5 Common Estate Planning Myths for Unmarried People without Kids

When I talk with people who aren’t married and don’t have kids, estate planning is usually the furthest things from their minds. And yet, in some ways, it is even more important for these individuals to have an estate plan. Here are the five of the biggest myths for people in this situation.

1. I don’t own a home, so I don’t need a will.

Wrong. Many people presume that because they don’t have one large asset, they don’t have anything of value to pass along. What many people forget is that they have other investments — retirement accounts, savings bonds, stock or mutual funds, etc. While it may not be millions, it is worth thinking about what you want to happen to those assets after you pass. Do you have a nieces and nephews that you want to see attend college? Do you have charities or organizations that you want to support with bequests from your estate? Do you have a sibling with special needs who could use some extra care through a trust for their benefit? The only way to insure that your assets are used to support the people and organizations that you love is through estate planning.

2. So I have a few assets, but it’s still not much. I’m sure my extended family can figure out something fair.

The truth is that everyone has an automatic estate plan provided by the government (See RCW 11.04.015). If you die without a will, your assets will be distributed to your next of kin according to the laws of intestacy. Intestate means “without a will.” And it gets complicated pretty quickly. For someone who is not married and does not have children, your estate goes to your parents. If your parents are no longer living, then it goes to your siblings. If you don’t have any siblings, then it goes to your parents’ siblings (your aunts and uncles), and then to their kids (your cousins), and so forth. What if you come from a blended family? Well, your half-siblings count as siblings, but your step-siblings probably do not unless they were legally adopted (same deal for step-parents). Eek.

But let’s keep going! Let’s say that you are survived only by your sister, and by your brother’s two kids. Guess what? Your estate won’t be divided into three equal parts. Rather, your sister will get 50%, and your niece and nephew will get 25% each (equally splitting the 50% that would’ve gone to your brother). Complicated, right?

While the division provided for under the statute may be “fair,” it may not be equitable and it can cause a fighting and hurt feelings for your family. Now think: is this really what you want to happen with the funds in your retirement account if you don’t get to use them?

3. I get it. I need a will. But I don’t need a fancy “estate plan.”

A basic estate plan consists of 4 documents: a will, a power of attorney for health care decisions, a power of attorney for finances, and an advanced directive.

The power of attorney grants someone the ability to make decisions on your behalf if you are incapacitated (or, for finances, unavailable). These are two of the most important documents that every single person needs. For married couples, the default is that your spouse will make health care decisions for you if you are incapacitated. But for unmarried people, the power passes to your adult children, then your parents (if alive), then your adult siblings, and then their kids, and so forth. Are those the people you really want making these kinds of decisions for you? Or would you rather pick a dear friend?

Similarly, a power of attorney for finances allows someone you trust to access your financial accounts if you are incapacitated (for example, in a medically-induced coma following a car accident) or unavailable (for example, when your wallet and passport are stolen while you’re traveling in Brazil). This person can do things like wire money to you while you are abroad, or simply pay your rent and bills so your apartment is still home when you are released from the hospital. The biggest benefit here is that, unlike a cosigner, the person with power of attorney for finances won’t get mixed in to your credit ever. You are totally separate, but with access in case of an emergency.

Lastly, your advance directive is a statement about which end-of-life treatments you do or do not want. While your power of attorney for health care is the one who consents or revokes consent to treatment, this document is a guide to help them follow what you would want. It is a gift for the people who love you, to spare them from trying to figure out what you would’ve wanted.

4. That all makes sense… for someone who’s old! I just turned 18! I don’t need to think this yet.

When I left home for college, my mom cosigned on my first checking account. At the time, it seemed prudent — she could check-in on my finances and help me move funds around more easily. In retrospect, this was a terrible idea. What if I had signed up for a bunch of credit cards and racked up a lot of debt? She (and my father) could’ve been on the hook for that debt too, and it could’ve affected their credit score. Luckily, I didn’t, but I will never cosign on my kids’ bank accounts so long as a power of attorney for finances is available.

Similarly, while we don’t like to think about it, accidents happen in college. In fact, the leading cause of death for people ages 15-24 in 2017 was unintentional injury (for example, car crashes, poisoning, drowning, etc). While a person in this age range may not have substantial assets, it is a chance for him or her to articulate what should happen with those assets, as well as explaining end-of-life preferences.

