Digital Assets in Estate Planning: The Brave New World of Estate Planning

Cryptocurrency is almost mainstream, despite its complexity, says Insurance News Net in the article “Westchester County Elder Law Attorney… Sheds Light on Cryptocurrency in Estate Planning.” The IRS has made it clear that as far as federal taxation is concerned, Bitcoin and other cryptocurrencies are to be treated as property. However, since cryptocurrency is not tangible property, how is it incorporated into an estate plan?

For starters, recordkeeping is extremely important for any cryptocurrency owner. Records need to be kept that are current and income taxes need to be paid on the transactions every single year. When the owner dies, the beneficiaries will receive the cryptocurrency at its current fair market value. The cost basis is stepped up to the date of death value and it is includable in the decedent’s taxable estate.

Here’s where it gets tricky. The name of the Bitcoin or cryptocurrency owner is not publicly recorded. Instead, ownership is tied to a specific Bitcoin address that can only be accessed by the person who holds two “digital keys.” These are not physical keys, but codes. One “key” is public, and the other key is private. The private key is the secret number that allows the spending of the cryptocurrency.

Both of these digital keys are stored in a “digital wallet,” which, just like the keys, is not an actual wallet but a system used to secure payment information and passwords.

One of the dangers of cryptocurrency is that unlike other financial assets, if that private key is somehow lost, there is no way that anyone can access the digital currency.

It should also be noted that cryptocurrency can be included as an asset in a last will and testament as well as a revocable or irrevocable trust. However, cryptocurrency is highly volatile, and its value may swing wildly.

The executor or trustee of an estate or trust must take steps to ensure that the estate or the trust is in compliance with the Prudent Investor Act. The holdings in the trust or the estate will need to be diversified with other types of investments. If this is not followed, even ownership of a small amount of cryptocurrency may lead to many issues with how the estate or trust was being managed.

Digital currency and digital assets are two relatively new areas for estate planning, although both have been in common usage for many years. As more boomers are dying, planning for these intangible assets has become more commonplace. Failing to have a plan or providing incorrect directions for how to handle digital assets, is becoming problematic for many individuals.

Speak with an estate planning attorney who has experience in digital and non-traditional assets to learn how to protect your heirs and your estate from losses associated with these new types of assets.

Reference: Insurance News Net (Feb. 25, 2019) “Westchester County Elder Law Attorney… Sheds Light on Cryptocurrency in Estate Planning”

Suggested Key Terms: Digital Assets, Estate Planning, Elder Law Attorney, Cryptocurrency, Digital Keys

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Why Is a Revocable Trust So Valuable in Estate Planning?

There’s quite a bit that a trust can do to solve big estate planning and tax problems for many families.

As Forbes explains in its recent article, “Revocable Trusts: The Swiss Army Knife Of Financial Planning,” trusts are a critical component of a proper estate plan. There are three parties to a trust: the owner of some property (settler or grantor) turns it over to a trusted person or organization (trustee) under a trust arrangement to hold and manage for the benefit of someone (the beneficiary). A written trust document will spell out the terms of the arrangement.

One of the most useful trusts is a revocable trust (inter vivos) where the grantor creates a trust, funds it, manages it by herself, and has unrestricted rights to the trust assets (corpus). The grantor has the right at any point to revoke the trust, by simply tearing up the document and reclaiming the assets, or perhaps modifying the trust to accomplish other estate planning goals.

After discussing trusts with your attorney, he or she will draft the trust document and re-title property to the trust. The assets transferred to a revocable trust can be reclaimed at any time. The grantor has unrestricted rights to the property. During the life of the grantor, the trust provides protection and management, if and when it’s needed.

Let’s examine the potential lifetime and estate planning benefits that can be incorporated into the trust:

  • Lifetime Benefits. If the grantor is unable or uninterested in managing the trust, the grantor can hire an investment advisor to manage the account in one of the major discount brokerages, or he can appoint a trust company to act for him.
  • Incapacity. A trusted spouse, child, or friend can be named to care for and represent the needs of the grantor/beneficiary. She will manage the assets during incapacity, without having to declare the grantor incompetent and petitioning for a guardianship. After the grantor has recovered, she can resume the duties as trustee.
  • This can be a stressful legal proceeding that makes the grantor a ward of the state. This proceeding can be expensive, public, humiliating, restrictive and burdensome. However, a well-drafted trust (along with powers of attorney) avoids this.

