Month: February 2019

What is a Failed Testamentary Transfer and How Do I Prevent it From Happening?

The goal of any estate plan is to avoid “intestacy” — that is, when all or some of a person’s estate goes to their surviving heirs, and not to beneficiaries who were named in the decedent’s will or trust. After all, that was the point of having a will in the first place, wasn’t it?

However, as reported in Lake Country News’ article “Estate Planning: Failed Testamentary transfers,” things don’t always work out as planned. If the beneficiary is unable to receive the asset, the best possible situation is for the asset to go to an alternative beneficiary. That’s why every will, trust and any asset of any kind with a beneficiary designation should have an alternative or secondary beneficiary.  However, what happens when there’s no such person named?

If the deceased beneficiary was the decedent’s kin or was kin to the surviving spouse, deceased spouse or even an ex-spouse, in California a special statute called the California Anti-Lapse Statute comes into play, unless another intention is expressed in the will. Under this law, a gift to a deceased kindred beneficiary goes to the kindred beneficiary’s descendants.

The share of the asset will be divided into as many shares, as there are living members of the next generation of kin.

Here’s an example: Let’s say a father makes a gift to his beloved daughter Susan. Sadly, Susan dies before her father. She has two daughters, Dawn and Heather. There’s also a son, Phil, who has passed away, with two surviving children (who were Susan’s grandchildren).

The shares of the father’s gift to Susan is divided by a right of representation into three equal shares: one share each for both of Susan’s daughters Dawn and Heather, and one share for her son Phil, because he has two surviving children.

The share for Phil’s two kids is split equally between the two boys.

This division of assets is a statutory response to what can happen when children do not live longer than their parents.

When there is no alternative beneficiary to inherit and the Anti-Lapse statute does not apply, then the gift is subject to a residual clause. This determines how the remainder, or balance, of the assets are distributed after any specific gifts or assets and monetary gifts are made. First in line: any debts or taxes that need to be paid by the estate.

When there are no specific or monetary gifts, the residuary clause distributes the decedent’s entire estate.

Let’s say Bob leaves his entire estate to his friend George. The Anti-Lapse statute does not apply, because Bob’s heir is not a relative. The will has a residuary clause that gives the remainder of the estate to Bob’s own children equally, even though that might not have been Bob’s intention.

While every state has different laws, this is a good example of why it is very important to update your will on a regular basis. It’s also important to have alternative or secondary heirs named as beneficiaries in your will. Life has a way of surprising us. If your will is not up to date, your assets may not go to the people you had intended. We invite you to request an estate planning consultation with one of our experienced attorneys to make sure your assets are distributed as you intend.


Reference: Lake Country News (Jan. 26, 2019) “Estate Planning: Failed Testamentary transfers”

This is the Year to Complete Your Estate Plan!

Your estate plan is an essential part of preparing for the future. It can have a dramatic effect on your family’s future financial situation. Estate planning can also have a significant impact on your tax liability immediately. Utah Business’s article, “5 Estate Planning Tips For 2019,” helps us with some tips.

Your Will. If you have a will, you’re ahead of more than half of the people in the U.S. Remember, however, that estate planning isn’t a one-time thing. It’s an ongoing process that requires making sure your plan reflects your current wishes and financial situation. You should review your will at least every few years. However, there are also some life events that should trigger a review, regardless of when the last review occurred. These include marriage, divorce, the birth or adoption of a child or grandchild, an inheritance, a large financial loss and the loss of a spouse.

A Trust. Anyone can create a trust, and it has real estate planning advantages. You can use a trust to pass assets to heirs and other beneficiaries, just like you could with a will. However, assets passed through a trust don’t need to go through probate. Using a trust to transfer assets provides privacy.

The Current Tax Breaks. The 2017 Tax Cuts and Jobs Act gives us some significant tax cuts in 2019, such as a temporary doubled lifetime exclusion for the gift and estate tax, temporary exemptions from the generation-skipping transfer tax, higher annual gift limits and charitable contribution deductions. To see if you can use of any of these tax benefits, speak to our experienced estate planning attorneys.

Talk to our Attorneys for a Review of Your Estate Plan. It’s important to remember that estate planning is complicated. You should, therefore, develop a comprehensive estate plan with the help of an experienced attorney. Don’t be tempted to use an online legal do-it-yourself service to save a few dollars, because any mistakes you make could have a big impact on you and your family’s financial future.