5. I think I will do this… but I don’t think I need an attorney to help me.

This one is tricky — because there are a lot of things you can do by yourself using self-help resources available on the internet. The American Bar Association recommends hiring an attorney if any of the following circumstances are true for you:
1. Complications with previous marriages, divorce, or blended families.
2. You (or your spouse or children) have international citizenship.
3. You own or have interest in property in another state.
4. Your assets exceed a certain amount (this varies state-to-state and changes each year. In Washington, right now, it's $2.129 million, and that includes real estate and life insurance). 
5. You (or your spouse) are getting married and could have complications with trusts, property ownership, or guardianship for your minor children.

But this is a list of estate planning mistakes for unmarried people without kids — and most of those reasons won’t apply. So why is it a mistake to do it yourself?

Well… because you probably won’t do it.

According to a study reported on by the AARP, 6 out of 10 adults in the United State do not have an estate plan. If you’re under the age of 54, that percentage is even higher (72% of people over the age of 73 and 58% of those between 54-73 have an estate plan).

Every estate planning attorney has a story or 20 about the almost-client who decided to write their own will. When we run into them years later, the first thing they say is “I still haven’t written my will.” Yes, we know. Most people do not write their own will.

So if you are going to write your own, try giving yourself a deadline by when you will write it or hire an attorney to help you. The peace of mind and feeling of accomplishment that you will have when you are holding your signed documents is worth both the effort and the expense.

Science & Art: Coffee Filters

We recently started playing around with coffee filters, and they are SO MUCH FUN! If you haven’t tried coffee filter art and science projects with your kids, I urge you to give it a try!

Orange and blue filters

Our first experiment used liquid water colors and pipettes. I found both online, and we used trays under the papers to keep the liquid somewhat contains. The good news was that water colors clean up easily of most hard surfaces, like tables and hardwood floors. We used pipettes and liquid water colors because it’s great practice for fine motor control, and it’s a fun and quick way to learn about color.

We learned that orange and blue are not a good color combination, as they mix to make brown. On our second attempt, we used red and purple. These were lovely, especially when the light came through them as they were drying.

We used both sets to make butterflies with pipe cleaners. Perfect decorations for spring!

Coffee filter butterflies

Filters in water

I read about a science experiment using coffee filters, water, and washable markers. Draw along the edge of the circle on the filter, forming a big “o” shape. Use a pencil to write the name of the color in the middle of the circle. Then fold it in half twice (quarters), and put the folded corner in a little bowl of water, without letting the water touch the colored circle. It only takes a few moments for the water to wick through the filter, dragging the color from the markers with it. The different shades within each color will separate as the water spreads. The look was stunning, and it happened very quickly.

Have you used coffee filters in your art and science projects? What are some of your favorite ways to use coffee filters?

Black marker!

Starting a Social Club (aka a 501(c)7)

I regularly get emails from friends who have recently become the treasurer of their club and are worried about the financial set-up of the club. More often than not, the club has been operating informally, which means that any funds collected from the members are being deposited in the personal account of whomever is the treasurer. And it’s right for them to be worried!

Using a personal account, rather than a business account, for club business is bad for everyone. First, it makes it really hard to figure out the accounting of the club. If you’re the treasurer, an audit could mean that everyone gets to look at your personal spending habits, and worse — it could mean that the IRS will treat the money from the club as income to you personally, and increase the amount you owe on tax day.

For most clubs, there’s a simple solution: become a 501(c)7 Social Club.

Before we dive in, a word of caution. This blog is set up to provide information about the law. It is not providing legal advice. What’s the difference? Information is an explanation of the law. Advice is applying the law to your specific situation. I don’t know the specifics of your situation (because this is a blog post and not a letter to a client), so this isn’t advice. Not sure what you should do? Ask an attorney (hint: my email is below).

First a question: what is a 501(c)7 Social Club? The IRS defines a 501(c)7 Social Club as a social or recreational club that is organized for pleasure, recreation, and other nonprofitable purposes. Members must share interests and have a common goal directed toward pleasure and recreation, and the organization must provide opportunities for personal contact among members. The organization's facilities and services must be open to its members and their guests only. The organization must be a club of individuals, and no individual may derive profit from the organization's net earnings. Examples of social clubs include chess clubs, amateur cycling clubs, book clubs, college alumni associations, country clubs, garden clubs, and so on.

