Intrafamily Loans and How They Work

An intrafamily loan is a financial arrangement between family members—one who is lending and another who is borrowing. An intrafamily loan may be used to help a family member who needs money for a number of reasons:

  • buying a home
  • funding or purchasing shares in a business
  • adding accounts or property to investment portfolios
  • paying down high-interest debt
  • covering education expenses

Lending to a child or grandchild can be satisfying. Your loved ones can benefit from flexible repayment terms and interest rates while learning financial responsibility. This can be beneficial if the child or grandchild would otherwise have difficulty obtaining a loan through more traditional methods. It also gives you an opportunity to add to your investment income.

When You Should Consider an Intrafamily Loan

How you give or loan money to family members has potential tax implications. The right method depends on your family circumstances.

An intrafamily loan might be beneficial in estate planning for wealth transfers between generations while minimizing estate tax implications. Further, by using an intrafamily loan to provide money to a family member rather than making a gift, you can maintain control over the principal amount and how it is used.

Intrafamily loans are valuable tools for preserving wealth and offer the following advantages:

Estate Tax Planning

Under current tax law, gift and estate taxes are not imposed on gifts up to $13.61 million for individuals and $27.22 million for married couples in 2024. While many people’s net worth is not that high, intrafamily loans may be a great option for high-net-worth families.[1]

If the family member receiving the loan invests the money and the investment returns on the borrowed funds exceed the interest rate charged, the excess growth is passed to your family member without being subject to gift or estate taxes. This strategy preserves your lifetime estate tax exemption amount as long as all of the formalities of issuing a loan are observed. However, the initial loan amount (the principal) and interest owed to you will still be included in your taxable estate because the principal and interest are legally required to be paid to you. However, as previously mentioned, the growth in the investment will not be included in your taxable estate.

You might also consider loaning the money to a trust for the benefit of your family member as part of your planning strategy. As opposed to the strategy of loaning funds directly to your family member, the loan would be made to the trust. If the rate of return from investing the loan proceeds exceeds the loan’s interest rate, the excess is considered a tax-free transfer to the trust.

Flexible Interest Rates

With intrafamily loans, you have the flexibility to set the interest rate at a level lower than commercial lenders, as long as the rate is not below the Applicable Federal Rate (AFR) (read below for further discussion on the AFR). The cost savings for the borrower can be significant. Further, if the AFR is high when you initially make the loan, it may be easier to reissue the note from you to take advantage of any future lower interest rates than it would be to refinance a note from a third-party lender.

Family Business Succession

Intrafamily loans can play a crucial role in transferring a family business from one generation to the next. By providing financing to family members who wish to take over the family business, for example, you can ensure a smoother transition and help sustain the family legacy.

Determining the US Interest Rate to Use with an Intrafamily Loan

Determining the interest rate for your intrafamily loan is crucial to avoid unnecessary tax consequences. The Internal Revenue Service (IRS) publishes AFRs[2] monthly, broken down into three tiers for short-term, mid-term, and long-term rates.[3] Rates can be fixed or variable and structured to the advantage of both parties. The minimum AFR rate must be charged for loans over $10,000 regardless of a loved one’s credit rating, and it is usually lower than most commercial lenders. If the interest rate for your intrafamily loan is below the AFR, the IRS may require you to pay income tax on the income you should have received under the applicable AFR even though the borrower did not pay you that amount (called imputed interest). Also, the amount of interest you did not collect but should have may also be considered a taxable gift to the borrower, potentially reducing the amount of gift and estate tax exemption available to you.

Documenting the Terms

Since the IRS generally assumes that wealth transfers between family members are gifts, it is essential to have the proper documents showing that the transfer is intended to be a loan. You and your family member must sign a promissory note that adheres to the state-specific rules to properly document the loan transaction.

Important Things to Remember When Using an Intrafamily Loan

A comprehensive written promissory note is crucial. It helps avoid unnecessary tax consequences and clearly communicates the terms of the loan between family members to avoid misunderstandings and conflicts.

Every financial decision has the power to strain family relationships. When trying to determine if an intrafamily loan is right for your situation, ask the following questions:

  • Will lending to one child appear unfair to others?
  • Should various loan types be considered for different children based on their personal situations?
  • If the child is unable to pay off the loan, will a loan default cause family friction?
  • Will the loan be forgiven at my death, or will it be considered a debt owed to my estate or trust? In either case, how would that affect the other children?

Gifts versus Loans

You must carefully consider the decision to gift versus use intrafamily loans, including the income, estate, and gift tax implications. The tax rules regarding intrafamily loans are complex and may result in unintended consequences if the loan is not done correctly. If you are interested in learning more about this tool, give us a call. Additionally, if you already have an intrafamily loan in place, it is important to properly document it in your estate plan to ensure that everything will proceed smoothly if you pass away before the loan has been paid back. We are happy to meet with you and your tax advisor to make sure that this strategy is right for you and your family.

  1. Kelley R. Taylor, What Is the Gift Tax Exclusion for 2024?, Kiplinger (Jan. 19, 2024),
  2. Applicable Federal Rates (AFRs) Rulings, (Aug. 8, 2023),
  3. Id. 

Passing the Torch: Smart Business Succession Strategies

For many business owners, their business is one of the most valuable and important things they own. When it is time to sit down and create an estate plan, it is critical that business owners plan for their business just as they would plan for their home or finances. Effective business succession planning ensures a seamless transition of ownership upon the potential occurrence of many different events, such as the business’s owner’s retirement, disability, or death. All businesses need a succession plan, but many business owners overlook it.

An important part of being a responsible business owner includes developing systems to help other people operate the company without you. A business succession plan clearly states who will take over specific roles, hopefully reducing any potential disputes between family members or key employees. If the business is sold after a transition event occurs, a comprehensive business succession plan will also clearly outline the sale price and purchase terms.