Every state has its own laws regarding the formalities required to create a valid will. If you fail to follow any of these, a court may declare your will invalid during probate. Your entire estate will then be distributed according to the laws of intestate succession. These laws may not reflect your wishes for the distribution of your estate. Meeting with one of our experienced attorneys will make certain that your estate planning documents are in order. It will also help you to identify your goals and ensure that your assets are protected and transferred in the most efficient way possible.


Reference: Utah Business (February 5, 2019) “5 Estate Planning Tips For 2019”
Trusts

Does Anyone Really Need a Trust?

The simplest definition of a trust is a three-party fiduciary relationship between the person who created the trust and the fiduciary for the benefit of a third party. The person who created the trust is known as the “Settlor” or “Trustor.” The fiduciary, known as the “Trustee,” is the person or organization with the authority to handle the asset(s). The trustee owes the duty of good faith and trust to the third party, known as the “Beneficiary.”

That is accurately described by the Pittsburgh Post-Gazette in the article titled “Do I need a trust?”

Trusts are created by the preparation of a trust document by an estate planning attorney. The trust can be made to take effect while the Trustor is alive — referred to as inter vivos or after the person’s death — testamentary.

The document can be irrevocable, meaning it can never be changed, or revocable, which means it can change from one type of trust to another, under certain circumstances.

Whether you even need a trust, has nothing to do with your level of assets. People work with estate planning attorneys to create trusts for many different reasons. Here are a few:

  • Consolidating assets during lifetime and for ease of management upon disability or death.
  • Avoiding probate so assets can be transferred with privacy.
  • Protecting a beneficiary with cognitive or physical disabilities.
  • Setting forth the rules of use for a jointly shared asset, like a family vacation home.
  • Tax planning reasons, especially when IRAs valued at more than $250,000 are being transferred to the next generation.
  • Planning for death, disability, divorce or bankruptcy.

There is considerable misinformation about trusts and how they are used. Let’s debunk a few myths:

An irrevocable trust means I can’t ever change anything. Ever. Even with an irrevocable trust, the settlor typically reserves options to control trust assets. It depends upon how the trust is prepared. That may include, depending upon the state, the right to receive distributions of principal and income, the right to distribute money from the trust to third parties at any time and the right to buy and sell real estate owned by the trust, among others. Depending upon where you live, you may be able to “decant” a trust into another trust. Ask our estate planning attorneys, if this is an option.

I don’t have enough assets to need a trust. This is not necessarily so. Many of today’s retirees have six figure retirement accounts, while their parents and grandparents didn’t usually have that much saved. They had pensions, which were controlled by their employers. Today’s worker owns more assets with complex tax issues.

You don’t have to be a descendant of an ancient Roman family to need a trust. You must just have enough factors that makes it worthwhile doing. We invite you to talk with one of our estate planning attorneys to find out if you need a trust. While you’re at it, make sure your estate plan is up to date. If you don’t have an estate plan, there’s no time like the present to tackle this necessary personal responsibility.


Reference: Pittsburgh Post-Gazette (Jan. 28, 2019) “Do I need a trust?”

Do-It-Yourself Will Leads to Disaster

This is a cautionary tale of what can happen when people create a do-it-yourself will without the help of an estate planning attorney. As Ms. Cockrum told News 2 in the article “The power of a will and trouble without one,” she’s going from court procedure to court procedure, and feels overwhelmed. The entire issue could have been prevented with a properly prepared will.

Without a valid will, a judge must determine how to divide assets in an estate. In this case, the biggest issue concerns the family home. The mortgage for the home is in her late husband’s name, even though they bought the house and maintained it together.

Here’s the problem: his children from a previous marriage are legally entitled to half of his assets.

Without a will or with a poorly executed do-it-yourself will, battles among family members are common. One purpose of the will is to name an executor (also known as the personal representative) who takes charge of distributing assets, including selling a home, paying off any debts and making sure that final wishes are carried out, as the decedent wanted. Without an executor, the first battle is over who will be in charge. That can take months and delay any resolution to the estate.

If there are minor children and no will, the opportunity to determine who will take care of the children is left to the court. Someone who does not know the family will make a decision to appoint the person who becomes their guardian. It may be someone you would not have wanted to rear your kids.