The revocable trust is a great tool for estate planning because it bypasses probate, which can mean considerably less expense, stress and time.

In addition to a trust, ask your attorney about the rest of your estate plan: a will, powers of attorney, medical directives and other considerations.

Any trust should be created by a very competent trust attorney, after a discussion about what you want to accomplish.

Reference: Forbes (February 20, 2019) “Revocable Trusts: The Swiss Army Knife Of Financial Planning”

Suggested Key Terms: Estate Planning Lawyer, Wills, Trusts, Trustee, Probate Court, Inheritance, Power of Attorney, Healthcare Directive, Living Will, Tax Planning, Guardianship

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Health Care Decisions in 2019 Require a Medical Power of Attorney

The patient above was asked if he had a living will or a health care directive. He wondered, why are they asking me this? It’s a simple knee replacement surgery. Do they think I am going to die? However, as discussed in the article “Take control of health care decisions in 2019 | Coming of Age…Again” from the Kirkland Reporter, all of these documents need to be in place anytime a medical procedure takes place, no matter how routine the patient may think it is.

Someone, whether a parent, spouse, friend or colleague, needs to be able to have the legal power to make decisions on your behalf, when you cannot. You need a health care directive or a durable Power of Attorney for health care, or both, or to have both of these documents combined into one (depending upon the state you live in; these laws vary by state). In Washington, the official term is health care directive. In other states, the term living will is used.

The health care directive is used to tell doctors and medical caregivers of your choices about medical interventions that you would or would not want to be used, in the unexpected event that you become seriously or critically injured, terminally ill or unable to communicate with those around you.

If you don’t have this document, the decisions will be made by select members of your family with health care professionals. If you don’t want certain things to happen, like being intubated or put on a feeding tube, and they feel strongly that they want to keep you alive, your wishes may not be followed.

A Power of Attorney and health care directives are created when working with an estate planning attorney to create an overall estate plan, which includes your will and any necessary trusts. These documents are too important to try to do on your own. There are major implications. What if they are not executed properly?

The person who is your health care agent has the authority to stop medical treatment on your behalf, or to refuse it. They can hire or fire any medical professional working on your care, and they can determine which medical facility should treat you. They can visit you, regardless of any visitation restrictions, and review your medical records. A durable Power of Attorney for health care gives this person the right to make decisions that are not necessarily covered in your health care directive.

Note that you can revoke your Power of Attorney document at any time, with a written notice to your agent.

These are complicated matters that deserve thoughtful consideration. The person you name will have tremendous responsibility — you are putting your life into their hands. Make sure the person you select is willing to take this responsibility on and have a secondary person in mind, just in case.

Reference: Kirkland Reporter (Feb. 20, 2019) “Take control of health care decisions in 2019 | Coming of Age…Again”

Suggested Key Terms: Power of Attorney, Health Care, Medical Directive, Capacity, Estate Planning Attorney, Living Will

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Making an IRA Part of the Estate Plan

Most people use their IRAs (Individual Retirement Accounts) for retirement income. However, a lucky group find themselves not needing the money from their IRA accounts. Instead, the assets become part of a legacy that they leave to heirs. That is why most IRA accounts include the name of a beneficiary who could inherit these accounts, when the owner passes away, reports the Oakdale Leader in the article “Leaving An IRA As An Inheritance.”

If no beneficiary is named, things can get complicated for both the estate and the heirs. If the IRA has a named beneficiary, but the will names someone else to receive the IRA, the beneficiary named in the IRA is the one who receives the asset. The named beneficiary in any account and especially an IRA, supersedes the will, in almost every instance.

Anytime there is a significant event, often called a “trigger” event, like a divorce, marriage or birth, the estate plan and all accounts with named beneficiaries should be reviewed. This is to ensure that the assets go where the owner wants them, and not to an unintended heir, like an ex-spouse.

There are special rules for spouses, where IRAs are concerned. Married couples typically name each other as beneficiaries on their IRAs. A surviving spouse has certain decisions to make, when inheriting an IRA. The IRA may be rolled over into a new or existing IRA in the spouse’s own name. Taking this route depends upon the age of the spouse and the need for the money.