Here are four common business succession or exit strategies to consider:

  • Leaving the business to a co-owner
  • Passing it to a family member
  • Transferring ownership to a key employee
  • Selling to a competitor

Whether you are a sole proprietor or a business with multiple employees, understanding your options is crucial for making informed decisions that align with your business goals and desired family legacy.

Leaving Your Business to a Co-owner

Co-owners or partners can play an important role when you plan for anticipated or unexpected changes in the future. Selling to a person who is already involved in daily operations and committed to your company may be an easy way to ensure ongoing success. You can draft a buy-sell agreement for the co-owner that addresses different scenarios, such as a gradual sale for retirement or a quick transfer in a medical emergency or upon death.

It is important to ensure that your partner has enough funds to make the purchase. This can be done in a few different ways: One popular way is by securing term life insurance that can pay out at death or permanent life insurance that pays out at retirement or disability.[1] Another way is to include terms in your buy-sell agreement for the partner to pay over time.

Passing Your Business to a Family Member

Selling or transferring your business ownership to a child, grandchild, sibling, or other family member allows you to keep your business in your family. This is a great option if your children or other family members are already working for you. There are estate planning strategies available that may help lower your tax liability by transferring some of your business as a gift using your lifetime federal gift tax exemption. Federal gift taxes on amounts exceeding the exemption will apply, but once you transfer ownership, the ownership interest is no longer part of your estate.

If you have multiple relatives that you would like to take over the business, you need to provide clear instructions as to specific roles and responsibilities in your buy-sell agreement. You may also want to address in your estate plan how to equalize the inheritance of other family members who are not going to receive ownership in the business so that these family members do not think they are being disinherited or slighted just because they have not been involved in the business.

Transferring Ownership to a Key Employee

Selling an ownership interest to a trusted employee ensures that the business is run by someone who appreciates it and is familiar with the daily operations. Selling to a key employee also requires a buy-sell agreement to purchase your business at a predetermined retirement date or in the event of death or disability.

But similar to the discussion above about selling to a co-owner, employees do not always have cash on hand. You may consider seller financing, that is, lending money for the sale with a promissory note and allowing them to pay you back directly. Not only does the purchaser benefit from the opportunity to own your business, but you (or your family in the event of your death) also receive a steady stream of income from the principal and interest for the agreed-upon period. In the buy-sell agreement, you would establish a down payment amount and monthly payments with interest until the purchase is paid in full. Negotiate the terms and clearly document them in your succession plan.

This strategy can actually work with any buyer, including family members and competitors.

Selling to a Competitor

Depending on the type of business and ownership structure, another option is to sell your business to an outside individual or competitor in the same industry. Again, you will need to draft a buy-sell agreement. To prepare for a successful sale, you may want to have an experienced manager in place, document your operating procedures, and organize your financial reports. A buyer can more easily decide whether it makes sense to purchase the business and how to step in and take over when you have taken these steps.

Additional Considerations

Estate planning is about planning for what will happen while you are alive but unable to make your own decisions as well as planning for when you have passed away. Be prepared for the unexpected by starting your business succession planning as early as possible. The decisions you make today while building and operating your business can affect your options to sell it later.

We are here to help you develop the best estate plan that properly addresses the valuable things you own, including your business. If you already have an estate plan, it is important to review it periodically to make sure that it is up to date. Give us a call to schedule your appointment today.

  1. Will Kenton, Succession Planning Basics: How it Works, Why It’s Important, Investopedia (Nov. 28, 2022),

If My Will Is Filed with the Court, Will It Go through Probate?

Death is a personal and private affair that affects the deceased’s close family and friends. However, there is at least one aspect of death that may require state oversight: probate.

Probate is the court-supervised process of either (a) carrying out the instructions laid out in the deceased’s will or (b) applying state law to distribute a deceased’s accounts and property to their family members if the deceased did not have a will. The main purpose of the probate process is to distribute the deceased’s money and property in accordance with the will or state law. Not all wills, and not all accounts and property, need to go through probate court. And just because a will is filed with the probate court does not mean a probate needs to be opened. But whether or not probate is necessary, most state laws require that a will be filed when the creator of the will (testator) passes away.

Understanding Probate, Wills, and Estates

Estates, wills, and probate are distinct, yet interrelated, estate planning concepts.

  • An estate consists of everything that a person owns—including their personal possessions, real estate, financial accounts, and insurance policies. Virtually everyone leaves an estate when they die.
  • A will is the legally valid written instructions that a person creates describing how they want their money and property distributed upon their death. Wills are highly recommended, but there is no legal requirement to have one. To make a will legally valid, it must be properly executed in accordance with state law. Executing a will involves signing the document in front of witnesses. Additionally, at the time of signing, the creator must have capacity (i.e., be of sound mind).
  • Probate is the legal process that formally distributes the accounts and property that are in the decedent’s sole name, do not have a beneficiary designated, and have not been placed into a living trust prior to the decedent’s death (sometimes referred to as probate assets). During probate, a decedent’s probate assets are identified and gathered, their debts are paid, and the probate assets are distributed to beneficiaries named in the will or their heirs as determined by state statute if there was no will.

Probate with a Will

Assuming that a decedent does have a will, here is how probate typically proceeds:

  • The person nominated in the will to act as executor (sometimes called the personal representative) files a copy of the death certificate, the original will, and any required documents or pleadings with the probate court. If the person nominated in the will does not file these documents with the court, state statute will determine who else has priority to make such filings (possibly another family member, an attorney, or even a creditor of the decedent).
  • The court examines the will and other documents filed to confirm their validity and gives the named executor the legal authority to carry out the decedent’s wishes, as specified in their will. This legal authority is conferred in a court-issued document called letters of authority, letters testamentary, letters of administration, or another similar name.
  • The individual appointed as executor inventories and values the decedent’s estate assets and identifies any outstanding debts of the estate, such as loans and credit card debt.
  • Once estate debts are paid, the remaining accounts and property are distributed to named beneficiaries and the estate is closed, ending the probate process.