The will also outlines who gets what possessions from the estate. Family heirlooms and artifacts, like china, jewelry, collections and all kinds of items hold emotional and financial value. Fighting over who gets what, happens often when there’s no will. That takes time to resolve.

Without an estate plan to help manage tax liabilities, there may be taxes that could have been minimized. The cost of attorney’s fees to settle an estate without a will is also going to be higher than working with an attorney in the first place to create a will and other important documents.

Another surprise which families run into when there’s no will is that: people think the surviving spouse inherits everything. However, this is not always true. Without a will, the state law determines what happens to the estate’s assets. Depending on the state, your spouse may get 50% and your kids may get 50%, or the surviving spouse might get everything. In other states, the surviving spouse receives a third.

The simplest way to avoid this trouble is to request an appointment with our experienced estate planning attorneys and have an estate plan created that will protect your surviving spouse and your family. Our attorneys will also help you prepare for incapacity, with a power of attorney and healthcare power of attorney. This is not a do-it-yourself task.


Reference: News 2 (Jan. 29, 2019) “The power of a will and trouble without one”

Does TV Mogul Sumner Redstone Have the Mental Capacity to Change his Estate Plan?

The decision on TV mogul Sumner Redstone’s estate plans, follows the settlement of litigation with his former companion Manuela Herzer. The Hollywood Reporter explains, in the article “Sumner Redstone Had Capacity to Change Estate Plan, Judge Rules,” that after Herzer was thrown out of Redstone’s mansion and removed as the person in control of his health care directive in 2015, she sued and claimed he didn’t possess the mental capacity to make decisions for himself and his business.

The fight included allegations of elder abuse against Herzer and claims that his daughter Shari Redstone was manipulating her father, which have now been resolved. Herzer agreed to repay the $3.25 million she received in gifts and to state that she has no decision-making power concerning Redstone.

Los Angeles Superior Court Judge David Cowan formally concluded the fight over Redstone’s competence, by confirming the validity of Redstone’s current estate plan.

“Mr. Redstone had sufficient capacity to execute the Fortieth Amendment to and Restatement of the Sumner M. Redstone 2003 Trust dated July 23, 2003, and the Forty-First Partial Amendment thereto on their respective dates of execution, October 16, 2015, and May 20, 2016,” writes Cowan, adding the changes “were not the product of undue influence, fraud, duress or mistake.”

Judge Cowan’s decision is no guarantee that there won’t be further disputes over what happens to the billionaire’s estate after he dies, but it does lend support to Redstone in weathering future challenges. This is particularly important, because a guardian ad litem was appointed by the court in December to ensure that the proceedings were in Redstone’s best interest.

“After three years of litigation, Mr. Redstone is grateful for today’s court confirmation of his capacity to execute his estate plan, and of his free will in doing so,” his lawyer Gabrielle Vidal said in a statement to The Hollywood Reporter.


Reference: The Hollywood Reporter (January 23, 2019) “Sumner Redstone Had Capacity to Change Estate Plan, Judge Rules”

You Can Avoid Elder Financial Abuse, but How?

The prospect of a long, healthy and active life is a wonderful thing to consider. However, one in 10 seniors have suffered financial abuse, according to The Kansas City Star’s article “Five ways to avoid elder financial abuse.” The grandson of Brooke Astor spoke at a conference about how his grandmother’s last years were spent living in poverty, as a result of her son and guardian stealing from the estate and cutting the amount of money available for her care. The grandson and his brother sued their father to protect their beloved grandmother, a leading philanthropist and one of New York’s high-profile society figures.

However, elder financial abuse is not limited to the super wealthy or socially prominent. One report noted that one in ten seniors suffers some form of financial abuse.

Why does this happen?

As we age, our brain also ages making us more susceptible to making poor decisions. Even high-functioning retirees with no outward sign of dementia, find it harder to distinguish safe investments from risky ones. The probability of dementia also rises as we age: only 7% of people over 60 have dementia, but nearly 30% of people over age 85 have some degree of dementia.

Here are some suggestions to minimize the likelihood of financial elder abuse:

Communicate. Talk with your loved ones regularly, so you know how their health is and what they are doing. If they don’t want to talk about money, you can start the conversation by sharing something about your own situation. Remind them about safe practices like shredding receipts, bills and account statements. Remind them not to open emails from people they don’t know and not to give their Social Security number or account numbers on the phone or online to people they don’t know.