Another option is to convert the inherited traditional IRA into a Roth IRA. However, taxes must be paid on the conversion. It is also possible to transfer the IRA assets into an inherited IRA. An estate planning attorney will be able to explain all the options and how they will work with the surviving spouse’s estate plan.

To maximize the growth of the IRA, children or grandchildren can be named as IRA beneficiaries. They will need to start taking annual Required Minimum Distributions (RMDs) immediately, and the distributions will be taxable. However, the amount of the RMD will be based on their anticipated lifetimes, so the taxable distributions will be relatively small. The money in the account will have many years to grow.

When children or grandchildren are named as contingent beneficiaries, a surviving spouse has the option to disclaim the IRA, which allows the children or grandchildren to inherit the IRA and enjoy the tax-free years of growth.

Many advisors counsel against naming an estate as a beneficiary, because it helps avoid probate and strict distribution time limits.

Reference: Oakdale Leader (February 19, 2019) “Leaving An IRA As An Inheritance”

Suggested Key Terms: Individual Retirement Account, Required Minimum Distributions, RMDs, Beneficiaries, Roth IRA, Surviving Spouse, Charitable Giving, Inherited IRA, Heirs

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Can A Cell Phone Video Become a Will?

What if a grandmother made a statement, while in an intensive care unit, that she wanted everything she owned to go to a grandchild and a brother-in-law? What if that statement was captured on a cellphone as a video? The question was a real one, posed by a reader of My San Antonio in the article “Can a video be used as a Will?”

There are two reasons why a cellphone video is unlikely to be accepted as a will by any court. One is that the cellphone video does not follow the formality of how a will is created and executed. Another is the statue of frauds, which basically says that to be lawfully valid, certain promises must be in writing.

Not only does a will need to be in writing, it must show clear intent to dispose of assets after death. The writing must be dated and signed by the person who is making the promise (the testator). If the will is written by the testator in his or her handwriting, it is known as a “holographic” will. If the will is typed or in someone else’s handwriting other than the testator, which is known as a “formal will,” then it must also be signed by two independent witnesses and must be notarized. The person who is having the will created (again, the testator), must also have legal capacity for the will to be valid.

In some states, including Texas, there was a time when a spoken will, known an a “nuncupative will” could have been recognized. However, that is no longer the case and a verbal will is no longer valid. Even when a nuncupative will was accepted, it was only accepted for inexpensive personal effects, not large assets or real property.

Some states, including Florida and Nevada, now allow a person to make a will online or on their computer and never have it transferred to paper. These are called “digital” or “electronic” wills. In these cases, e-signatures are allowed to be used. Other states have considered bills allowing digital wills, but the bills did not pass. The Florida law allows the digital will to be e-signed, but it must be witnessed by two independent individuals and it must be e-notarized. It should be noted that the will process is not permitted to be used by a person, who is in an end-stage illness or who is legally considered a “vulnerable adult.”

In the state of Texas, the grandmother in the example above is considered to have died without a will, meaning that she died “intestate.” Texas law will determine how her assets are distributed, and that will depend on her relationships and her survivors. If she was married and all children are from that marriage, her assets go to her spouse. If she was married and had children from a prior marriage, her assets are split unevenly between those children and her spouse. If there is no spouse, assets go to her children. There is a tremendous burden placed on the heirs of those who die without a will, since it does take a long time to figure out who their heirs are.

If she had a properly executed legal will, all these issues would be moot. Anyone who owns a home needs to have a will, and this should have been something that was taken care of, long before she became ill.

Reference: My San Antonio (Feb. 18, 2019) “Can a video be used as a Will?”

Suggested Key Terms: Wills, Electronic Signature, Testator, Assets, Intestate

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When Should I Review My Estate Plan?

When a person hits the age of 18, they should at least have powers of attorney to designate who will make their healthcare decisions and handle their finances, in the event of any incapacity. When a person starts to accumulate assets and have children, it’s critical to have an estate plan in place.