The first step in this process is to find volunteers. You will need a board of directors, consisting at a minimum of a president/chair, secretary, and treasurer (and the president cannot be the treasurer). At this point, there are two paths you could choose: to incorporate (a formal existence), or to remain an unincorporated association. Either can be 501(c)(7) entities, and there are pros and cons to both.

Incorporated Clubs

If you want to incorporate, you will need to file as a nonprofit organization with the State of Washington. That costs $50 if you do it online, or $30 if you do it by mail. To fill out the form, you need to know who will be the registered agent for the organization and who the initial board members are. This person’s street address is publicly available so that he or she can receive service of process on behalf of the club, in the unlikely event that the club is sued.

There are certain clauses that you need to have in your organizing documents to ensure that you receive tax-exempt status -- a nondiscrimination clause, a clause against self-dealing and conflicts of interest, and a purpose clause that says you are formed for an exempt purpose (here, for recreation and social opportunities of the membership). After you submit your paperwork to the State of Washington, the Secretary of State will send you a certificate of incorporation, that will list your Unified Business Identification (UBI) number. You can then get an Employer Identification Number (EIN) from the federal government (even if you don't intend to hire employees). Both numbers are necessary for getting bank accounts in the name of the club as an incorporated club.

The benefit to being formal is that your existence is confirmed by the Secretary of State, there are corporate protections for your board, and your organization will exist in perpetuity. The drawback is that you will need to file an Annual Report with the Secretary of State every year (the current fee $10) and you will need someone to be the Registered Agent (or pay for a commercial service).

Unincorporated Association

To remain an unincorporated association, skip the paperwork with the Secretary of State and go to the IRS to request an Employer Identification Number (EIN). Click on the options for nonprofits or other, and be sure to select that you are an authorized officer or representative of the organization.

The benefits of this process is that it’s super easy and cheap to set up. The biggest drawback is that there is less liability protection for your board members, but additionally, some banks won’t open a bank account for unincorporated associations or they may impose additional constraints, like a minimum balance or minimum/maximum transactions per month.

Setting Up Banking

To set up your business bank accounts, contact the financial institution of your choosing and set up an appointment to open an account. You may need to call around first to see if the bank will offer business checking for your type of club. At least two people must attend that meeting — typically the president at the treasurer — so both can be signatories on the account, and they will need to bring two forms of ID (usually a driver’s license or passport AND a social security card, but check with your bank first). You also need to bring your certificate of incorporation (if you have one), your EIN paperwork, your bylaws, and recent minutes showing that the two people in the meeting have been approved by the board to open the account.

Are We Tax-Exempt?

It’s possible that your club may have some or all of this already. Even if you already have articles of formation, now is the time to make sure that you have all the necessary clauses to be granted tax-exempt status. If there isn’t a clause about anti-discrimination, for example, now is the time to formally amend the articles and update them with the State of Washington — before you file for tax-exemption with the IRS.

But I’m getting ahead of myself. There are two ways to go about getting 501(c)(7) status: asking for it, and claiming. A 501(c)(7) is allowed to self-report their tax-exempt status without applying for tax-exempt status first. You do this by filling your annual Form 990 and claiming that you are a 501(c)(7). This is a valid option, especially if you are remaining as an unincorporated association.

However, if you are incorporated, I recommend applying for 501(c)(7) status. It can be really helpful to have that grant from the IRS in order to fundraise — for example, on AmazonSmile or with employer-matching. To apply, you need to fill out IRS Form 1024. It looks long, but many of the pages don't apply to c7 entities. There is a fee of $600 for the IRS for this one. You will need to describe the club’s activities, list the names of your board members and officers, list the salaries for your top five employees (if you have any), the annual budgets for the last couple years (or projected budgets, if a new entity), and disclose your assets and liabilities. It’s a long document, but the information should be relatively easy to collect.

