Understanding how beneficiary designations work with your estate plan

If you have life insurance or a retirement plan you’re certainly familiar with beneficiary designations (BDs). BDs give you the ability to designate who will receive the asset at your death. It’s important to know that a BD trumps your will or trust. So if you gift a life insurance policy to Bob in your Will, but you list Bill on the BD, Bob’s out of luck.

BDs can be an effective tool in avoiding probate or ensuring that assets are distributed to your beneficiaries quickly after your death. However, if not given some thought, BDs can lead to some potentially serious financial and legal problems.

Here’s an example:

Husband and wife with 4 kids ranging in ages from 12-21. 21 year old takes a few college classes but really has no direction in life. He has never been able to save money. Lives at home and plays hours of online poker. 17 year old daughter who does well in school. She's smart with money and saves nearly all she earns. 14 year old son who has special needs. He'll likely never be on his own and will receive government benefits his whole life. 12 year son who is the most difficult child. He's constantly in trouble and was recently caught vaping at school.

Husband has a good job with great retirement benefits. When he initially filled out the paperwork for his 401k he wasn’t exactly sure who to name as beneficiaries. So, like most people in his situation he asked the HR rep helping him with the paperwork, what he should do. The reps advice: “Just name your wife as the primary and each of your kids as contingent. That’s what everybody else does.” Just to be safe, he ran it past his financial adviser who said that's how advises people to do it. Husband and his wife did the same thing on their life insurance policies.

Sounds like good advice, right? You want your assets to go to your spouse and kids.

Husband and wife are involved in a horrible car accident and both die. Fortunately, they had planned for this sort of situation. They both had a $500k life insurance policy and husband had $200k in his 401k. They had Wills and had named guardians for the 3 minor kids On first glance it looks pretty good. But is it?

What happens with the insurance policies and the 401k?

The 21 year old gets a check from the insurance company for his 1/4 share ($250k) and an inherited IRA for $50k. Zero provisions on how to spend it. Do you think he's going to keep taking college classes? Unless someone helps him, this money's gone in 18-24 months.

17, 14 and 12 year olds. Because they’re all minors, they can’t own these assets themselves. Instead, a custodian is appointed who handles the assets on their behalf. When they reach a certain age (21 in Colorado) the kids gain control of the money. The 17 year old seems like she might make good decisions, but who knows. What about the 14 year old with special needs? Inheriting that kind of money will disqualify him from Medicaid benefits because it puts him well over the allowable asset limit. Oops. (Much more on special needs planning next time). Troubled 12 year old? Serious drug user by age 21. $300k is going to ruin his life.

Husband and wife never intended for this to happen. They always wanted the best for their kids and assumed that leaving money for their kids in case something like this happened would only help them. So how do you prevent this from happening?

First: If you have a financial adviser, share this example with them and see what they say. It might be time to get a new financial adviser.

Second: Talk to an estate planning attorney (not your neighbor who's a personal injury attorney or your sister-in-law who practices patent law) who can work with you to prevent something like this from happening.

Third: If necessary, update your beneficiary designations.

Long-term care insurance. Do you have it?

Last week I meet with a man who recently moved his father into a nursing home. His father doesn’t have much money and doesn’t have long-term care insurance. His only option for getting the care he needs is through Medicaid. Medicaid is a true godsend for many people, but it requires that a person have next to nothing as far as assets. As you can probably imagine, facilities that accept Medicaid are not very nice. I’ve visited my fair share, and I always leave feeling a little depressed. The man I met with expressed similar feelings. His description of where his dad is: “gross and depressing.”

If you haven’t researched the costs of a nursing care, take a look. It’s sobering. There are 3 ways to pay for long-term care:

  1. Self-pay

  2. Long-term care insurance

  3. Medicaid

So, what’s the point of this post? It’s not to bash Medicaid or facilities that accept Medicaid. It’s a call to action. If you don’t have long-term care insurance, look into it. The sooner the better, because it gets significantly more expensive the older you get. If you don’t know who to talk to about it, contact me and I’ll give you some referrals. The man I met I with was so affected by his dad’s current situation, that he went out and got long-term care insurance for him and his wife. He didn’t want his wife or kids to have to go through what he’s going through with his dad.

Like I always say to my clients, you’re not planning for yourself. You’ll be incapacitated or dead. You do it for your family and friends who will have to take care of you. Make the decision today to get your estate planning affairs in order. Contact me today for your free consultation.