The length of a probate can vary depending on many factors, including the size of the estate, state laws, and whether the will is deemed invalid or contested.

Avoiding Probate

In some cases, avoiding probate altogether can cut down on the amount of time it takes to wind up a deceased person’s affairs. There are also other reasons to avoid probate, such as keeping probate filings out of the public record and saving money on court costs and filing fees.

Beneficiary designations, joint ownership, trusts, and affidavits are common ways to avoid probate. Here are some examples of these probate-avoidance tools in action:

  • Pensions, retirement accounts like 401(k)s, and other accounts that allow for designated beneficiaries may not need to be probated. Transfer-on-death (TOD) and payable-on-death (POD) accounts are generally treated the same as accounts that have a beneficiary designation.
  • Accounts and property that are jointly owned and have a right of survivorship can bypass probate.
  • Accounts or property held in a trust may also bypass probate. But trusts are not without administrative and cost burdens. Also, if the deceased forgot to transfer ownership of an account or piece of property to the trust, a pour-over will may be needed to transfer those accounts and property to the trust through the probate process upon the trustmaker’s death.
  • Some states have laws that allow probate to be skipped if the value of an estate is below a specified value and does not contain any real estate (often referred to as a small-estate exception). The threshold value for qualifying for this exception varies by state. For example, probate can be skipped in Arizona, Texas, and Florida for estates worth less than $75,000. In California, the threshold is $184,500; in New York, it is $30,000.

Filing a Will versus Opening Probate

Filing a will with the probate court and opening probate are separate actions. A will can be filed whether or not probate is needed. Remember that probate is needed only under certain circumstances, such as when the decedent passed away while owning probate assets. Further, not only cana will be filed with the court when a probate is not needed, some state laws actually requireit. Some state laws require the person who has possession of a decedent’s will to file it with the court within a reasonable time or a specified time after the date of the decedent’s death. The consequences for failing to file a will vary by state but may include being held in contempt of court or payment of fines. Additionally, the person in possession of a will might also be subject to litigation by heirs who stand to benefit from the estate under the terms of the will. The latter also applies if the will-holder files a will but does not file for probate. Failing to file for probate (when probate is necessary) prevents inheritances from being properly distributed.

These legal consequences are usually imposed only on a will-holder who willfully refuses to file a will. If someone you love has passed away and you have their will in your possession, we recommend that you work with an experienced probate attorney who can assist you in determining whether a probate must be opened and whether the will needs to be filed.

Avoid Probate Issues When Drafting a Will

Probate avoidance may be one of your goals when creating an estate plan. You should also consider implementing tools in your estate plan to minimize issues that may arise if your estate does require probate. 

Your will may have been written years ago and might not reflect current circumstances. You could have acquired significant new accounts or property, experienced a birth or death in the family, left instructions that are vague or generic, or chosen an executor who is no longer fit to serve. An outdated or unclear will can spell trouble when it is time to probate your estate, making it important to identify—and address—issues that could lead to problems, including will contests and disputes.

It is recommended that you update and review your estate plan every three to five years or whenever there is a significant life change or a change in federal or state law. You cannot be too careful when stating your final wishes. For help drafting an airtight will that avoids possible complications, please contact us.

The Power of Purpose: Unveiling the Impact of Charitable Giving

Compared to residents of other wealthy nations, Americans are more likely to give their time and money to help others. In 2023, the United States ranked ninth in per capita gross domestic product (GDP) but fifth on the World Giving Index rankings.1

Polling shows that Americans trust nonprofits more than government or business, but they generally know little about charitable giving and philanthropy, such as how these organizations distribute their funds and the rules that govern their activities.

Giving money to charity can provide personal and financial benefits to donors and be a part of the legacy they leave behind. If you are thinking about making a charitable gift—either now or when you pass away—there are some things to be aware of so you can make the most of your donation.

Fewer Americans Donating to Charity

Total charitable giving in the United States dropped 10.5 percent from 2021 to 2022, according to the report conducted by Giving USA 2023. As a percentage of disposable personal income, giving declined to a 40-year low of 1.7 percent.2 Overall, the number of US households that annually give to charity declined from 66 percent in 2000 to less than 50 percent in 2018.

Nearly half of Americans who stopped giving to charity in the last five years told the Better Business Bureau they did so because they believe the wealthy are not paying their fair share. Others said they just could not afford to contribute to charity.3

Some statistics paint a rosier picture of American generosity. Adjusting for inflation, charitable giving by Americans was seven times greater in 2016 than it was in 1954. US charitable giving as a proportion of GDP has also increased slightly over this period but has remained at around 2 percent for decades.4

Americans grew more generous during the pandemic, with 2020 and 2021 donations both topping 2019 giving levels.5 A recent Gallup poll reveals that 81 percent of Americans donated money to charity over the past year, with the percentage of those giving rising in proportion to household income.6 Around 90 percent of households making $100,000 or more give money to charity each year.

Where Americans are Donating

There are approximately 1.5 million charitable organizations in the United States. Generally, the Internal Revenue Service (IRS) defines public charity as any organization that receives a substantial portion of its income from public donations.

Many—but not all—charities qualify as tax-exempt under IRS rules. The 501(c)(3) tax exemption, known as the charitable tax exemption, allows qualified organizations to avoid paying federal corporate and income taxes for most revenue sources.7

Designated 501(c)(3) charities are also able to solicit tax-deductible contributions that allow donors to deduct money given to these organizations on their tax returns. A gift made to a qualified tax-exempt organization as part of an estate plan can help to reduce estate taxes as well.

To meet tax-exempt IRS requirements, an organization must exclusively exist for one of these purposes:

  • Charitable
  • Educational
  • Fostering of national or international amateur sports
  • Literary
  • Prevention of cruelty to animals and children
  • Religious
  • Scientific
  • Testing for public safety

Charities, foundations, and nonprofits can gain 501(c)(3) status if they satisfy IRS tax rules.8 These philanthropic entities can include private foundations, community foundations, corporate foundations, limited liability companies, donor-advised funds, and even crowdfunding campaigns.