Bankrate’s recent article, “Estate planning triggers: When to re-evaluate your estate planning strategy,” says the risk of not having a current estate plan and will that state your wishes is significant. When  people fail to put any plan into place, it leads to confusion, chaos and unintended consequences. Use this list of important life events as triggers to remind you to discuss your current situation with a trusted attorney.

Getting married. You and your future spouse probably have had some financial conversations before getting engaged. However, if you haven’t, once wedding plans are set, it’s vital to discuss all aspects of each partner’s financial situation and the desired distribution of assets. You should decide whether to sign a prenuptial agreement, the totals of your separate and joint assets and who you want inherit those assets should on or both spouses pass on. In light of these factors and the prenuptial agreement, an estate plan that satisfies both parties must be created.

Starting a family. The decision to have a child comes with the responsibility of planning for that child’s care. You and your partner will want to determine the amount of your assets you want to pass to your children in the case of a death, at what age your children will inherit those assets and name a legal guardian.

Divorce. If a couple decides to divorce, it’s important to update their separate estates. If you fail to change the beneficiary designations for a trust or life insurance policy after getting divorced, your ex-spouse may receive the life insurance that was supposed to be paid out to the trust to provide liquidity to pay off debts and administration expenses.

Retirement. Beneficiaries are named when setting up a 401k or Roth IRA account. If you started the account years ago, the beneficiaries may be out-of-date. Retirees should look at their total retirement assets and update their beneficiaries to reflect their current relationship and financial circumstances.

Other life events. Any significant change in assets, a move to another state, the death or disability of a person named in your estate plan, a change in tax laws, a disability of a beneficiary that arises after the initial plan is executed, and/or the birth, adoption, or death of a child are all important life events that should trigger a revision of your estate plan.

Reference: Bankrate (March 4, 2019) “Estate planning triggers: When to re-evaluate your estate planning strategy”

Suggested Key Terms: Estate Planning Lawyer, Will Changes, Guardianship, Inheritance, Intestacy, Beneficiary Designations, Life Insurance, Pre-nuptial Agreement

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Personality Changes in Seniors

It can be frustrating when your aging parents seem to become grumpy or irritable. You wonder if you did something wrong. You worry about whether your dad is going to be cranky from now on. You might stress over whether his bad moods are a sign of Alzheimer’s disease. If you find yourself in this boat with your aging spouse or parent, here is some information on personality changes in seniors.

When You Should Worry About Personality Changes in an Older Adult

If your aging loved one becomes moodier than usual and there does not seem to be a reason, people close to her should pay attention and try to find out what is causing the difference in mood. She might be in pain with arthritis or another uncomfortable medical condition. She could be upset, because she is struggling financially after a lifetime of hard work.

Her medication might be affecting her mood. Sometimes the answer is a simple thing like drinking more water. Dehydration can cause headaches, which can make the sufferer irritable. Keep track of her liquid intake and adjust accordingly.

There are times, however, when emotional disturbances can indicate a more serious problem, like an undiagnosed medical problem, a medication reaction or the early stages of dementia. If you cannot find a reason for your loved one’s moodiness, you might want to go along with her to the doctor.

Grumpy Older People are an Inaccurate Stereotype

Many people assume that every person over the age of 50 yells “Get off my lawn!” to all passersby. In reality, older people are no more likely to be cranky than people of any other age. In fact, researchers say that overall seniors tend to be happier than younger people. Over time, many people tend to remember the happy experiences and the memories of daily annoyances fade.

When seniors retire, they no longer have to deal with the daily hassles of commuting to work, dealing with difficult co-workers and getting paid a lower salary than their less intelligent boss to do a job they hate. Instead of having all the work and stress of raising their children, the aging adult gets to visit the grandchildren, getting all the enjoyment and none of the work.

It is easy to see why many people become happier as they get older. Perhaps the stereotype of grumpy older adults, is just a creation of our ageist society that does not value its elders.

Why Some Seniors Appear to be Cranky

Let’s say that your dad was soft-spoken when you were growing up. He did not criticize or complain. All of your friends wished he was their dad. Now that you are grown, he speaks his mind and lets people know when he does not like something. He might not be irritable. He might just be less concerned about what people think of him. Many people reach a point, at which they realize that they do not have to try to please everyone.