Can you put a price on peace of mind?

I recently finished helping two separate clients with their estate planning. After we signed all of their documents, they both expressed the same sentiment—”We feel so much peace knowing that when something happens, we have everything in place.”

Providing my clients with that peace of mind is my primary goal when creating estate plans. If you’ve been putting your planning off and it keeps nagging at you, call me to set up a free estate planning consultation.

5 Things Your High School Graduate Should Have Before Leaving Home For School

May is graduation month. This is a time when many of you may be celebrating your children’s academic achievements, and even getting ready to send them off to college. During this hectic and emotionally tumultuous time, you may be all-consumed with helping prepare your soon-to-be college student for the next phase, causing you to overlook important estate planning matters. There are a few important things you should add to your to-do list as you get ready to send your kids off to college. 

1. Durable Power of Attorney for Health Care
Every year, roughly a quarter of a million young adults between the ages of 18-25 wind up in the hospital. From alcohol poisoning and nonlethal accidents to unexpected illnesses, it’s important to hope for the best but prepare for the worst. Once a child reaches the age of 18, a parent’s decision making role is significantly diminished, especially in regards to making healthcare decisions. 

Should your child get in a car accident, or fall ill and not be capable of making their own medical decisions, then without a durable power of attorney naming you as health care agent for the child, you cannot make medical decisions on your child’s behalf. If you want to ensure that you can continue to make healthcare decisions for your child, creating a health care power of attorney should be at the top of your to-do list. 

2. HIPPA Authorization
In order to make informed medical decisions, it’s important to include a HIPPA authorization form along with a health care power of attorney. Without it, you would be unable to communicate with healthcare professionals and insurance companies, as well as access your child’s health records and previous treatment information.

3. Durable Power of Attorney (Finances and Property)
Similar to a health care power of attorney, a financial power of attorney gives you the ability to make financial decisions on your child’s behalf, should they be unable to do so themselves. Should your child become disabled for any reason, then you would still be able to pay their  rent, credit card bills, utilities, access bank accounts and financial records, as well as manage any loans they may have.

4. FERPA Release
The Family Educational Rights and Privacy Act is designed to protect a college student’s privacy, but it can also leave parents locked out in an emergency. A properly worded release can allow you to talk to school officials and release pertinent educational records and information should you need it.

5. Last Will and Testament
While many parents don’t want to think about this topic, especially as their child leaves home, it’s an important one to add to the list. A will allows parents to honor their child’s wishes on what should be done with their social media accounts, bank accounts, and personal assets. It also allows the child to specify any funeral arrangements they would like to have.

They have a law degree and passed the Bar. They must be good, right?

Several years ago, my son had some reconstructive surgery.  My wife spent hours researching doctors before choosing a doctor in Denver. This doctor had an impressive resume-- she had attended great schools, had lots experience and we liked her. The first surgery was an absolute failure. The doctor was surprised at the result and assured us that if she did it again, we'd get the result we expected.  The second surgery wasn't much better, and our frustration increased. We decided to give her one last shot, thinking the third time's a charm.  Same surgery with the same result. We were furious and confused. How could someone who seemed so qualified, do such an awful job? Not just once, but three times. 

My wife and I were talking about this experience the other day, which led to a discussion about the wide range of abilities among professionals. There are lots of estate planning attorneys in Colorado Springs. Some are really good and some are really bad. So, how does someone know which one to choose? Here are my tips for choosing your estate planning attorney:

  • Ask for referrals from friends or family or coworkers. Do you have a CPA or financial adviser? These professionals regularly work with estate planning attorneys and should have some good insight.
  • Google their name and see what you find. Do they have a website? Do they have any reviews on Google? Go to the website Avvo and see what it says about them. 
  • Go meet them in person. Most attorneys offer a free 30-minute consultation. Ask lots of questions. After 30 minutes you should have a pretty good sense of whether you like the attorney or not, how experienced they are in estate planning and whether they're competent.
  • Don't confuse price with value and remember that you usually get what you pay for. I'd be nervous about an attorney who says they'll prepare your trust-based plan for $1,000. I'd run from an attorney who says it will cost $10,000 to do the same thing.

If you're looking for an estate planning attorney, try this out on me. Look me up on the web. Schedule a free consultation and come meet with me. I'm confident you'll be happy with what you find out. 

