How Important Is Avoiding Probate?

Estate planning attorneys are often asked if one of the goals of an estate plan is to avoid probate, regardless of the cost. The answer to that question is no, but a better question is the more even-tempered “Should I try to avoid probate?” In that case, the answer is “It depends.” A closer look at this question is provided in the recent article from The Daily Sentinel, “Estate Planning: Is Probate Something to Avoid at All Costs?”

Probate is not always a nightmare depending upon where a decedent lived. Probate is a court process conducted by judges, who usually understand the difficulty executors and families are facing and their support staff who genuinely care about the families involved. This is not everywhere but your estate planning attorney will know what your local probate court is like. With that in mind, there are certain pitfalls to probate and there are situations where avoiding probate does make sense for your family.

In the case where it makes sense to avoid probate, whatever planning strategy is being used to avoid probate must be carefully evaluated. Does it make sense, or does it create further issues? Here’s an example of how this can backfire. A person provided their estate planning attorney with a copy of a beneficiary deed which is a deed that transfers property to a designated person (called a “grantee”) immediately upon the death of the person who signed the deed (called a “grantor”).

The deed had been signed and recorded properly with the recorder’s office just as a typical deed would be during the sale of a home. Note that a beneficiary deed does not transfer the title of ownership, until the grantor dies.

Here’s where things went bad. No one knew about the beneficiary deed, except for the grantor and the grantee. The remainder of the estate plan did not mention anything about the beneficiary deed. When the grantor died, ownership of the property was transferred to the grantee. However, the will contained conflicting instructions about the property and who was to inherit it.

Instead of avoiding probate, the grantor’s estate was tied up in court for more than a year. The family was torn apart, and the costs to resolve the matter were substantial.  Had the deceased simply relied upon the probate process or coordinated the transfer of ownership with his estate planning attorney, the intended person would have received the property and the family would have been spared the cost and stress. Sticking with the use of a last will and testament and the probate process would have protected everyone involved.

An experienced estate planning attorney can help determine the best approach for the family, with or without probate.

Reference: The Daily Sentinel (Oct. 3, 2020) “Estate Planning: Is Probate Something to Avoid at All Costs?”

 

Estate Planning for a Second Marriage and Blended Family

It takes a certain kind of courage to embark on second, third or even fourth marriages, even when there are no children from prior marriages. Regardless of how many times you walk down the aisle, the recent article “Establishing assets, goals when planning for a second marriage” from the Times Herald-Record advises couples to take care of the business side of their lives before saying “I do” again.

Full disclosure of each other’s assets, overall estate planning goals and plans for protecting assets from the cost of long-term care should happen before getting married. The discussion may not be easy, but it’s necessary: are they leaving assets to each other, or to children from a prior marriage? What if one wants to leave a substantial portion of their wealth to a charitable organization?

The first step recommended with remarriage is a prenuptial or prenup, a contract that the couple signs before getting married, to clarify what happens if they should divorce and what happens on death. The prenup typically lists all of each spouses’ assets and often a “Waiver of the Right of Election,” meaning they willingly give up any inheritance rights.

If the couple does not wish to have a prenup, they can use a Postnuptial Agreement (postnup). This document has the same intent and provisions as a prenup but is signed after they are legally wed. Over time, spouses may decide to leave assets to each other through trusts, owning assets together or naming each other as beneficiaries on various assets including life insurance or investment accounts.  Without a pre-or postnup, assets will go to the surviving spouse upon death, with little or possibly nothing going to the children.

The couple should also talk about long-term care costs which can decimate a family’s finances. Plan A is to have long-term care insurance. If either of the spouses has not secured this insurance and cannot get a policy an alternate is to have their estate planning attorney create a Medicaid Asset Protection Trust (MAPT). Once assets have been inside the trust for five years for nursing home costs and two-and-a-half years for home care paid by Medicaid, they are protected from long-term care costs.  When applying for Medicaid, the assets of both spouses are at risk regardless of pre- or postnup documents.

Discuss the use of trusts with your estate planning attorney. A will conveys property but assets must go through probate, which can be costly, time-consuming and leave your assets open to court battles between heirs. Trusts avoid probate, maintain privacy and deflect family squabbles.

Creating a trust and placing the joint home and any assets including cash and investments inside the trust is a common estate planning strategy. When the first spouse dies, a co-trustee who serves with the surviving spouse can prevent the surviving spouse from changing the trust and by doing so, protect the children’s inheritance. Let’s say one of the couple suffers from dementia, remarries or is influenced by others—a new will could leave the children of the deceased spouse with nothing.