The nation’s top 100 charities received more than $61 billion in private donations in 2023. They include Feeding America, United Way, St. Jude Children’s Hospital, Salvation Army, Habitat for Humanity, Goodwill, YMCA, and the Boys & Girls Clubs of America.9

Charities and Taxes

The decision to make a charitable donation can be motivated by altruism, financial considerations, or a little bit of both. These donations can take the form of accounts, tangible personal property, and real estate. A donor can even choose to leave all of their money and property to charity at their death.

A gift made during a donor’s lifetime can result in an income tax deduction, provided that the charity is an IRS tax-exempt organization. For cash contributions, eligible itemized deductions for charitable contributions can be made up to a certain percentage of the donor’s gross income. Limits also apply to gifts of appreciated securities or property in a single year.

There may be further limits on charitable gifts depending on how they are given (i.e., directly to a charity or a private foundation, or using other strategies, such as a donor-advised fund). Appreciated securities may additionally bypass the capital gains tax if they are given to a charity during a donor’s lifetime.

When charitable gifts are part of an estate plan and transferred to the charity upon the donor’s death, they can remove money and property from the donor’s taxable estate, thereby lowering the donor’s estate tax liability, if one exists. There is an unlimited charitable deduction for estate plan gifts to charities. Gifts of this type can take several forms, including charitable trusts, retirement accounts such as individual retirement accounts and 401(k)s, and gifts made via charitable foundations and donor-advised funds.10

What to Know Before You Give

While it may be better to give than to receive, donors who plan to make a large charitable gift during their lifetime or at their death should temper their generosity with caution. Here are some things to look out for:

  • Make sure the organization you donate to is a reputable charity and not a scam. Charity fraud—schemes that seek donations for fake charities—can take many forms. Charity scams proliferate on the internet, particularly on social media. They can also involve emails, text messages, crowdfunding platforms, and phone calls. Be sure to thoroughly vet an organization before donating. Look for red flags such as time-urgent pitches and names and website addresses that closely mimic real charities.11
  • Check that the charity qualifies for a tax deduction. Charitable donation tax breaks provide an extra incentive to support a good cause. The IRS provides a search tool for groups that are eligible to receive tax-deductible charitable contributions.
  • Can you afford it? Charitable giving is not solely an activity of the rich. Households earning $40,000 or less give money with lower frequency than those households with higher incomes, but only by about 20 percentage points. Tax breaks are just one consideration for charitable giving; many people donate to charity for primarily altruistic reasons. However, the gifts should not come at the expense of your financial security. Experts recommend starting with 1 percent of your income and, if you can afford more, working your way up from there.

Get Estate Planning and Tax Advice Before Giving

It is not too late to make philanthropy a part of your legacy, but whether you are new to charitable giving or want to step up your gifts, there are strategies to follow that can increase the value of your charitable efforts.

However you plan to give and whoever you plan to give to, the rules around charities can be complicated and options abound. For professional advice about giving to charities, choosing what and where to donate, and the different gifting strategies that are available, schedule a consultation with our estate planning attorneys.

  1. Charities Aid Foundation, World Giving Index 2023, Int’l Charity Law Network, Univ. of Notre Dame (2023),
  2. Amy Silver O’Leary & Tim Delaney, It’s Real: Charitable Giving Plummeted Last Year, Nat’l Council of Nonprofits (June 21, 2023),
  3. Sara Herschander & the Associated Press, Overwhelming feeling that the wealthy aren’t paying their fair share behind massive pullback from charity, survey shows, Fortune (July 6, 2023),
  4. Statistics on U.S. Generosity, Philanthropy Roundtable, (last visited Mar. 27, 2024).
  5. Erica Pandey, The giving boom, Axios (Dec. 22, 2021),
  6. Jeffrey M. Jones, U.S. Charitable Donations Rebound; Volunteering Still Down, Gallup (Jan. 11, 2022),
  7. Community Toolbox, Ch. 43, Managing Finances, Sec. 4. Understanding Nonprofit Status and Tax Exemption, (last visited Mar. 27, 2024).
  8. Univ. of San Diego Professional and Continuing Education, Foundation vs. Charity vs. Nonprofit, (last visited Mar. 27, 2023).
  9. William P. Barrett, America’s Top 100 Charities, Forbes (Dec. 12, 2023),
  10. Charitable Contributions, Fidelity Charitable, (last visited Mar. 27, 2024).
  11. Fed. Trade Comm’n, Consumer Advice, Donating Safely and Avoiding Scams, (last visited Mar. 27, 2024).

What to Do When a Disability Throws Your Estate Plan into Chaos

As poet Robert Burns mused centuries ago, the best-laid plans of mice and men often go awry. Despite thoughtful effort and a concerted strategy, you cannot prepare for every emergency in life. A car accident, sudden illness, workplace injury, or chronic medical condition can force you to reevaluate the core assumptions you used to plan your future and set up your legacy.

According to the Centers for Disease Control and Prevention (CDC), approximately one in four US adults have some type of disability.[1] Frustratingly, once you are no longer able to manage your own affairs (also known as being incapacitated), you will not be able to turn back the clock and make plans that will make your transition into a possible incapacity as smooth as possible for you and your loved ones. However, you can take meaningful actions prior to an incapacity to protect your money, property, and legacy in the wake of any newfound limitations. Here are some insights to that end:

Work with a qualified estate planning attorney to ensure that you have taken the following actions:

  • Legally appointed a trusted person to manage your property, pay your bills, file your taxes, and handle similar financial and legal matters if you are unable to do these tasks
  • Legally appointed a trusted person to make healthcare decisions for you if you become mentally or physically unable to make them yourself
  • Communicated your wishes about healthcare decisions such as end-of-life care and do-not-resuscitate instructions in a clear and legally valid manner (if your state allows for this)

Work with a knowledgeable financial advisor to take the following additional actions:

  • Ensure that you have appropriate life or disability insurance coverage
  • Reassess your investment options and portfolio in light of the possibility of new limitations and constraints on your ability to generate income
  • Ensure that you have a budget that would work if you become incapacitated so that all of your bills will get paid on time

Mind this important distinction:

Incapacity for legal or estate planning purposes is different from disability for other purposes, such as the determination of government benefits.