"I thought a Will avoided probate"

I was asked to look over a Last Will and Testament that was recently drafted by an attorney in town. I asked her what she wanted her estate plan to accomplish.  Among other things, she wanted to avoid probate when she died. She was shocked when I explained that probate would be necessary with a Will.

I don't know the cause of her misunderstanding--maybe from her prior attorney or from bad information on the web. Whatever the source, she thought she had a good plan in place. 

If you have a plan that you're uncertain about, or questions about how it should work, I'm happy to look it over. Better to fix it now, than to leave your family with a mess. 

Call Justin Fish Legal today for a free consultation. 

"We Just Want Something Simple"

I recently met with a couple who wanted to update their estate plan. Early in the meeting, the wife said matter-of-factly, "We have a simple estate. We want a simple estate plan." When people tell me that they have a "simple estate" what they're usually saying is that they don't think the value of their assets warrants anything more than a "simple" plan.

As I talked to this couple I learned a lot about their "simple estate."

  • This was a second marriage for both of them.
  • The husband has a child with severe mental disabilities. 
  • The wife has a son who's an alcoholic and a daughter whose marriage is shaky.
  • The husband owns a rental property in California.
  • The wife is expecting a fairly large inheritance in the next few years.

Sounds simple, right?

The truth about estate planning is that the overall value of one's assets is a just a fraction of determining what type of plan a person needs. For this couple, there were so many issues to address that had nothing to do with the current value of their estate. The non-money related issues actually made their estate somewhat complex. 

There's a common saying among estate planning attorneys: "You don't know what you don't know." This is why a great estate planning attorney is so important. Looking at more than just the overall value of the estate reveals that something "simple" normally won't cut it. 

Call or e-mail Justin Fish Legal today to schedule your free estate planning consultation.

Lessons Learned

I recently worked with a man whose situation illustrates how important it is to have an estate plan in place. "Bill" passed away in October and had an estate worth over 4 million dollars. He was single with no kids and had one one brother with whom he had little contact. 

The first time I met Bill was in the hospital, a day after he left the ICU.  His assistant contacted me because Bill didn't have an estate plan in place.  Luckily,  I was able to finish Bill's plan weeks before he passed away.  If he hadn't created a plan a few things would have happened:

  1. If Bill had died without a Will or a Trust, his entire estate would have gone to his brother. That was exactly the outcome Bill didn't want. He ended up distributing his estate to 40 different friends and charities. When someone dies without a Will or a Trust, state law determines where one's estate goes. A Will or a Trust allows a person to decide exactly how they want their assets distributed
  2. I always prepare a Living Will when I create an estate plan. A Living Will contains a person's instructions in the event they're in a vegetative state or have a terminal condition. Before Bill died, he fell into a vegetative state.  His healthcare agent relied on Bill's Living Will to make end-of-life decisions. I later spoke with Bill's healthcare agent and he expressed how grateful he was that Bill had a Living Will. He simply followed Bill's wishes and wasn't left with the difficulty of deciding when to end another person's life.

I've learned that estate planning is really meant to benefit the people we love. When we plan, we provide set of instructions wherein we describe what we want to happen during our incapacity and at our death. These instructions are invaluable when it comes time to make decisions. Taking care of our estate planning is a great gift to give our loved ones this holiday season.

Tax Reform Framework

Today, the Trump Administration, the House Committee on Ways and Means, and the Senate Committee on Finance released a long-awaited tax proposal, titled the Unified Framework for Fixing Our Broken Tax Code. The United Framework proposes to:

• Reduce the number of tax brackets from seven to three, with rates of 12%, 25%, and 35%, without specifying where the brackets start and end;

• Almost doubling the standard deduction from its current amount to $24,000 for married taxpayers filing jointly and $12,000 for single filers;

• Repeal personal exemptions for dependents and, to offset the repeal, increase the child tax credit to an unspecified amount and increase the income levels at which the child tax credit begins to phase out;

• Expand the child tax credit concept to give a $500 credit to anyone caring for a family member who isn’t a child, regardless of age;

• Repeal the individual alternative minimum tax; • Eliminate most itemized deductions (including deductions for state and local income taxes), but retain tax incentives for home mortgage interest and charitable contributions;

• Repeal the estate and generation-skipping transfer taxes (without mention of the gift tax); 

• Eliminate the deduction for state and local taxes. 

What's The Value of an Estate Plan?

Most people agree that some type of life insurance is very important. I certainly believe it is, which is why I make monthly payments on my term-life policy . If something where to happen to me, life insurance will ensure that my wife and kids are financially taken care of.