Many things can very easily go wrong in second marriages. Prior planning with an experienced estate planning attorney can protect the couple and their children and provide peace of mind for all concerned.

Reference: Times Herald-Record (Sep. 21, 2020) “Establishing assets, goals when planning for a second marriage”

 

Reviewing Your Estate Plan Protects Goals, Family

Transferring the management of assets if and when you are unable to manage them yourself because of disability or death is the basic reason for an estate plan. This goes for people with $100 or $100 million. You already have an estate plan, because every state has laws addressing how assets are managed and who will inherit your assets, known as the Laws of Intestacy. However, the estate plan created by your state’s laws might not be what you want, explains the article “Auditing Your Estate Plan” appearing in Forbes.

To take more control over your estate, you’ll want to have an estate planning attorney create an estate plan drafted to achieve your goals. To do so, you’ll need to start by defining your estate planning objectives. What are you trying to accomplish?

  • Provide for a surviving spouse or family
  • Save on income taxes now
  • Save on estate and gift taxes later
  • Provide for children later
  • Bequeath assets to a charity
  • Provide for retirement income, and/or
  • Protect assets and beneficiaries from creditors.

A review of your estate plan, especially if you haven’t done so in more than three years, will show whether any of your goals have changed. You’ll need to review wills, trusts, powers of attorney, healthcare proxies, beneficiary designation forms, insurance policies and joint accounts.

Preparing for incapacity is just as important as distributing assets. Who should manage your medical, financial and legal affairs? Designating someone, or more than one person, to act on your behalf, and making your wishes clear and enforceable with estate planning documents, will give you and your loved ones security. You are ready, and they will be ready to help you, if something unexpected occurs.

There are a few more steps, if your estate plan needs to be revised:

  • Make the plan, based on your goals,
  • Engage the people, including an estate planning attorney, to execute the plan,
  • Have a will updated and executed, along with other necessary documents,
  • Re-title assets as needed and complete any changes to beneficiary designations, and
  • Schedule a review of your estate plan every few years with your estate planning attorney and more frequently if there are large changes to tax laws or your life circumstances.

Reference: Forbes (Sep. 23, 2020) “Auditing Your Estate Plan”

 

How Does Guardianship Work?

For the most part, we are free to make our own decisions regarding how we live, where we live, how we spend our money and even with whom we socialize. However, when we are no longer capable of caring for ourselves most commonly due to advancing age or dementia, or if an accident or illness occurs and we can’t manage our affairs, it may be necessary to seek a guardianship, as explained in the recent article “Legal Corner: A guardian can be a helpful tool in cases of incapacity” from The Westerly Sun. A guardianship is also necessary for the care of a child or adult with special needs.

If no proper estate planning has been done and no one has been given power of attorney or health care power of attorney, a guardianship may be necessary. This is a legal relationship where one person, ideally a responsible, capable and caring person known as a guardian is given the legal power to manage the needs of a ward, the person who cannot manage their own affairs. A guardianship appointment is usually supported through a court process, requires a medical assessment and comes before the probate court for a hearing.

Once the guardian is qualified and appointed by the court, they have the authority to oversee everything about the ward’s life. They have power over the ward’s money and how it is spent, health care decisions, residential issues and even with whom the ward spends time. At its essence, a guardianship is akin to a parent-child relationship.

Guardianships can be tailored by the court to meet the specific needs of the ward in each case, with the guardian’s powers either limited or expanded as needed and as appropriate.

The guardian must report to the court on a yearly basis about the ward’s health and health care and file an annual accounting of what has been done with the ward’s money and how much money remains. The court supervision is intended to protect the ward from mismanagement of their finances and ensure that the guardianship is still needed and maintained on an annual basis.

The relationship between the ward and the guardian is often a close one and can continue for many years. The guardianship ends upon the death of the ward, the resignation or removal of the guardian, or in cases of temporary illness or incapacity, when the ward recovers and is once again able to handle their own affairs and make health care decisions on their own.

If and when an elderly family member can no longer manage their own lives, guardianship is a way to step in and care for them if no prior estate planning has been done. It is preferable for an estate plan to be created and for powers of attorney be created, but in its absence, this is an option.

If you feel you need a guardianship in any case, reach out to an experienced estate planning or probate attorney.