For example, disability for purposes of determining government benefits might mean that a person cannot work gainfully anymore because of cancer or a workplace injury. On the other hand, incapacity in an estate planning context typically means that a person is no longer capable of making sound decisions, often due to systemic illness or injury. In other words, you can be considered disabled without being considered incapacitated. 

Either way, it is important for us to work together with your financial advisor to ensure that you and your family are fully protected if you become incapacitated.

Here are some specific actions you can take now:

  • Pay attention to where you want your money to go as well as to your long-term planning strategy. Your estate planning attorney can help you assess whether your current plans are still realistic and, if not, what alternative options you have.
  • Maintain a healthy lifestyle. Visit your medical professionals on a regular basis and follow their instructions.
  • Get the help you need from trusted professionals. Now is the time to tap your network of friends and family for assistance with the heavy lifting. No single advisor will have all of the answers. But your team can work in concert to reduce the anxiety and uncertainty that come with a potential incapacity and keep you focused on what really matters.

Please reach out to us to assess your long-term plans and documents so we can ensure that you are as secure as possible in the event of any new challenges.

  1. Disability Impacts All of Us, Ctrs. for Disease Control & Prevention: Disability and Health Promotion (May 15, 2023),

How to Choose the Right Agents for Your Incapacity Plan

Many people believe that estate planning is only about planning for their death. But planning for what happens after you die is only one piece of the estate-planning puzzle. It is just as important to plan for what happens if you become unable to manage your own financial or medical affairs while you are alive (in other words, if you become incapacitated).

What happens without an incapacity plan?      

Without a comprehensive incapacity plan, if you become incapacitated and unable to manage your own affairs, a judge will need to appoint someone to take control of your money and property (known as a conservator or guardian of the estate) and to make all personal and medical decisions for you (known as a guardian or guardian of the person) under court-supervised guardianship and conservatorship proceedings. The guardian and conservator may be the same person, or there may be two different people appointed to these roles. Depending on state requirements, the conservator may have to report all financial transactions to the court annually, or at least every few years. The conservator is also typically required to obtain court permission before entering into certain financial transactions (such as mortgaging or selling real estate). Similarly, the guardian may be required to obtain court permission before making life-sustaining or life-ending medical decisions. The court-supervised guardianship and conservatorship are effective until you either regain the ability to make your own decisions or you pass away. 

Who should you choose as your financial agent and healthcare agent?

Guardianship and conservatorship statutes are the state’s default plan for appointing the person or people who will make decisions for you if you cannot make them for yourself. This default plan, however, may not align with the plan you would have put into place on your own. Most importantly, state statutes may give priority to someone to act as your guardian or conservator who is not the person you would have selected had you engaged in proactive planning.

Rather than having a judge appoint these important decision-makers for you, your incapacity plan allows you to appoint the trusted individuals you want to carry out your wishes. There are two very important decisions you must make when putting together your incapacity plan:

  1. Who will be in charge of managing your finances if you become incapacitated (your financial agent)?
  2. Who will be in charge of making medical decisions on your behalf if you become incapacitated (your healthcare agent)?

The following factors should be considered when deciding who to name as your financial agent and healthcare agent:

  • Where does the agent live? With modern technology, the distance between you and your agent may not matter. Nonetheless, someone who lives nearby may be a better choice than someone who lives in another state or country, especially for healthcare decisions.
  • How organized is the agent? Your agent will need to be well-organized to manage your healthcare needs, keep track of your accounts and property, pay your bills, and balance your checkbook, all on top of managing their own finances and family obligations. While you may trust many of your loved ones to act on your behalf, not all of them will have the capabilities and organizational skills desired for this position.
  • How busy is the agent? If the agent has a demanding job or travels frequently for work, then the agent may not have the time required to take care of your finances and medical needs.
  • Does the agent have expertise in managing finances or the healthcare field? An agent with work experience in finance or medicine may be a better choice than an agent without it. Keep in mind that you can appoint different people for these different roles.

What should you do?

If you do not proactively plan for incapacity before you become incapacitated, your loved ones will likely have to go to probate court to have a guardian and conservator appointed. This would be a hassle, taking time and costing money during what is already likely to be a very stressful and emotional time.

Part of creating an effective incapacity plan means carefully considering who you want as your financial and medical agents. You should also discuss your choice with the person you select to confirm that they are willing and able to serve. This would also be a great opportunity to discuss with them your wishes as to the medical and financial issues that are most important to you.

Our firm is ready to answer your questions about incapacity planning and assist you with choosing the right agents for your plan. 

5 Essential Legal Documents You Need for Incapacity Planning

Comprehensive estate planning involves more than just planning for your legacy after your death, avoiding probate, and reducing taxes. Good estate planning also appoints people to make legal, financial, and medical decisions for you if you are alive but unable to make those decisions for yourself (in other words, if you are incapacitated).

What happens without a plan for incapacity?

Without a comprehensive plan for your incapacity, your family will have to go to court to have a judge appoint a guardian and conservator to make healthcare decisions for you and manage your money and property. A guardian will make all personal and medical decisions on your behalf as part of a court-supervised guardianship. A conservator will make all financial and legal decisions on your behalf as part of a court-supervised conservatorship. These roles may be filled by the same person or by two different people, depending on the circumstances. Keep in mind that the court may not appoint the person or people for these roles that you would have chosen. Until you regain capacity or pass away, you and your loved ones will have to endure expensive, public, and time-consuming court proceedings, which may include filing annual reports and obtaining prior judicial approval for certain actions.