Consider this: Depending on which study you read or expert you ask, less than 1-2% of term-life policies will actually pay out. Why? Because 98-99% of people will outlive their term policy.

Now think about estate planning. Do we consider an estate plan as important as life insurance? We should, because 100% of people will actually use their will or trust.

Long-Term Care Medicaid Myths

Ask ten different people about the rules for long-term care Medicaid and you'll likely get ten different responses. Even Medicaid workers in the same office have different understandings of the rules. For that reason it's essential to meet with someone who understands what it takes to qualify for long-term care Medicaid. Below, are three myths that I often encounter:

Myth #1: I'll lose my home and my spouse will be forced to move out. Medicaid is a needs-based program. This means that if a person has too many assets, they won't qualify for Medicaid benefits. The applicant's personal residence is exempt from that determination. Additionally, Medicaid will not take someone's home when there is a surviving spouse living in it.

Myth#2: I'll just gift all of my assets to my children to get below the allowable amount of assets. When determining eligibility, Medicaid has what it calls a "look-back" period. They look at all gifts that the applicant made five years prior to the application being submitted. For every $7,000 gifted in the past five years, a one-month penalty is incurred. For example, if the applicant gave away $70,000 during the past five years, that person will not be eligible for Medicaid benefits for 10 months. Giving assets away in order to reach the asset limit is one of the worst things an applicant can do.

Myth #3: I can't qualify for Medicaid benefits until all of my assets are spent down. While it is true that only a certain amount of assets are allowed in order to qualify, there are strategies to speed up the spend down process and preserve a percentage of the assets for the applicants children or other loved ones.

Medicaid rules are complicated. Undertaking the effort to qualify for long-term care benefits without the assistance of someone versed in the rules and knowledgeable of the process will likely lead to mistakes and frustration.

Call me today to discuss how I can help your loved one qualify for long-term care benefits.

Why Putting Off Your Estate Planning Is A Bad Idea

A friend of mine is a pilot. He was recently flying with his wife when he experienced problems with his plane. His plane lost power at 12,000 feet and he was forced to make an emergency landing in a snowy field. His plane came to a stop less than 100 yards from a 700 foot cliff. Fortunately, he and his wife were unharmed. They also have their estate planning in order. 

This experience reminded me that we never know when tragedy might strike. And it's not just limited to what we might consider a high risk activity like flying a plan. A car accident or a botched surgery could be life-changing. There's really no reason to put off your estate planning. In fact, getting it done will create a sense of peace.

Call me today for your free estate planning consultation. 

What To Do With An Inherited IRA


IRAs are unique creatures. There are very specific rules that apply when these are inherited. There are several distribution options that apply to both spouses and non-spouses. Each option has its own tax implications. Regardless of your relationship, you can:

  • Inherit the IRA. You can transfer the proceeds into an inherited IRA for your benefit so that the assets can grow tax-deferred. You can then take distributions over your lifetime and enjoy the benefit of tax-deferred growth on the assets remaining in the inherited IRA.
  • Take a lump-sum distribution of the assets. Once you've inherited the IRA, you can take a lump-sum cash distribution. However, you'll lose the benefit of tax-deferred investing and, because the money counts as ordinary income for the year in which you receive it, you may end up with a sizable tax bill.
  • Refuse to take ownership of the assets. You have the right not to take the inheritance. This refusal is called "disclaiming" the inheritance. If you do, the surviving primary beneficiaries, or secondary beneficiaries if there are no other primaries, are entitled to the undistributed amounts. 

If you inherit an IRA, whether it's a traditional or Roth, the IRS requires you to take at least some of the account balance out each year. It's called a required minimum distribution (RMD). (Depending on your situation, you may be able to wait until you reach age 70½ to take your first RMD.)

The amount of your first RMD and when you need to take it to avoid tax penalties are based on a few factors:

  • Your status as a surviving spouse, a spouse who's also one of several beneficiaries, or a nonspouse beneficiary.
  • The date of the original owner's passing and whether the owner was older or younger than age 70½ at the time of death. In most cases, you'll need to take your RMD by December 31 of the following year. However, if the owner passed after reaching age 70½, you may also be responsible for taking the owner's remaining final RMD by December 31 of the year of death.
  • If other beneficiaries were named. The life expectancy used in the RMD calculation depends on whether each beneficiary has established his or her own inherited IRA by December 31 of the year following the original owner's death. If so, you can use your own life expectancy. However, if the account isn't split into separate IRAs by the deadline, the oldest beneficiary's age is the one used to determine the RMD amounts for all the beneficiaries.

