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How to Check the Validity of a Will

“Without a valid will, a person’s estate passes to their surviving heirs under intestate succession (i.e., ‘succession without a will’).”

A properly created will is used to distribute assets, name the executor of the estate, provide details for the powers you want the executor to have and more, depending on what you want the will to accomplish. Most importantly, you want to be sure your will is valid, as explained in a recent article “Estate Planning: A valid will” from Lake Country News.

There are times when an unhappy heir receives less than expected, or for whatever reason, the heir feels they have been shortchanged. If this results in litigation, the will must not only be valid, but strong enough to withstand a legal challenge.

A will may only be executed by a person who is of sound mind at the time they sign the will, and who is signing the will without any kind of duress, menace, or undue influence. The law sometimes presumes the signature has been made under duress in certain situations, such as when a paid caregiver is the recipient of an unusually large gift. Incapacity or duress is a common reason for wills to be challenged.

A will may be valid if it satisfies the estate laws of your state of residence. While there are instances when a holographic will—one that has been handwritten, may be accepted—it is more easily challenged than a will created and executed with an estate planning attorney.

The will must be signed by the person making the will, i.e., the testator, and depending upon the state, must be witnessed by one or two people at the same time. Your estate planning attorney will be familiar with the laws of your state. Those two witnesses must see the testator either signing the will or acknowledging the will in their presence. If you have a will in a state that requires one witness, but move to a state requiring two witnesses, your will may be deemed invalid.

Different states also have different requirements for accepting wills prepared in another state. Some states have reciprocity, whereas as long as the will aligns with the state’s law at the time it was executed, it is acceptable. Others are not so flexible.

As a result of the Covid pandemic, some states now permit witnessing documents to take place remotely, usually through a video platform like Zoom or Facetime. These rules vary from state to state, with some states ending the practice in 2021 and others restarting this method in 2022. Check with your estate planning attorney to learn if a will may be witnessed remotely.

When the will is filed with the court to begin the probate process, the court will examine the will to be sure it complies with the state’s law. Any assets outside of the will—i.e., trusts—are not subject to probate and are not considered part of the taxable estate. One of the reasons to have trusts is to remove the asset from the estate for tax purposes, but also to keep the asset private. Only the grantor, trustee and estate planning attorney know the trusts exist and what they contain.

Heirs who feel they have been shortchanged may not know about assets in trust, which is likely the reason the grantor had the trusts created in the first place.

Reference: Lake County News (Dec. 31,2021) “Estate Planning: A valid will”

Will Social Security Get a Raise in 2022?

“Last year, the Social Security Administration announced that seniors would be getting their largest cost-of-living adjustment, or COLA, in decades. Fueled by rampant inflation, Social Security benefits are in line for a 5.9% boost this year.”

The COLA increase in Social Security is welcomed by seniors depending upon their benefits but the timing varies, says the article “Social Security Benefits Get a 5.9% Raise This Year—Here's When You Should See That Extra Money” from the Lincoln Journal Star. Here’s what you can expect.

The first benefit check or automatic deposit should arrive with the 5.9% COLA. However, the timing depends upon your date of birth. If your birthday falls between the first and the 10^th of the month, those benefits should arrive on the second Wednesday of the month, so by January 12, you’ve should have received your first Social Security benefit with the COLA.

What if your birthday is between the 11^th and 20^th of the month? Benefits should arrive by the third Wednesday of the month. That’s a raise on January 19.

And if your birthday is late in the month, between the 21^st and 31^st, expect your benefits on the fourth Wednesday of the month—that would be January 26.

A caveat—if you’re collecting Social Security but have not yet enrolled in Medicare, then you’ll see a monthly increase of 5.9%. However, if you’ve enrolled in Medicare Part B and pay premiums directly from your benefits, your increase will be less. This is the push me—pull you of Social Security COLAs.

Medicare Part B premiums have increased, from $148.50 in 2021 to $171.10 in 2022, a total increase of $21.60. So, while you may have hoped for a true 5.9% increase, subtract the COLA from your premium hike to see what monthly benefit you’ll really get.

The annual deductible for all Medicare Part B beneficiaries is $233 in 2022. That’s a $30 increase from the $203 annual deductible in 2021.

Yes, this is the biggest COLA increase in a long time, as we have been in a low inflation environment for a very long time. If possible, it would be wise to take your COLA increase and set it aside to create or enhance a financial cushion. However, when living costs for everything from food to gas keep going up, it’s simply not possible for most people to save.

The reason this year’s COLA was so large is because of the high inflation rates from the third quarter of 2021. If inflation had been less, so would have been the increase. We don’t know what the future of Social Security will be, or what future COLAs will be. However, if at all possible, building in a little security of your own is the best recommendation.