Overall, there are two aspects of incapacity planning that must be considered: financial and healthcare.

  • Finances during incapacity. If you are incapacitated, you are legally unable to make financial, investment, or tax decisions for yourself, but your bills still need to be paid, tax returns still need to be filed, and investments still need to be managed.
  • Healthcare during incapacity. If you are unable to communicate (for example, if you are in a coma or under anesthesia), you will not be able to make healthcare decisions for yourself. Without a plan, your loved ones may even be denied access to your medical information during a medical emergency. They may also end up in court, fighting over what medical treatment you should or should not receive (like in the case of Terri Schiavo, whose husband and parents did for 15 years).

To avoid these problems, you should have these five essential legal documents in place before becoming incapacitated so that your loved ones are empowered to make decisions for you:

  1. Financial power of attorney. A financial power of attorney is a legal document that gives your trusted decision-maker (the agent) the authority to pay bills, make financial decisions, manage investments, file tax returns, mortgage and sell real estate, and address other financial matters for you that are described in the document. Financial powers of attorney come in two forms: immediate and springing. An immediate durable power of attorney allows your agent to act for you as soon as you sign the document. A springing power of attorney, on the other hand, is legally valid when you sign it, but your agent can only act for you after you have been determined to be mentally incapacitated. It is important to note that some states, such as Florida, do not recognize springing financial powers of attorney. There are advantages and disadvantages to each type, and we can help you decide which is best for your situation.
  2. Revocable living trust. A revocable living trust is a legal document that has three parties to it: the person who creates the trust (also known as the trustmaker); the person who legally owns and manages the accounts and property transferred into the trust (the trustee); and the person who benefits from the accounts and property transferred into the trust (the beneficiary). In the typical situation, you will be the trustmaker, the trustee, and the beneficiary of your revocable living trust while you are alive. If you ever become incapacitated, your designated backup trustee will step in to manage the trust’s accounts and property for your benefit. The terms of the trust that you create will specify how the trust’s accounts and property are to be used (for example, you can authorize the trustee to continue to make gifts to charities or pay tuition for your grandchildren).
  3. Medical power of attorney. A medical power of attorney, also called a medical proxy, healthcare proxy, designation of healthcare surrogate, or a patient advocate designation, allows you to name a person (your agent) to make medical decisions on your behalf when you cannot communicate them yourself.
  4. Advanced directive or living will. An advance directive or living will shares your wishes regarding end-of-life care if you become incapacitated. Although a living will is not necessarily enforceable in all states, it can provide meaningful information about your desires—even if it is not strictly enforceable.
  5. HIPAA authorization. A Health Insurance Portability and Accountability Act authorization gives your doctor authority to disclose medical information to the people you name in the document. This is important because health privacy laws may make it very difficult for family members or loved ones to learn about your condition without this release. While this document does not give a person authority to make medical decisions, it can help alleviate tensions by keeping everyone on the same page concerning your condition.

Is your incapacity plan up to date?

Once you create all of these legal documents for your incapacity plan, you cannot simply stick them in a drawer and forget about them. Instead, you must update and review your incapacity plan periodically and when major life events occur, such as moving to a new state or getting divorced. If you keep your incapacity plan up-to-date and make the documents available to your loved ones and trusted helpers, it should work the way you expect it to if needed. If you need to create or update your incapacity plan, please give us a call.

Who Will Care for Your Child When You Cannot?

As a parent, you are responsible for the care of your minor child. In most circumstances, this means getting them up for school, making sure they are fed, and providing for other basic needs. However, what would happen if you and your child’s other parent were unable to care for them?

It is important to note that if something were to happen to you, your child’s other parent is most likely going to have full authority and custody of your child, unless there is some other reason why they would not have this authority. So in most cases, estate planning is going to help develop a plan for protecting your child in the event that neither parent is able to care for them.

What If You Die?

When it comes to planning for the unexpected, many parents are familiar with the concept of naming a guardian to take care of their minor children in the event both parents die. This is an important step toward ensuring that your child’s future is secure.

Without an Estate Plan

If you and your child’s other parent die without officially nominating a guardian to care for your child, a judge will have to make a guardianship decision. The judge will refer to state law, which will provide a list of people in order of priority who can be named as the child’s guardian—usually family members. The judge will then have a short period of time to gather information and determine who will be entrusted to raise your child. Due to the time constraints and limited information, it is impossible for the judge to understand all of the nuances of your family circumstances. However, the judge will have to choose someone based on their best judgment. In the end, the judge may end up choosing someone you would never have wanted to raise your child to act as your child’s guardian until they are 18 years old.

With an Estate Plan

By proactively planning, you can take back control and nominate the person you want to raise your child in the event you and the child’s other parent are unable to care for them. Although you are only able to make a nomination, your choice can hold a great deal of weight when the judge has to decide on an appropriate guardian. The most common place for parents to make this nomination is in their last will and testament. This document becomes effective at your death and also explains your wishes about what will happen to your accounts and property. Depending on your state law, there may be another way to nominate a guardian. Some states recognize a separate document in which you can nominate a guardian, and that document is then referenced in your will. Some people prefer this approach because it is easier to change the separate document as opposed to changing your will if you want to choose a different guardian or backup guardians.

What If You Are Alive but Cannot Manage Your Own Affairs?

Although most of the emphasis is on naming a guardian for when both parents are dead, there may be instances in which you need someone to have the authority to make decisions for your child while you are alive but unable to make them yourself.

Without an Estate Plan

Not having an incapacity plan in place that includes guardianship nominations means that a judge will have to make this judgment call on their own with no input from you (similar to the determination of a guardian if you die without a plan in place).