Lack of Accommodations Can Make Older Adults Irritable

It used to be fun to go out to eat with your mom. However, now she is so disagreeable, that you wonder if it is worth the effort. Try to think of it from her perspective. She had to struggle to get out of the car and make her way with a walker or cane through a crowded restaurant, hoping she did not fall and break a bone, when a child darted in front of her.

With all the background noise, it can be hard for her to follow the conversation at the table or hear what the server is saying. Without bright lighting, she might not be able to read the menu. Rather than focus on her behavior, you should realize that our society makes few accommodations for seniors.

References:

AARP. “The Truth About Grumpy Old Men (and Women).” (accessed February 28, 2019) https://www.aarp.org/health/healthy-living/info-2018/grumpy-old-men-myths.html

Suggested Key Terms: personality changes in seniors, understanding irritability in aging adults

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Challenges for Women Facing Retirement are Especially Daunting

Add to the challenges facing women in retirement are the rising costs of health care, as well as other deeply-rooted economic factors, says Next Avenue in the article “What Could Help Women Facing financial Challenges for Retirement.” This issue is top-of-mind for many, with a focus from the Senate and the EBRI pushing this public policy matter into the spotlight.

The barriers for women to accumulate wealth are very real. At the Senate hearing, Linda Stone, a WISER member (Women’s Institute for a Secure Retirement) presented some hard facts: there are 5.7 million more women than men at age 65, and of those who are over 85, 67% are female. One out of two women alive right now, will live until age 90. However, many people over age 85, and especially women, end up living in poverty or in near poverty, even if they were never poor throughout their lives.

The longer lifespan of most women comes with a resulting need for more income. Women traditionally have nine years with zero earnings, usually because they are rearing children or caring for elderly parents. Women’s careers also average 29 years compared to 39 years for men.

The gender mortality difference and the tendency for women to marry older men, leads to them outliving their partners and be more likely to live alone. This increases their chances of descending into poverty. Couples’ finances are also often exhausted by caring for the husband’s medical needs.

How can women be helped to achieve financial security in retirement?

  • Study ways to offer retirement protection to women, who spend significant time as caregivers, including considering providing Social Security credits for those years.
  • Encourage employers to offer retirement plans.
  • Allow part-time and temporary workers to participate in employer-sponsored retirement plans.

A briefing presented by the EBRI looked into the reasons why women tend to save less than men. The program referenced a blog post from Kimberly Blanton, of the Boston College Center for Retirement Research, which noted that “if the difference between paychecks for men and women is a gap, then the difference in wealth can be described as a chasm.”

The median net worth for women age 45 to 65 adjusted for inflation has actually declined in recent years. Older women of color have seen the largest decline in their net worth. The study was conducted by the University of Pennsylvania’s School of Social Work and the nonprofit Asset Funders Network.

The takeaway: there is a strong need for more public policy initiatives to help women save more for retirement.

Reference: Next Avenue (February 12, 2019) “What Could Help Women Facing financial Challenges for Retirement”

Suggested Key Terms: Women’s Retirement, Employee Benefit Research Institute (EBRI), Senate Special Committee on Aging

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How Seniors Can Spot Work-at-Home Scams

Many people want to bring in a little extra money in retirement. Working from home seems like an ideal way to do that. You can earn some income, without having to dress in uncomfortable clothes or fight traffic jams to commute to the office. Scammers know how appealing this scenario sounds, so they develop ways to rip off hard-working older Americans. Here are some tips on how seniors can spot work-at-home scams.

According to the Better Business Bureau, most offers to work from home are actually fraudulent schemes that will cause you to lose money, not make it. The typical victim of these scams will lose about $800. Offers involving these activities are usually from con artists:

  • Assembling crafts
  • Typing
  • Data entry
  • Completing online surveys
  • Stuffing envelopes
  • Doing billing for medical offices

The scams will ask you to spend money upfront on things like:

  • Materials
  • Supplies
  • Training
  • Coaching
  • Leads to get clients

Red Flags That the Opportunity Is a Rip-off

Legitimate job offers do not require you to recruit more people into the scheme. However, many fraudulent set-ups do. If the advertisement sounds too good to be true, it probably is. For example, the ad promises that your upfront investment will pay itself off quickly with high income that requires very little effort by you. Con games also often claim that you do not need any job skills or experience to make lots of money.