Reference: The Westerly Sun (Sep. 19, 2020) “Legal Corner: A guardian can be a helpful tool in cases of incapacity”

 

Avoid Estate Planning Mistakes

Estate planning should be a business-like process where people evaluate the assets they have accumulated over time and make clear decisions about how to leave their assets and legacy to those they love. The reality, as described in the article “5 Unfortunate Estate Planning Myths You Probably Believe,” from Kiplinger, is not so straightforward. Emotions take over as does a feeling that time is running short which is sometimes the case.

Reactive decisions rarely work as well in the short and long term as decisions made based on strategies that are set in place over time. Here are some of the most common mistakes that people make when creating an estate plan or revising one in response to life’s inevitable changes.

Estate plans are all about tax planning. Strategies to minimize taxes are part of estate planning, but they should not be the primary focus. Since the federal exemption is $11.58 million for 2020, and fewer than 3% of all taxpayers need to worry about paying a federal estate tax, there are other considerations to prioritize. If there is a family business, for example, what will happen to the business, especially if the children have no interest in keeping it? In this case, succession or exit planning needs to be a bigger part of the estate plan.

The children should get everything. This is a frequent response, but not always right. You may want to leave your descendants most of your estate, but ask yourself, could your lifetime’s work be put to use in another way? You don’t need to rush to an automatic answer. Give consideration to what you’d like your legacy to be. It may not only be enriching your children and grandchildren’s lives.

My children are very different but it’s only fair that I leave equal amounts to all of them. Treating your children equally in your estate plan is a lot like treating them exactly the same way throughout their lives. One child may be self-motivated and need no academic help, while another needs tutoring just to maintain average grades. Another may be ready to step into your shoes at the family business, with great management and finance skills, but her sister wants nothing to do with the business. The same family includes offspring with different dreams, hopes, skills and abilities. Leaving everyone an equal share doesn’t always work.

Having a trust takes care of everything. Well, not exactly. In fact, if you neglect to fund a trust, your family may have a mess to deal with. A sizable estate may need revocable or irrevocable trusts but an estate plan is more complicated than trust or no trust. First, when an asset is placed into an irrevocable trust, the grantor loses control of the asset and the trustee is in control. The trustee has a fiduciary duty to the beneficiaries, not the grantor of the trust. The beneficiaries include the current and future beneficiaries so the trustee may have to answer to more than one generation of beneficiaries. Problems can arise when one family member has been named a trustee and their siblings are beneficiaries. Creating that dynamic among family members can create a legacy of distrust and jealousy.

My estate advisors are all working well with each other and looking out for me. In a perfect world, this would be true but it doesn’t always happen. You have to take a proactive stance, contacting everyone and making sure they understand that you want them to cooperate and act as a team. With clear direction from you, your professional advisors will be able to achieve your goals.

Reference: Kiplinger (Sep. 17, 2020) “5 Unfortunate Estate Planning Myths You Probably Believe”

 

Can I Revoke a Power of Attorney?

The story takes an unpleasant twist, after Cindy’s stepsister Charlotte suggests that she be given power of attorney to help Cindy with her business matters. When Cindy agrees, Charlotte’s attorney creates a Statutory Durable Power of Attorney that names Charlotte as her agent. What happened next, according to the Glen Rose Reporter in the article “Guarding against the evil stepsister,” was a nightmare.

A few weeks later, Cindy’s brother Prince found that Charlotte had moved money from Cindy’s personal bank accounts into a completely different bank, setting up joint accounts in Cindy and Charlotte’s names and granting Charlotte right of survivorship (ROS). This made Charlotte the legal owner of the account at the time of Cindy’s passing. Charlotte had also contacted Cindy’s former employer and was attempting to wrest control of Cindy’s pension. It wasn’t clear whether she was attempting to obtain the entire amount in a lump sum, but she was attempting to gain control.  Cindy realized that Charlotte was not to be trusted. However, Charlotte had the power of attorney and all of these actions were legal. Could the power of attorney that she had signed be revoked? The answer is yes which is important to know.

There were two paths available to Cindy: she could immediately execute a revocation of the Statutory Durable Power of Attorney that had been used to give Charlotte authority, or have her attorney create a new power of attorney granting power of agency to another person. Either way, Charlotte would be stripped of the legal authority to act on Cindy’s behalf.

Cindy had a new POA created naming her brother Prince as her agent. The new POA had to immediately be presented to all of the financial institutions she deals with. She contacted her former employer and gave them proper notice that Charlotte no longer had authority to represent her. The new joint accounts that Charlotte had opened were then closed and individual accounts in her name only were open, which also ended the ROS. She could have returned her accounts back to the old bank or stayed with the new bank where Charlotte had opened new accounts. Cindy decided to stay with the new bank.