Ongoing Reporting Requirements

Congrats! You’re a 501(c)(7)! However, you can lose this status if you fail to file your annual forms. If you are incorporated, you will need to fill out an annual report for Washington State, as mentioned above. It’s very simple and straight forward. Whether you are incorporated or not, you will need to fill out the IRS Form 990. Form 990 is free so long as your gross receipts are less than $50,000 (well, free in the sense that filing your taxes is free if you didn’t have much income that year). There is also an EZ version for clubs with gross revenue less than $200,000 annually. If you fail to submit a Form 990, it can cause you a lot of headaches. There are late fees that can apply, and if you fail to submit for 3 years, then you will automatically lose your tax-exempt status. This is one of the most important duties of the treasurer (typically), but can be assigned to any officer or you can outsource it to a CPA.

If you found this article helpful, I’d love to hear how it went with setting up your organization. Shoot me an email at anna@vanpeltlegal.com

Updated October 28, 2021

Estate Planning: Which documents do you need?

“I want a will. What are all these other documents?”

A good estate plan includes 4 basic documents: a will, a power of attorney for health care, a power of attorney for finances, and an advanced directive. For families with minor children, it also includes an appointment of temporary guardianship, and the will should (at minimum) include a testamentary minor trust. For families with assets above the Washington State Estate Tax Exemption, or families with special needs children or adults, it may include a special needs trust, revocable living trust or other tax-planning documents.

Will

This is what most people imagine when they first first come to me. It is the document that names who your beneficiaries are, details what you want to happen with your property, and nominates your personal representative (sometimes referred to as an executor of your estate). For families with minor children, it often includes the creation of a trust benefiting the children and naming a trustee, and the appointment of permanent guardians. This document comes into effect after you pass away. If you die without a will, your property will pass to your heirs through intestate succession — which may not divide your property in the way that you would’ve wanted.

You must sign your will in the presence of two uninterested people, who can testify that you are of sound mind and judgment in your intent to create your will. Often, a notary public will certify the signatures of the two witnesses.

Power of Attorney for Health Care

This document comes into effect when you are alive but incapacitated. In it, you can name the person you want to make health care decisions on your behalf if you are unable to make them yourself. This document needs to be notarized, but not witnessed, for a hospital to accept it.

Power of Attorney for Finances

While the best practice is to list your spouse on all of your financial accounts, sometimes we forget or simply run out of time. This document allows the person you name to have access to your financial accounts — whether trusts, bank accounts, credit accounts, etc. It can either take effect if you are incapacitated, or it can take effect immediately upon signing. I always recommend that it take effect immediately, as it can take time to get a doctor’s statement of incapacitation and the mortgage still needs to be paid on time. This document needs to be notarized, but not witnessed. In addition, while not strictly legal, many banks will refuse to honor a Power of Attorney that is not recent, under the assumption that it could’ve been revoked in the intervening years. To avoid hassle, I recommend resigning this document every 3-5 years.

Advanced Directive

This is the document that details what kinds of medical care you would like to received at the end of your life. The provisions do not take effect unless you are incapacitated and your condition is terminal, with little likelihood that you will survive without life support or other significant medical interventions. We go line-by-line through the conditions that would need to be present for the document to take effective, and line-by-line through the kinds of treatments you would want to refuse should those conditions be present. For it to be effective, you must sign this document in the presence of witnesses who can affirm that you are of sound mind and judgment in making these decisions. This document is one of the best gifts you can give your loved ones — it is hard to talk about end of life issues, and the people who love you want to honor and respect your wishes. This is one way to make your desires known and understood.

Trusts

For families with assets above the Washington State Estate Tax Exemption, a trust can be a good vehicle for ensure that assets are used for the benefit of your children, and not paid as tax to the state. For most of my clients, the vast majority of assets are community property, which means they automatically transfer to the surviving spouse upon death. There is an unlimited tax exemption for property that transfers to your spouse. However, the tax kicks in when that property transfers to your children. By transferring the first spouse’s property into a trust for the benefit of the children and administered by the surviving spouse, those assets pass directly to the children under the exemption limit, and are not included in the estate when the surviving spouse passes. This is a basic testamentary trust, which is written into the will for most families with minor children.

However, if your assets are above the tax exemption, it may be beneficial to create a trust now, rather than waiting for the first spouse to pass. The biggest factor in making this determination is whether your family needs the financial flexibility to use those fund right now, or whether it would work to lock the property into a trust. The more certainty in your financial situation, and the greater your total assets, the more viable a living trust becomes.