Stay involved. Know how your loved ones are spending their time and money, by staying involved in their lives. If they are hiring people to do work on or in the house, know who those people are and check their backgrounds. Get to know their home healthcare aides. Review their bank statements to ensure no unusual activity is taking place. If you see that they are starting to decline, offer to take over tasks for them.

Check and balance. Make sure that the correct estate planning documents are in place to allow trusted family members to help, if the need arises, such as power of attorney and medical directive. Divide up responsibilities; consider having one person in charge of bank accounts and another in charge of investment accounts. Trade responsibilities every few months.

Have a relationship with their professionals. Attend meetings with their estate planning attorney and their financial advisor. If there is any hesitation on the part of the professional, push back: any qualified estate planning attorney or financial advisor or CPA should welcome family involvement.

Streamline accounts. Fraud is harder to see when there’s money in multiple financial institutions with various advisors and life insurance policies from several different brokers. Spend the time to do a complete inventory of all accounts. If you can, consolidate accounts.


Reference: The Kansas City Star (Sep. 8, 2018) “Five ways to avoid elder financial abuse”

How Can I Goof Up My Estate Plan?

There are several critical errors you can make that will render an estate plan invalid. Many of these can be easily avoided, by examining your plan periodically and keeping it up to date.

Investopedia’s article, “5 Ways to Mess Up Estate Planning” gives us a list of these common issues.

Not Updating Beneficiary Designations. Be certain those to whom you intend to leave your assets are clearly named on the proper forms. Whenever there’s a life change, update your financial, retirement, and insurance accounts and policies, as well as your estate planning documents.

Forgetting Key Legal Documents. Revocable living trusts are the primary vehicle used to keep some assets from probate. However, having only trusts without a will can be a mistake—the will is the document where you designate the guardian of your minor children, if something should happen to you and/or your spouse.

Bad Recordkeeping. Leaving a mess is a headache. Your family won’t like having to spend time and effort finding, organizing and locating your assets. Draft a letter of instruction that tells your executor where everything is located, the names and contact information of your banker, broker, insurance agent, financial planner, attorney etc.. Make a list of the financial websites you use with their login information, so your accounts can be accessed.

Faulty Communication. Telling your heirs about your plans can be made easier with a simple letter of explanation that states your intentions, or even tells them why you changed your mind about something. This could help give them some closure or peace of mind, even though it has no legal authority.

Not Creating a Plan. This last one is one of the most common. There are plenty of stories of extremely wealthy people who lose most, if not all, of their estate to court fees and legal costs, because they didn’t have an estate plan.

These are just a few of the common estate planning errors that happen. For more information on how to be certain your assets will be dispersed according to your wishes, we invite you to talk with our qualified estate planning attorneys by requesting a consultation.


Reference: Investopedia (September 30, 2018) “5 Ways to Mess Up Estate Planning”

Federal Estate Taxes of Little Worry for Most of Us

If you are worried about federal estate taxes, it is a good problem to have. It means that your asset level is above the limits brought about by the new tax laws. That wasn’t the way things were 10 or 20 years ago, when federal estate tax limits were much lower. As a result, many middle-class families found themselves with big estate tax issues, when estates were settled. A recent article in the Rome Sentinel addresses the estate tax from an historical perspective and what you need to know about it today. The article is titled “2019 update: Should you be concerned about the estate tax?”

For starters, there are many loopholes and nuances in the tax laws. Therefore, every situation is different. Your estate planning attorney will be able to review your individual situation and work with the laws of your state to make sure that your estate plan works for your family and minimizes your estate tax liability.

The estate tax concept is based on laws from past centuries, when the goal was to limit the amount of property that individuals could pass from one generation to the next. The estate tax is now government’s way of saying you had too many assets, or assets that could not be fully valued or taxed, except upon your death. After death, the net worth of your estate is calculated by valuing your assets minus any liabilities.

Assets are counted as anything of value. However, they include: cash, insurance policies, stocks, bonds, real estate, annuities, brokerage accounts, business interests and today, digital assets. They are brought to present market value to create the “gross estate.” Liabilities are counted as debts, mortgages, assets, funeral and estate expenses, and any assets lawfully passing to a surviving spouse. The liabilities are deducted from the assets to get to the “net estate” value.