Cindy had to anticipate another challenge—that Charlotte might attempt to have Cindy declared incompetent and have herself named as Cindy’s legal guardian. To protect herself, Cindy’s estate planning attorney drew up documents stating that in the event Cindy ever needed someone to be her guardian, she did not want Charlotte to be named. In addition, she named the person she would want to be her guardian, if that is necessary in the future. While a judge ultimately has final discretion, the courts generally prefer naming a guardian as requested by an individual.

Your estate planning attorney can revoke a power of attorney, if it becomes clear that the person you’ve named is not acting in your best interests. Having an estate plan in place in advance of any medical or mental challenges is always better, so that you are less vulnerable to anyone trying to take advantage of you during a difficult time.

Reference: Glen Rose Reporter (Sep. 10, 2020) “Guarding against the evil stepsister”

 

How to Choose a Trustee

To protect all that you have worked for and take care of the most important people in your life, you may have been advised to place some or perhaps all of your assets into a trust. Once you and your estate planning attorney have made that decision, you’ll need to decide who to name as your trustee or trustees. Doing so is not always an easy process, explains Kiplinger in the article “Guidance on Choosing the Right Trustee (or Trustees) for Your Estate.”

Serving as a trustee creates many duties under state law, including acting as a fiduciary to the trust. That means the trustee must be impartial about their own interests, put the beneficiary’s interests and well-being first and be prudent with how they invest funds. Law prohibits a trustee from self-dealing.

Here are a series of questions that will help to assess a person’s ability to serve as a trustee:

  • Will the person be able to separate their personal feelings and interests from those of the beneficiaries?
  • Will all parties be treated fairly, especially if your children are not also your spouse’s children?
  • Can your trustee manage complex finances and investments?
  • Is there any risk that your trustee will be tempted to take a risk to obtain money at the expense of beneficiaries?
  • What happens if your spouse remarries?
  • Will a child who is a trustee be fair to the other siblings, even if they are step siblings?
  • Will a child who is managing work and family have the time to take on the responsibilities of the trustee?

Some people decide that no family member is the right fit for the trustee role, and opt instead for their estate planning attorney, accountant or financial advisor to serve as a trustee. There are some questions to ask:

  • Does the person understand the family dynamics?
  • Has the person served as a trustee before?
  • Can they separate their personal financial interest from their clients?
  • If there is a breach of duties, will their professional malpractice coverage be enough to make the trust whole?

Some families prefer to use a bank or trust company to provide fiduciary services and act independently for the trust. This may reduce conflicts among family members, while providing professional services. Fees are typically based on the size of the estate, which may be a consideration.

Another idea is to have more than one trustee to provide a balance of record keeping, investments and other trustee duties. A properly drafted trustee agreement created by an experienced estate planning attorney, will outline specific duties of the trustees. An individual co-trustee might better understand your heir’s needs and be able to help other trustees in making decisions to benefit family members.

Reference: Kiplinger (Sep. 8, 2020) “Guidance on Choosing the Right Trustee (or Trustees) for Your Estate”

 

How to Protect Your Estate from Unintended Heirs

Disinheriting a child as an heir happens for a variety of reasons. There may have been a long-running dispute, estrangement over a lifestyle choice, or not wanting to give assets to a child who squanders money. What happens when a will or trust has left a child without an inheritance is examined in an article from Lake County News, “Estate Planning: Disinherited and omitted children.”

Circumstances matter. Was the child born or adopted after the decedent’s estate planning documents were already created and executed? In certain states, like California, a child who was born or adopted after documents were executed, is by law entitled to a share in the estate. There are exceptions. Was it the decedent’s intent to omit the child, and is there language in the will making that clear? Did the decedent give most or all of the estate to the other parent? Did the decedent otherwise provide for the omitted child and was there language to that effect in the will? For example, if a child was the named beneficiary of a $1 million life insurance policy, it is likely this was the desired outcome.

Another question is whether the decedent knew of the existence of the child, or if they thought the child was deceased. In certain states, the law is more likely to grant the child a share of the estate.  Actor Hugh O’Brien did not provide for his children who were living when his trust was executed. His children argued that he did not know of their existence and had he known, he would have provided for them. His will included a general disinheritance provision that read “I am intentionally not providing for … any other person who claims to be a descendant or heir of mine under any circumstances and without regard to the nature of any evidence which may indicate status as a descendant or heir.”