Why do I mediate?

Mediators approach conflict from the perspective that the best people to resolve a conflict are the people who are involved in the conflict. Uninvolved third parties are great resources for people in conflict; mediators and judges can offer objectivity, neutrality, and a larger picture in which to locate a conflict. The biggest difference between a judge and a mediator is our role in resolving that conflict. Judges provide the solution; mediators provide the questions that allow the people in conflict to find their own resolution.

This is my favorite thing about mediating. As a mediator, it’s not my job to resolve the conflict itself. It’s my job to create an environment and to manage a process that will create the best possible circumstances for a solution to be found — but I don’t get to solve the problem.

This approach to problem solving carries over into all of my relationships. Prior to becoming a mediator, I would try to solve a problem that a friend brought to me. Now, I ask questions about the problem. When my twins begin fighting over a toy, I affirm my belief that they can resolve the problem themselves, without my involvement. When my daughter has a problem with a friend at school, I asked her questions about what happened and why, and how she would like it to resolve, and then we role played the conversation that she needed to have with her friend until she was confident in her communication. In working with nonprofits, I have guided boards through difficult discussion about fundraising, employee supervision, and program development.

What is mediation?

This week, I am attending the NW Dispute Resolution Conference, so I’ve been thinking a lot about the role mediation has played in my life. Mediation is a process by which people can resolve conflicts. It is built upon a foundation of listening and respect that I have found helpful as a parent, a partner, a coworker, a supervisor, and as a person living within a community of other people. I want to take a couple posts to dive into what mediation is and why all of us could benefit from becoming trained mediators.

Let’s start with the basics. What is a mediation?

Most mediators follow a 6-step mediation process, and our role as mediators is to be the guardian of that process. The role of the mediator is to guide the parties through the process. The steps are:

1. Mediator opening statement. This is where the mediator explains the process and asks for the parties to affirm that they are there to participate voluntarily, will keep confidentiality, are willing to consider and make offers in good faith, and share pertinent information with the other party(ies).

2. Party opening statements: Each party has equal opportunity to share what the conflict is, why they are there, and what they would like to resolve during the mediation. All parties also get a second opportunity to respond to what the other party(ies) said. During this time, each party directs their statements to the mediator.

3. Agenda building. The parties then work jointly to develop a list of the things that need to be decided for the conflict to end. Any party can add an item, and no one can veto any item.

4. Negotiation. This is where the parties turn to each other and begin offering possible solutions. Depending on the particular circumstances of the conflict (especially where there has been a history of violence or the potential for abuse), mediators may opt to have parties convey offers and counter-offers from different rooms, using the mediator as an intermediary. In most situations, however, the parties will need to continue communicating after the mediation, and it is beneficial for them to practice solving conflicts face-to-face. During this time, the mediator will model active listening, frequently acknowledging the underlying interests at play and addressing the emotions that get stirred up.

5. Caucus. Sometimes a mediator may call a caucus. A caucus is an opportunity to for each party to meet separately with the mediator. These sessions are doubly confidential, in that the mediator will not reveal anything discussed while meeting with the other party(ies). These can be useful for helping address sensitive issues, or acknowledging something that someone is unwilling to let go.

6. Renewed negotiation. After caucus, there is an opportunity to come back together and continue discussing the items remaining on the agenda.

7. Settlement writing. The only document that survives a mediation is the signed settlement agreement. Once the parties have reached an agreement, they will write it down and sign it.

8. Closing statement. This is an opportunity to acknowledge the hard work that was done by the parties during the mediation. Even when a mediation doesn’t end in a settlement agreement, the parties often leave with a greater understanding of the problem and the needs of the other party(ies).

Why does mediation work?

Mediators believe that the best people to resolve a conflict are those most closely affected by it, and not by a so-called neutral third party (aka a judge). You know your life best, and you know what will and won’t work. Therefore, you must be involved in finding a solution.

We also believe in the power of listening and being heard. I have been in the room when a party was finally heard, and the conflict resolved within minutes. The experience of being validated, heard, acknowledged, is powerful. The experience of finally hearing another person (especially someone with whom you have been in conflict) is also powerful. To hear them without adding judgment and without resisting the communication for fear that you will be impacted — it isn’t easy, but it is powerful.

