- By Jesson & Rains Associate Attorney, Danielle Nodar
The beginning of a new year lends itself to reflecting on the year that has passed and setting goals for the future. Come January, we are bombarded with information about New Year’s resolutions and implementing plans to help us transform our resolutions from lofty dreams to our reality. From health goals relating to diet and fitness, financial goals such as saving for retirement or paying off longstanding debt, even decluttering our homes--there is no shortage of information about what we can do to improve our present and plan for our future.
However, one area of planning that many people seem to put off is creating an estate plan. Estate planning involves meeting with an attorney to discuss things like your assets and debts and how they could impact your estate plan; how you want your property distributed at your passing; who will administer the probate of your estate; who will handle your financial affairs and medical decisions if your become incapacitated and are no longer able to make those decisions on your own; and other important decisions that could make a lasting impact on your loved ones.
Even if you have an estate plan in place, you should meet with your estate planning attorney every three to five years to review any life changes or changes in the law. Some reasons to update an estate plan are:
If you have had any major life changes or just want to ensure that your estate plan is in order, make it a goal for 2019 to plan for your future and the future of your loved ones with estate planning. We can help you to ensure that your property is distributed how and to whom you want it to be distributed and to ensure that you are leaving your family unburdened.
By Danielle Nodar
Yes! When helping clients formulate an estate plan, we oftentimes have questions on whether there are any alternatives to passing property to loved ones without having to go through the court-regulated formal probate process. Depending on the types of assets and beneficiaries, formal probate administration is not always necessary. For example, formal probate administration is not always required at the death of the first spouse. Real property owned by spouses as tenants by entirety passes without regard to creditor claims, and the surviving spouse allowance allows a surviving spouse to obtain up to $30,000 in personal property of the decedent spouse free and clear of creditor claims. There are also forms of informal probate, such as summary administration and administration by affidavit, which apply to certain kinds of estates and are described in more detail below.
Summary administration is available for surviving spouses. This procedure is available only if the surviving spouse is the sole heir (intestate, meaning that the decedent died without a will) or the sole devisee (testate, meaning the decedent died with a will) of the decedent. An order of summary administration will permit the spouse to proceed with the collection and distribution of the decedent’s property without the formality of regular administration. By obtaining the order, the surviving spouse assumes all liabilities of the decedent to the extent of the value of the property received.
Another option for small(er) estates is to have a “collector” appointed instead of a personal representative. A collector may file a small estate affidavit to administer the estate of a decedent with a small(er) estate. This procedure is available for decedents whose personal property, less liens and encumbrances thereon, and less the spousal allowance, is valued at $20,000 or less. If the surviving spouse is the collector, and they are the sole heir or devisee of the decedent, the value of the personal property less liens and encumbrances and the spousal allowance can be valued at $30,000 or less.
Unfortunately, these informal probate procedures are unavailable if singularly-owned real estate is part of the decedent’s estate and heirs intend to sell the property within two years of the decedent’s death. Full probate administration is necessary to pass clear title because an executor must be appointed to publish notice to creditors. If the real estate is sold within those two years and notice to creditors has not been published, the sale will be void as to creditors. N.C.G.S. § 28A-17-12. If the real estate is sold after two years and notice has not been published, the estate still owes the debts to creditors (if the applicable statute of limitations has not expired), but the creditors cannot pull the real estate back into the estate to sell to satisfy their debt.
Another way probate may be avoided is if assets are titled joint with rights of survivorship. For example, if you and a loved one hold a bank account as joint with rights of survivorship, you both own 100% of the account’s assets jointly during your lifetimes. When one of the joint owners passes away, the surviving owner will own 100% of the account individually.
Finally, one of the most important means of estate planning outside of the probate process is the use of beneficiary designations and transfer on death designations for certain banking or brokerage accounts, securities, life insurance, retirements accounts, and 401(k)s. As you can imagine, the bulk of many people’s assets are contained in these accounts. These assets will pass to who you have listed as your beneficiary outside of probate, regardless of what your will says. This means that the money will get to your beneficiaries quickly and that it will not be accessible to any of your creditors at the time of your death.
Thus, it is critical to make sure that all of your beneficiary designations are up to date for primary and contingent beneficiaries. We have seen people fail to update these after death or divorce, causing the money to go into the probate estate, which will cause a delay in distribution to your loved ones and will open those funds up to creditors.
If you need assistance with any of the above planning, please give Jesson & Rains a call.
- By Jesson & Rains Associate Attorney, Danielle Nodar
Anthony Bourdain, acclaimed chef, television host, and travel writer, encouraged people to explore the world and continues to do so after his death. When Bourdain’s will was probated in New York, it was revealed that he left most of his estate to his eleven-year-old daughter. However, according to The New York Times’ Page Six, Bourdain bequeathed his frequent flier miles to his estranged wife. Bourdain stated in his will that she should “dispose of [them] in accordance with what [she] believes to have been my wishes.”
Considering Bourdain’s jet set career as the host of CNN’s Parts Unknown, this gift is likely a substantial amount of frequent flier miles. While most of us have not racked up a similarly significant amount of miles, Bourdain’s estate plan still calls into question what kind of property we can leave to our loved ones and how.