The Appellate Court ruled against the children’s appeal for two reasons. One, the decedent must have been unaware of the child’s birth or mistaken about the child’s death, and two, must have failed to have provided for the unknown child solely because of a lack of awareness. The court found that his reason to omit them from his will was not “solely” because he did not know of their existence, but because he had no intention of giving them a share of his estate.  In this case, the general disinheritance provision defeated the claim by the children, since their claim did not meet the two standards that would have supported their claim.

This is another example of how an experienced estate planning attorney creates documents to withstand challenges from unintended outcomes. A last will and testament is created to defend the estate and the decedent’s wishes.

Reference: Lake County News (Aug. 22, 2020) “Estate Planning: Disinherited and omitted children”

 

What Does an Executor Do?

Being asked to be an executor is a lot of work. As the executor, you are responsible for taking care of all of the financial and legal matters of the estate, explains the article “An executor’s guide to settling a loved one’s estate” from Review Times. The job will require a lot of time and, depending upon the complexity of the estate and the family situation, could be challenging.

Some of the tasks include:

  • Filing court papers to start the probate process to determine whether the will is valid.
  • Making a complete inventory of everything in the estate.
  • Obtaining an estate tax ID number, opening an estate bank account and using the estate funds to pay bills, including funeral costs and medical bills.
  • If the estate includes a home, maintaining the home and paying the mortgage, taxes, etc.
  • Terminating credit cards, notifying banks and government agencies—including Social Security—and the post office.
  • Preparing and filing income tax returns for the last year of the person’s life, unless they filed them already, and for the estate.
  • Distributing assets, as directed by the will.

Your first task is to locate the will and any important documents and financial information. You will need the will, deeds, titles, brokerage statements, insurance policies, etc.

If the estate is complicated, you will want to work with an estate planning attorney, who can guide you through the process. The estate pays for the attorney and you work closely with them. Every state has its own laws and timetables for the executor’s responsibilities, which an estate planning attorney will be familiar with.

If possible, find out if there are any family conflicts, before the loved one passes. If there are potential problems, it may be better for the loved one to tell who will be inheriting what before they die. If there is no plan for asset distribution, the person who is asking you to be the executor needs to meet with an estate planning attorney as soon as possible and have a plan created, with all of the documents necessary for your state.

The executor is entitled to be paid a fee, which is paid by the estate. In most states, that fee is set at a percentage of the estate’s value, depending on the size and complexity of the estate. If you are both an executor and a beneficiary, you may want to forgo the fee, because fees are taxable, but in most states, inheritances are not.

Reference: Review Times (Sep. 6, 2020) “An executor’s guide to settling a loved one’s estate”

 

Estate Planning Needs for Every Stage

Many people decide they need an estate plan when they reach a certain age, but when an estate plan is needed is less about age than it is about stages in life, explains a recent article “Life stages dictate estate planning needs” from The News-Enterprise. Life’s stages can be broken into four groups, young with limited assets, young parents, getting close to retirement and post-retirement life.

Every adult should have an estate plan and without one, we can’t determine who will take care of our financial and legal matters, if we are incapacitated or die unexpectedly. We also don’t have a voice in how any property we own will be distributed after death.

The first stage—a young individual with limited assets—includes college students, people in the early years of their careers and young couples, married or not. They may not own real estate or substantial assets but they need a fiduciary and beneficiary. Distribution of assets is less of a priority than provisions for life emergencies.

Once a person becomes a parent, he or she needs to protect minor children or special needs dependents. Lifetime planning is still a concern but protecting dependents is the priority. Estate planning is used in this stage to name guardians, set up trusts for children and name a trustee to oversee the child’s inheritance, regardless of size.

Many people use revocable living trusts as a means of protecting assets for minor dependents. The revocable trust directs property to pass to the minor beneficiary in whatever way the parents deem appropriate. This is typically done so the child can receive ongoing care until the age when parents decide the child should receive his or her inheritance. The revocable trust also maintains privacy for the family since the trust and its contents are not part of the probated estate.

The third stage of life includes people whose children are adults, who have no children or who are near retirement age and addresses different concerns, such as passing along assets to beneficiaries as smoothly as possible while minimizing taxes. The best planning strategy for this stage is often dictated by the primary type of asset.

For people with special situations, such as a beneficiary with substance abuse problems, or a person who owns multiple properties in multiple states or someone who is concerned about the public nature of probate, trusts are a critical part of protecting assets and privacy.

For people who own a primary residence and retirement assets, an estate plan that includes a will, a power of attorney and medical power of attorney may suffice. An estate planning attorney guides each family to make recommendations that will best suit their needs.

Reference: The News-Enterprise (Aug. 25, 2020) “Life stages dictate estate planning needs”

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