences and even philosophy about transferring assets to future generations.

That part about estate planning being highly individualized is very much in tune with our approach at the law firm of Rebecca W. Geyer & Associates. Our goal? To be a resource for clients, combining clear and concise legal recommendations with responsiveness and compassion, creating solutions to best meet each client’s needs.

- by Ronnie of the Rebecca W. Geyer blog team