With an Estate Plan

A comprehensive estate plan can also include a nomination of a guardian in the event you and the child’s other parent are incapacitated (unable to manage your own affairs). Although you are technically alive, if you cannot manage your own affairs, there is no way that you will be able to care for your minor child. This is another reason why having a separate document for nominating a guardian (as described above) may be preferable to nominating guardians directly in a last will and testament. Because a last will and testament is only effective at your death, a nomination for a guardian in your will may not be effective when you are still living. However, a nomination in a separate document that anticipates the possibility that you may be alive and unable to care for your child can provide great assistance to the judge when evaluating a guardian. Depending on the nature of your incapacity, this guardian may only be needed temporarily, with you assuming full responsibility for your child upon regaining the ability to make decisions for yourself.

What If You Are Just Out of Town?

Sometimes, you travel without your child and will have to leave them in the care of someone temporarily. While you of course hope that nothing will go wrong while you are away, it is better to be safe than sorry.

Without an Estate Plan

Without the proper documentation, there may be delays in caring for your child if your child were to get hurt or need permission for a school event while you are out of town. The hospital or school may try to reach you by phone in order to get your permission to treat them or allow them to attend a school event. Depending on the nature of your trip, getting a hold of you may not be easy (e.g., if you are on a cruise ship with little access to phone or email). Ultimately, your child will likely be treated medically, but the chosen caregiver may encounter additional roadblocks  trying to obtain medical services for your child, and they may not be able to make critical medical decisions when needed.

With an Estate Plan

Most states recognize a document that allows you to delegate your authority to make decisions on behalf of your child to another person during your lifetime. You still maintain the ability to make decisions for your child, but you empower another person to have this authority in the event you are out of town or cannot get to the hospital immediately. This document allows your chosen caregiver to make most decisions on behalf of your child, except for consenting to the adoption or marriage of your child. The name of this document will vary depending on your state and is usually effective for six months to a year, subject to state law. Because this document is only effective for a certain period of time, it is important that you touch base with us to have new documents prepared so that your child is always protected.

We Are Here to Protect You and Your Children

Being a parent is a full-time job. We want to make sure that regardless of what life throws at you, you and your child are cared for. Give us a call to learn more about how we can ensure that the right people are making decisions for your child when you cannot.

Estate Administration Details that TV and Movies Get Wrong

While television and movies provide great entertainment, they are not always factual. Even shows based on real events are not entirely accurate. Creators of television programs and movies will often alter details of a story or situation to provide an enjoyable experience. Because of these widespread embellishments, people often develop misconceptions about many industries and professions, including attorneys and estate planning.

The Truth about Creating and Revising a Will

People think that it is easy to write or change a will. Some movies or television shows imply that all you have to do is write something down and put it into an envelope for safekeeping.

In the real world, a will that is not created properly may be considered invalid. The local probate courts determine whether the will or any changes to the will meet state law requirements. For example, states have differing rules for whether a will can be handwritten or typed, and if so, what features or provisions it must contain. If the creation or updating of the will does not comply with the law, extra time will be taken to determine if the court can accept the will or if the deceased’s money and property will be distributed according to the state’s laws instead. The resulting confusion and likely conflict will cost the family extra time, money, and hassle to get through the probate case.

Gathering for the Reading of a Will

In movies and television shows, there is often a dramatic scene where family members gather in a lawyer’s office for the reading of the will. The atmosphere is usually tense, and everyone is eagerly waiting to find out who gets what.

In reality, the reading of the will is not a spectacular event. In most cases, the contents of the will are communicated to the beneficiaries by the executor or through legal channels. There is typically no gathering, and the process is more private. Some families may have more realistic expectations about the terms of the will based on prior family conversations about estate planning and will not be blindsided when their loved one passes away. Other families may find out the details of the will after it is filed with the probate court and may be hurt or angered when they learn what is in it (or not in it) for them.

Not Every Matter Requires an Appearance Before a Judge

When the expectations of family and loved ones are shattered in a movie or television show, everyone immediately considers contesting the will. Movies often depict legal matters, including estate planning, as requiring an appearance before a judge; cases are argued in a courtroom and include cross-examinations and emotional accusations.

Realistically, in most states, an uncontested informal probate can occur without ever stepping foot inside a courtroom. Further, in situations where court appearances are necessary, most matters can be resolved outside the courtroom through negotiation, mediation, or other methods. Estate planning documents such as wills and trusts are designed to provide clear instructions for the distribution of money and property, reducing the need for legal disputes.

Some movies and television shows correctly explain that successfully contesting a will does require proving the case in court and that it may not always be easy. What they often do not portray is that a will contest gets complicated because anyone with legal standing can challenge a will, including

  • named beneficiaries;
  • previous beneficiaries who were disinherited; and
  • individuals who are considered heirs or next-of-kin under state intestacy laws—a spouse, child, grandchild, or sibling—who may not have been named in the will.

A successful will contest can invalidate the document. If a will is found to be invalid, the deceased person’s money and property will have to be distributed according to a previous will or state intestacy laws, neither of which will likely reflect the decedent’s intent. 

Immediate Distribution of Inheritance

In movies and on television, beneficiaries often receive their inheritances immediately after the death of a loved one. Inheritance distribution is portrayed as a seamless and quick process, allowing family members to access their newfound wealth right away.

The distribution of money and property according to a will is a legal process that involves probate: the court-supervised process of validating the will, paying off debts, and distributing money and property. This process can be lengthy, especially if there are disputes or complications. Beneficiaries may need to wait for the resolution of legal matters before receiving their inheritances. Estate taxes and debts must be paid first, which can cause further delay. In some cases, it may take months or years for an executor to be appointed, and there may be a minimum length of time that a probate estate must be open before inheritances can be distributed.

Real-Life Probate and Trust Administration

Real-life estate administration is less dramatic and more procedural than movies and television shows would have you believe. Seeking the guidance of an experienced estate planner can help you navigate the complexities of creating a proper estate plan to ensure that your wishes are carried out efficiently and effectively during probate or trust administration.