Spring Fun

Spring is here! Bringing with it sunny days, cloudy days, and rainy days. We love all of them! Our kids seem to be solar powered, wanting to be out in the sunshine, even after having spent the entire day in the sunshine.

With the recent warm streak, we revisited many of our favorite playgrounds — and discovered a new one!

The playground at Green Lake is a favorite. There are always enough swings for our mornings, and the twins love playing in the sand.

We discovered Kayu Kayu Ac last weekend. This little gem is tucked away in Richmond Beach, but offers a safe place to run and climb with a beautiful view. If you time it right, you can watch a train pass by a few yards (and over a fence and some big bushes) away.

When the weather isn’t so nice, we’ve enjoyed being a part of the Shoreline Cooperative Preschool. The boys get a chance to play and get to know other kids, and I get friendship and support from other parents in the thick of parenting toddlers and preschoolers. There are still a few spots open for next year for kids who will be 18 months and those who will be 4-years-old by August 31st.

In Celebration of Painter's Tape

If you are anywhere around Seattle, or know someone who is, then you already know that we have seen more snow in the last week than usual. Since February started, school has only been open on three days, and all for less than a full day of school. So what do we do to keep from going completely crazy?

We go outside daily, even though it takes an hour to get everyone dressed — 2-year-olds are terrible at putting on mittens and zipping their snow pants over their boots. At most, we last about an hour outside before the kids get hungry or cold. I’m all for cute photos of snow angels and snow mountain climbing, but an hour is often not enough time to truly wear my kids out.

Enter painter’s tape. I use painter’s tape for all kinds of kid activities. Here’s a list to spark your imagination!

Tissue paper collages on contact paper taped to the wall with painter’s tape.

Snowy scenes on the window with transparent contact paper taped to the window with painter’s tape and a few cotton balls and swaps.

An obstacle course that included a flat “balance beam” from painter’s tape, a taped box on the floor for jumping, and “x” marks to put our hands on when doing donkey kicks.

A race track for cars to zoom around.

City blocks outlined in blue tape, with Duplo buildings and cars.

And my personal favorite: throwing balls of paper at a giant web of tape across a doorway, with the most points for the person who get the most balls to stick.

What tips and tricks are getting you and your family through the snow storm?

Estate Planning in the News

Estate planning is a common new year’s resolution. If 2019 is the year for you, let me know! If you’re still on the fence, check out these article about the importance of putting a plan in place now, even though you may not have a lot of assets or any children. Estate planning is about making life easier for the people who love you when the inevitable happens.

• Estate Planning Checklist from The Motley Fool

• The Most Valuable Gift You Can Give: A Good Estate Plan by Forbes

For more information, schedule an appointment today

Filing Form 1023

Once you have formed your organization, clarified your exempt purpose, and opened your business bank accounts, you are ready to apply for 501(c)(3) status.

Checklist:

1. Form 1023, all relevant parts filled out completely (the form itself is 28 pages)

2. Copy of the certificate of incorporation

3. Copy of your articles of incorporation, and any amendments in chronological order (be sure to include the conflict of interest policy, nondiscrimination clause, and dissolution clause).

4. Copy of your bylaws, and any amendments in chronological order

5. List of your founding officers and directors, and their addresses

6. List of your five highest compensated employees and their compensation

7. Budget for the current year and last three years, or, if you have a new organization, your projected budget for the current year and the following two years

8. A narrative description of your activities

9. A list of all of the organization’s assets and liabilities

10. Signature of a person authorized by the board of directors to submit the form, and the proper filing fee.

Simple, right? This is a big application with a lot of moving parts, many of which depend on nuance for getting approved. The IRS reports that the primary cause for delay in granting 501(c)(3) status is missing, hard to locate, or incomplete purpose and dissolution clauses. One of the best reasons to hire an attorney to help with this process is the level of detail required to submit an application that can be reviewed and granted on the first pass. My motto is: Do it once. Do it right. When we expect the process of preparing to file Form 1023 to take 6 months, we give ourselves the space to cross-check documents and ensure that what we represent to the IRS is accurate to the mission and operation of the organization.

For more information, make an appointment for a free consultation.