Reference: Lincoln Journal Star (Jan. 7, 2022) “Social Security Benefits Get a 5.9% Raise This Year—Here's When You Should See That Extra Money”

Update on Transfer Taxes for 2022

“Despite the various proposals to lower federal transfer tax (estate, gift and GST taxes) exemptions and increase the tax rates, none of them were enacted in 2021.”

It’s possible that some of these proposals may be enacted in 2022, but for now, they are moot. In the meantime, exemptions have increased for inflation, giving taxpayers a chance to lock in rates and exemptions before the federal estate tax sunsets to $5 million and some “change” for inflation. That’s the advice from a recent article, “2022 Transfer Tax Update,” from Forbes.

For now, the increased transfer tax exemptions are:

• In 2022, $12,060,000 federal estate tax exemption, with a 40% top federal estate tax rate.
• $12,060,000 GST tax exemption and a 40% top federal GST tax rate.
• The lifetime gift tax exemption is now $12,060,000; with a 40% top federal gift tax rate.
• The annual gift tax exclusion for 2022 increases to $16,000.

The IRS and the Treasury Department have both stated they will not attempt any claw-backs from gifts given between 2018—2025 for a taxpayer who dies in 2026 or beyond, when the exemptions return to the $5 million mark under the 2012 Act.

The opportunity to take advantage of these exemptions is now. A variety of estate planning techniques are still available. Shifting income-producing assets to individuals in lower income tax brackets or who live in states with no or lower income taxes may be appropriate.

Anyone who may have used all or most of their prior exemptions may want to consider making additional lifetime gifts in 2022. Let’s say you used all of your $11.7 million exemption in 2021. You may now gift an additional $360,000 in 2022.

Does this mean your estate plan needs to be revised? If you’re like most people, your estate plan is relatively flexible. However, if you haven’t reviewed or revised your estate plan in two or three years, it’s time to make an appointment with your estate planning attorney. There have been many changes in the law in recent years, and chances are, changes in your life since the last time your plan was reviewed.

The GST tax is not portable on the death of a spouse. Certain states (including New York, Connecticut, and Massachusetts) don’t permit estate tax exemption portability. A bypass trust may be the solution.

The gift tax annual exclusion amount has increased to $16,000 for individuals ($32,000 by married couples). It may be better to gift securities of interests in privately held companies or other family entities. Assets gifted now may be worth less than they were previously, and if they increase in the future, you’ve created a built-in discount.

Talk with your estate planning attorney to make the most out of these tax situations before they go away.

Reference: Forbes (Jan. 4, 2022) “2022 Transfer Tax Update”

What Happens to IRAs and 401(k)s when Spouse Dies?

“The rise in the stock market over the past several years, teamed with the passage of the SECURE Act two years ago and the scheduled 50% reduction in the size of the federal estate tax exemption four years from now, has resulted in a renewed interest in estate planning for IRA and 401(k) accounts owned by married couples.”

For married couples who own large IRA and 401(k) accounts, the question is often whether the couple should consider paying all or a portion of their accounts to a bypass trust to benefit the surviving spouse. This takes the designated portion of the IRA or 401(k) proceeds out of the surviving spouse’s taxable estate and helps with asset distribution, according to the article “Estate Planning for Married Couples’ IRAs And 401(k)s” from Financial Advisor.

In 2013, the portability election became law. Portability allows the surviving spouse to use the unused federal estate tax exemption of the deceased spouse, thereby capturing not one but two estate tax exemptions. Why would a couple need a bypass trust?

The portability election does not remove appreciation in the value of the assets moved from the surviving spouse’s taxable estate. A bypass trust removes all appreciation. An estate planning attorney will review your entire situation to determine the optimal path.

There are also situations when the portability election does not apply. One is if the surviving spouse remarries and then the new spouse predeceases them. With a bypass trust, remarriage does not matter (although estate planning documents do need to be updated).

The portability election also does not apply for federal generation-skipping transfer tax purposes. In other words, the amount that could have passed to an estate and generation-skipping transfer tax-exempt bypass trust, including appreciated value, could now be subject to federal transfer tax in the heir’s estate.

If you use the portability election, those assets are subject to potential lawsuits against the surviving spouse and, if remarriage occurs, to any potential claims of a new spouse. A bypass trust provides better protection from lawsuits and claims.

Using the portability election may result in the first spouse to die losing the option to control where those assets go upon the death of the surviving spouse. A bypass trust provides more control for asset distribution.

The calculations for each situation must be considered, but the bypass trust can help reduce the taxable estate for children, after the surviving spouse has passed. It may also make sense for a portion of the IRA or 401(k) plan proceeds to go to the bypass trust and another portion to the surviving spouse outright. The use of the beneficiary designation may allow for a full or partial disclaimer by the surviving spouse. However, the bypass trust could provide more flexibility than keeping assets in the original accounts.

Reference: Financial Advisor (Jan. 7, 2022) “Estate Planning for Married Couples’ IRAs And 401(k)s”