Estate planning attorneys help you make decisions based on

  • your family situation and dynamics;
  • the age and circumstances of your children, grandchildren, and other loved ones;
  • how much wealth you have accumulated;
  • the type of accounts or property you have;
  • potential estate tax liability;
  • your issues and concerns;
  • your goals and desires; and
  • whether you need to protect financial resources from your beneficiary’s creditors, bankruptcy, lawsuits, judgments, or troublesome relatives.  

Although television and movies are entertaining with their conflicts and cliffhangers, your estate plan should not be as entertaining. We can help you craft a customized estate plan that addresses your goals and wishes and provides an uneventful administration at your death. To learn more, give us a call.

Demystifying Probate and the Executor’s Role

When creating a last will and testament (commonly known as a will), one of your most important considerations is who to choose to serve as the executor (also called a personal representative) of your estate.

As the name implies, the role of the executor is to execute the instructions that you provide in your will. You may give your chosen executor some discretionary powers in determining how your assets (money and property) are to be distributed, but they have limited latitude to make independent decisions. Any deviation from their specified powers could cause a conflict in your estate that leads to legal consequences.

To avoid any unnecessary complications in the settling of your affairs, take care to avoid ambiguous or unclear language in your will. If there are any doubts about your last wishes, the executor and beneficiaries may wish to consult with an estate planning lawyer to discuss next steps.

What Happens With Your Will When You Die

Upon the death of the testator—the person who made the will—probate will be opened if the testator died owning accounts or property in their sole name and without a properly completed beneficiary designation form.

Probate is the court-supervised process in which the testator’s will is validated and administered. The person named as executor in the will initiates and carries out the probate process. The probate process can vary slightly from state to state, but generally unfolds in the following manner:

  1. The death certificate is filed with the court.
  2. The testator’s will is submitted to the court and confirmed as valid.
  3. A petition to initiate probate is filed.
  4. The court gives the executor permission to gather, evaluate, and manage the testator’s assets.
  5. The executor contacts beneficiaries to inform them that probate has commenced.
  6. Lists of the deceased’s assets, debts, bills, and taxes are compiled and submitted to the court.
  7. The testator’s outstanding debts and taxes are paid from the testator’s assets.
  8. The remaining assets are distributed to the beneficiaries.
  9. The estate is closed and probate ends.

These steps imply that the decedent has, in fact, left a will. Dying without a will—known as dying intestate—entails much greater court involvement. The court appoints an executor, identifies heirs, and determines who gets what. Dying intestate can even empower the state to choose the guardian of your minor children.

It may not be possible to avoid probate completely (e.g., if a guardian appointment is required for a minor child, if an executor must represent the decedent in a pending or new lawsuit, or if the decedent died with assets solely in their name and without a designated beneficiary). Probate duration and costs, however, can be reduced through careful estate planning.

Responsibilities of the Executor

The executor named in a will is responsible for carrying out the testator’s final wishes. The executor is a liaison between the probate estate and the probate court, as well as between the probate estate and the beneficiaries. Their duties include locating and valuing assets of the estate, paying debts, and distributing assets to beneficiaries in accordance with instructions in the will.

Executors owe a fiduciary duty to the estate and its beneficiaries that compels them to act in the best interests of both. Because an executor may also be a beneficiary of the estate, their actions may be scrutinized to ensure they are acting fairly and legally.

When an Executor Can Use Discretion

The executor must, to the best of their ability, carry out the directions expressly stated in the testator’s will. They cannot make changes to the will, but there are cases where the executor can use discretion when settling an estate. The testator might explicitly give discretion to the executor, or the need to exercise discretion may arise due to ambiguity in the will, as in the following examples:

  • The will gives the executor wide latitude to decide when to sell the testator’s property.
  • The will allows the executor to decide whether to convert assets to cash prior to distribution.
  • The will states that “reasonable and necessary” repairs must be made to the testator’s home prior to its sale or distribution (words such as “reasonable” or “necessary” may be too vague and leave the executor confused about how to proceed).

If the will is unclear, the executor should seek clarification from the court to assist with interpretation. Anyone with a stake in the estate may also raise a legal challenge against the executor, asking the court to remove the executor or commencing probate litigation against them.

When a gray area exists within the provisions of the will and the executor acts in good faith and within the scope of their power and duties, the court may uphold their actions. A petition to remove an executor or a lawsuit against the executor for breach of fiduciary duty will only succeed if there is evidence of misconduct, such as the executor explicitly going against the will or estate’s interests, acting in their own best interest, or withholding an intended gift from a beneficiary.

Beneficiary Agreements to Change a Distribution

While the executor and beneficiaries cannot rewrite a testator’s will after the testator has died, the beneficiaries may be able to mutually agree to modify what they receive from the estate.

Making changes to distributions can be done using a document known as a nonjudicial settlement agreement. A nonjudicial settlement agreement is a contract that may be used whenever the beneficiaries agree that asset distribution should be different than what the will stipulates, including in these situations:

  • As a strategy to minimize a beneficiary’s inheritance tax
  • When the family wants to balance out unequal distributions among all beneficiaries
  • To settle disputes about the distribution of assets

A nonjudicial settlement agreement can be a way to resolve a loved one’s legal challenge to the will. The court should respect this agreement if it meets applicable legal requirements. However, before signing an agreement to change the provisions of the will, the beneficiaries should consult with a probate attorney so they understand whether this type of agreement is legally recognized in their jurisdiction, along with what the implications and potential consequences would be.

Legal Guidance for Executors and Other Family Members

In addition to assisting with a nonjudicial settlement agreement, there are many issues related to probate that might require attorney assistance.

Executors, beneficiaries, and anyone who feels they have been treated unfairly in a will may need to consult with a probate attorney about interpreting and administering the will, determining their rights and duties under state probate law, and potentially challenging the will in court. In addition, when creating your will, it is crucial that you set out your intentions in a way that minimizes the potential for conflict among everyone involved.

Get legal help with a will or probate issue: contact our law office and schedule a consultation.