Before you decide on a distribution option, you should talk to an attorney who has experience with these decisions. The potential tax implications and loss of tax-deferred growth are serious issues with substantial financial consequences.

Will Your Estate Plan Work?

My wife and I recently purchased a mattress and are in the process of replacing our car that was stolen/wrecked ( a story for another time). With most of these products, you can try them out for a few days or a few months. If it doesn't work right or you don't like it, you return it with no further obligation. This ability to try things out provides a sense of comfort and confidence in your purchase.

How do you get the same effect with your estate plan? You really won't know whether your estate plan works like it should until your incapacitated or you've died. Those aren't the ideal times to validate your estate plan. There are ways to ensure your plan will work. 1) Don't do it yourself. Let a professional handle it. 2) Work with an attorney who is experienced and has created plans that have proven effective. 3) If you have an existing plan, have it reviewed. 

Urgent vs. Important

I was reminded last week of a concept from Steven Covey's book "Seven Habits of Highly Effective People." It's the idea of categorizing tasks as urgent/not urgent and important/not important. I'm usually pretty good about taking care of things that are urgent and important. It's the not urgent/important tasks that I put off. I've found that estate planning falls into the not urgent/important category for many people. It's something they know they need to get done, but there's no sense of urgency.

 There was a client at my old firm who loved to purchase properties at tax lien auctions, and had over 100 properties. The story goes that he told his family that all of the information about the properties was in his head and he'd eventually get around to taking care of his estate planning. He didn't get around to planning before he died.  The family was left with a huge mess as they tried to discover all of the information that their father had kept to himself. 

Because life is so unpredictable, estate planning should not just be important. It should also be urgent. 

Summer Plans Without Kids?

A friend of mine with young children was lucky enough to get away with just his wife for a few days. He was concerned about what would happen if their was an accident while he was gone. How would his mother-in-law be able to make medical decisions for his children if he and his wife couldn't be reached? 

I was able to help him with a document that appointed his mother-in-law as a temporary guardian. For the duration of my friend's trip, his mother-in-law had the authority to make medical decisions for his children. 

If your summer plans involve leaving the kids at home, consider preparing a power of attorney that specifically covers your time away.

Prince: An Estate Planning Example of What Not To Do

Estate planning recently took center stage with news that singer, Prince died without a will or trust. Prince joins a long list of celebrities who died without an estate plan in place. This failure to plan is certainly not unique to celebrities. It’s estimated that close to 65% of Americans die without a will or trust.

So why is Prince’s failure to plan such a big deal?

·        His entire estate, valued at around $300 million, will be distributed outright to each of his siblings. This means no provisions on how the money should be spent. No asset protection that a trust could have provided. Who knows what kinds of problems await Prince’s siblings with this new-found wealth. 

·        Prince was a philanthropist and supported numerous causes. He was also a devout Jehovah’s Witness. He could have established foundations to continue his legacy of giving. Think about all of the good that could have been accomplished with gifts to the charities and causes he supported. Instead, they will get nothing.

·        For someone who went to great lengths to protect his privacy while living, he did nothing to keep the administration of his estate private. Since probate proceedings are public records, this entire process will be broadcast to the world.  A trust could have kept this out of the courts and kept the estate administration private.

·        Prince’s estate will likely end up paying estate taxes in excess of $100 million. A good estate planning team could have significantly lowered this amount.

While none of us will have this type of fortune to plan for, there are still important lessons to learn.

1.      Now is the time to get it done. Estate planning is one of those things that people know that they need to do, but it always gets shoved to the bottom of the to-do list. Stop making excuses and make it a priority to get it done this month or this year.

2.      It’s more than just planning for when you die. Most people overlook what happens when they become incapacitated and are unable to manage their financial affairs or make their own medical decisions. Through powers of attorney, you appoint someone to make decisions when you can’t.

3.      Are you comfortable leaving an outright lump sum of assets to your kids? If you have children who have problems with addiction, who are in a profession that’s prone to lawsuits, are in a less than ideal marriage or have problems managing money, you should consider leaving their inheritance in a trust.

4.      You’re not just doing this for yourself. I assure you that you will feel a sense of peace and relief knowing that you’re not leaving your loved ones a huge mess when you die.