How to Protect Yourself from Fraudulent Work-at-Home Schemes

It can be difficult to identify which job opportunities are legitimate and which are scams. Here are some steps you can take to keep from becoming a victim of a con:

  • Check out the company with the Better Business Bureau, both in the city where the company is located and in your town. Of course, if the advertisement does not provide an office address you can easily verify, that is not a good sign.
  • Contact your state’s consumer protection agency and Attorney General’s office to find out if people have filed complaints against the organization or if they are under investigation.
  • If the company does not yet have complaints against it, that could be because it is a new scheme. Con artists tend to change their business names frequently, just as telemarketers use many different phone numbers.
  • Be skeptical of testimonials in the advertisement or on the company’s website. There is an entire industry of fake testimonials.
  • Never pay any money or sign an agreement, without first doing a thorough investigation of the company.
  • Do not trust a job offer, just because it appeared in a reputable magazine, newspaper, or online job board.
  • Insist that the company put in writing when and how you will get compensation, and all costs you might have to incur. Make sure that you understand whether your payment will be salary or commission.
  • Instead of answering ads, which are almost always scams, list with a legitimate jobs board. Realize, however, that con artists can and do contact people on those sites.

If you become the victim of a scam, a lawyer might be able to help you get some of your money back from the con artists.

References:

AARP. “Work-at-Home Scams.” (accessed February 14, 2019) https://www.aarp.org/money/scams-fraud/info-2019/work-at-home.html

Suggested Key Terms: how to spot fraudulent work-at-home schemes, avoid getting ripped off when working from home

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A Love Letter to Your Family

Now, to the 70% of Americans who do not have an estate plan, the article “Senior Spotlight: Composing the ‘family love letter’” from the Lockport Journal should help you understand why this is so important. One reason why people don’t take care of this simple task, is because they don’t fully understand why estate planning is needed. They think it’s only for the wealthy, or that it’s only for old people, or even that it’s only about death and taxes.

Consider this idea: an estate plan is about protecting yourself while you are alive, protecting your family when you have passed and leaving a legacy for the living.

Some of the main elements of an estate plan are to create and execute documents that provide for incapacity and death, as well as provide information about your assets, liabilities and wishes.

You’ve spent a lifetime accumulating assets. It is now time to sit down with family members and have a heart-to-heart talk about the details of the estate and what your intentions are with respect to its distribution. The subject of death can be challenging for all. However, discussing your estate plan is vital, if you want to protect your family from what might come after you are gone. Each family has its own goals, so it’s a good idea to talk about it frankly, while you still can.

Without discussions and an estate, the chances of a family split, assets not going where you had intended and unnecessarily higher costs in taxes and legal fees, are a very real possibility.

If speaking about these topics is too hard, you may want to write your family a love letter. It would contain all the information that your family would need at the time of your death or if you become incapacitated because of illness or injury.

Your estate plan should also include the documents needed, so your family can make decisions on your behalf, if you are incapacitated. That includes a power of attorney, a health care directive and may include others specific to your situation.

Ideally, all this information will be located in one convenient place. Don’t put it on a computer where you use a password. If the family cannot access your computer, all your hard work will be useless to them. Put it in a folder or a notebook, that is clearly labeled and tell family members where it is.

They’ll need this information:

  • A list of your important contacts — your estate planning attorney, financial advisor, CPA, insurance broker and medical professionals.
  • Credit card information, frequent flier miles.
  • Insurance and benefits including all health, life, disability, long-term care, Medicare, property deeds, employment and any military benefits.
  • Documents including your will, power of attorney, birth certificates, military papers, divorce decrees and citizenship papers.

Think of these materials and discussions as your opportunity to make a statement for the future generation. If you don’t have an estate plan in place already or if you have not reviewed your estate plan in more than a few years, it’s time to make an appointment for a review. Your life may have not changed, but tax laws have, and you’ll want to be sure your estate is not entangled in old strategies that no longer benefit your family.

Reference: Lockport Journal (Feb. 16, 2019) “Senior Spotlight: Composing the ‘family love letter’”

Suggested Key Terms: Estate Plan, Will, Power of Attorney, Health Care Directive, Legacy

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