Every airline and credit card company has a different policy for their points or rewards programs. When a customer signs up for a loyalty program, they are entering into a contract and must abide by the company’s terms and conditions. Some programs specifically indicate that rewards points are not property of the rewards member. In these cases, the rewards points are neither assignable during lifetime nor inheritable at death. Other loyalty programs may allow rewards points or accrued miles to transfer to a person through a will or divorce decree. However, even in these cases, it is sometimes up to the discretion of the airline whether to honor a transfer of miles.
If you are interested in leaving a loved one your accrued airline miles or rewards points after your death, you should read the terms and conditions to determine (1) if you they are transferable and (2) if they are, how to transfer them properly.
“Travel isn’t always pretty. It isn’t always comfortable. Sometimes it hurts, it even breaks your heart. But that’s okay. The journey changes you; it should change you. It leaves marks on your memory, on your consciousness, on your heart, and on your body. You take something with you. Hopefully, you leave something good behind.”
― from “No Reservations: Around the World on an Empty Stomach”
Generally, if you have a will, you can name anyone you want to and the court will respect your decision, but there are a couple of obvious prohibitions and then a few not so obvious restrictions.
Your executor must be:
If you pass away without naming someone in a will, the clerk of court will appoint someone in the following order (as long as they qualify with the above requirements):
(1) A surviving spouse;
(2) A beneficiary in a will;
(3) Any heir;
(4) Any next of kin
(5) Any creditor of the decedent;
(6) Any person of good character residing in the county who applies therefore; and
(7) Any other person of good character.
There are a few other important notes to keep in mind. The clerk of court has to discretion to turn down anyone it finds “unsuitable.” If you pass away without a will, your executor will have to get a surety bond and pay a bond premium in order to serve unless all other heirs sign a form waiving that requirement. Getting a bond involves passing a credit check. Depending on the county, some clerks of court will require bonds for all out-of-state executors, even if all heirs sign waivers, and sometimes even if the decedent had a will and waived the bond requirement! This is why it is important to meet with licensed attorney and set up your estate plan to ensure that the person who you want to handle your affairs when you pass away will be appointed.
In 2016, we wrote about the new North Carolina digital assets law and what happens to social media and e-mail accounts when you pass away: https://www.jessonrainslaw.com/news--blog/what-happens-to-my-facebook-or-gmail-when-i-die
Digital assets are not really “assets” in the true sense that you own the property. Facebook and G-mail own the property, and you’re just using it. Ultimately, that account is controlled by whatever contract you sign (or “clicked”) when you signed up for the service. Despite including digital asset instructions in wills, trusts, and powers of attorney, loved ones are still having issues accessing or shutting down a deceased family member’s digital property.
One option is to provide the executor with all the passwords to these accounts so that the executor can access them upon death. If you do it the old fashioned way and write all your passwords down and store them in a safe (not taped on the wall next to the computer!), you have the responsibility of updating that list every time you change a password or add an account.
Instead of using pen and paper, consider using a digital password manager like LastPass or Dashlane. You can name an emergency contact (your executor) who will have access to your passwords in the event of death or incapacity. Additionally, by using a password manager, you don’t have to worry about updating them yourself; you are notified any time an account is compromised; the password managers create unique passwords for you that are less likely to be hacked; and you can change all the passwords with just a click of a button (and you don’t have to remember any of them).
Prices for these services range from $0 to $40 per year. You can even use them for business accounts!
Retirement accounts can be one of the largest assets that someone passes on to a loved one. However, these assets are treated differently if they are tax-deferred. If you leave a standard 401K to a beneficiary, they will pay income tax when they withdraw the money.
A surviving spouse will be required to take Required Minimum Distributions (RMDs) once they turn 70.5 years old. For non-spouse heirs, the beneficiary will have to take RMDs every year if the original account owner passes away after reaching age 70.5. But if the original account owner was under the age of 70.5 when they died, the RMDs will be based on the beneficiary's age instead. This is called a “stretch out” because the RMDs are stretched out over the beneficiary’s life, based on the beneficiary’s life expectancy as dictated by the IRS.
Not all plan administrators will allow a beneficiary to stretch out the payments. It may be worthwhile for the beneficiary to rollover the inherited 401K to their own IRA because, if you do not stretch out RMDs, the RMDs might be taxed at a higher income tax bracket!
Additionally, because 401Ks are distributed according to life expectancies, sometimes they are not the best asset to pass along to multiple beneficiaries through a trust. The IRS will force RMDs based on the life expectancy of the oldest beneficiary.
Finally, deferred tax assets should not be left in a supplemental needs trust for the benefit of a disabled beneficiary. If the trustee accumulates the RMDs instead of distributing them to the beneficiary (which oftentimes is necessary to keep the beneficiary qualified for government benefits), the IRS will tax the RMDs at the trust income tax rate, which can be as high as 37%!
As you can see, estate planning is so much more than simply drafting a will. Please contact Jesson & Rains if you would like to consult with a professional.
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