Federal limits to the estate tax deduction were doubled, and today very few estates in the US are subject to the federal estate tax. Here’s a comparison: in 2000, the federal estate tax exemption was $675,00 and an estimated 52,000 estates had to pay estate taxes. The top 10% of income earners paid almost 90% of the tax, with more than a quarter of that paid by the wealthiest 0.1%. Even those percentages have decreased since 2017.

When the new Tax Cut and Jobs Act became effective, the exclusion for federal estate tax increased from $5.49 million per person to $11.18 million per person. In 2019, there has been a further increase, to $11.4 million per person. That remains in effect until 2025.

Many states impose their own estate taxes. In New York State, the Basic Exclusion Amount for New York State Tax for estates for people who died on or after Jan. 1, 2019, and before Jan. 1, 2020, has increased from $5.49 million per person to $5.74 million per person. These amounts will increase in 2020 and will be adjusted for inflation in the future.

However, even without the federal estate tax, people still need estate plans to protect themselves and their families. A living trust ensures that your assets are distributed to the people you want to receive your assets free of involvement of the probate court. An estate plan includes Power of Attorney, to name the person you want to make financial decisions in the event you are incapacitated. You also want to have a Health Care Power of Attorney, so someone can make decisions about your health care, if you cannot speak on your own behalf. Talk with our experienced estate planning attorneys to make sure that your plan will work as intended to protect you and your family.


Reference: Rome Sentinel (Jan. 22, 2019) “2019 update: Should you be concerned about the estate tax?”

Still Wondering Why You Need to Review Your Estate Plan?

One of the most common mistakes in estate planning is thinking of the estate plan, as being completed and never needing to be reviewed. That is similar to taking your car for an oil change and then simply never returning for another oil change. The years go by, your life changes and you need to review your estate plan.

The question posed by the New Hampshire Union Leader in the article “It’s important to periodically review your estate plan” is not if you need to have your estate plan reviewed, but when.

Most people get their original wills and other documents from their estate planning attorney, put them into their safe deposit box or a fire-safe file drawer and forget about them. There are no laws governing when these documents should be reviewed, so whether or when to review the estate is completely up to the individual. That often leads to unintended consequences that can cause the wrong person to inherit, fracture the family and leave heirs with a large tax liability.

A better idea: review your estate plan on a regular basis. For some people with complicated lives and assets, that means once a year. For others, every three or four years works. Some reviews are triggered by changes in life, including:

  • Marriage or divorce
  • Death
  • Large changes in the size of the estate
  • A significant increase in debt
  • The death of an executor, guardian or trustee
  • Birth or adoption of children or grandchildren
  • Change in career, good or bad
  • Retirement
  • Health crisis
  • Changes in tax laws
  • Changes in relationships to beneficiaries and heirs
  • Moving to another state or purchasing property in another state
  • Receiving a sizable inheritance

What should you be thinking about, as you review your estate plan? Here are some suggestions:

Have there been any changes to your relationships with family members?

Are any family members facing challenges or does anyone have special needs?

Are there children from a previous marriage and what do their lives look like?

Are the people you named for various roles—power of attorney, personal representative, guardian and trustees—still the people you want making decisions and acting on your behalf?

Does your estate plan include a durable power of attorney for healthcare, a valid living will, or if you want this, a DNR (Do Not Resuscitate) order?

Has your estate plan addressed the possible need for Medicaid?

Do you know who your beneficiary designations are for your accounts and are your beneficiary designations still correct? Your beneficiaries will receive assets outside of the will and nothing you put in the will can change the distribution of those assets.

Have you aligned your assets with your estate plan? Do certain accounts pass directly to a spouse or an heir? Have you funded any trusts?

Finally, have changes in the tax laws changed your estate plan? Your estate planning attorney should look at your state, as well as federal tax liability.

Just as you can’t plant a garden once and expect it to grow and bloom forever, your estate plan needs to be reviewed, so that it can protect your interests as your life and your family’s life changes over time. Our experienced estate planning attorneys can review your existing estate plan to determine if your goals are still being met.


Reference: New Hampshire Union Leader (Jan. 12, 2019) “It’s important to periodically review your estate plan”
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