Estate Planning Bits

Alternatives to estate planning Trusts

When a person passes away, assets in their name alone will pass through probate. Even if the person has a Will, the Will must be probated in order to provide orderly distribution of the assets as intended. However, some people go to great pains to avoid probate.

One option is to establish a living Trust. Any assets in the Trust at the time of death are not probated, and thus also avoid the court proceeding that allows for the estate to be settled without probate publicity and expense, while also normally providing for a more expeditious settlement. However, this does require establishing a separate document that must be signed, and assets must be transferred to the Trust prior to incapacity or death. Otherwise, the assets may have to pass through probate upon death in order to then flow into the Trust through the Will.

An alternative would be to make the asset joint, which provides for survivorship. If either of the joint owners dies, then his or her share passes to the other joint tenant. However, in the event that one person becomes involved in a divorce, gets sued, has credit problems, etc., then that share of the assets may be countable and accessible by that person’s creditor. This is far from the intended result, but it will be the situation if the person does not remove their name from the account prior to the problem occurring.  Also, in the event that the person who established the joint account dies, then the entire account is owned by the surviving joint owner, which may not be the intended result.

Another alternative would be to add a beneficiary to certain assets. Certainly, life insurance policies, IRAs, 401(k) Plans, and other similar retirement assets may list a beneficiary. Upon the death of the owner, the assets pass outright to the beneficiary without the need for probate, and most entities will also allow for multiple beneficiaries, as well as contingent beneficiaries. These forms should be updated from time to time to be sure that the proper names and allocations are listed, as family issues and relationships change.

It is also an option to name a beneficiary on stock accounts and bank accounts. The stock accounts can be worded transfer on death or TOD, while the bank accounts may be worded as payable on death or POD. Upon the death of the owner, the beneficiary merely needs to verify the death of the owner with a certified death certificate, and the funds will be transferred directly to their name. This also occurs without the need for probate and provides the owner with the security of knowing that the assets will not be available to the beneficiary until death. There are pros and cons of each of the above techniques, and it is important to be sure that the correct decision is made for each particular asset.

By: Hyman G. Darling, Esq.

Change your estate plan – the right way and the wrong way

It often happens that someone dies and a family member bring me their loved one’s will to probate in probate court. In reviewing the Will, we will often find that there are hand-written notes in the margins, “scratch outs,” and other attempted hand-written changes, sometimes with initials and dates, and other times none. 

In most states, those attempted changes to the original signed Will are not effective. In some situations, the probate court may also request or require that one of the witnesses to the Will, or the preparer, or original witnesses to the Will appear in court to testify as to whether these changes were made at the time the Will was signed or subsequent to the Will being executed. 

It’s not uncommon for people to believe that because they made hand-written notes on their Will or wrote an addendum, that will effectively change their Will. They do this to save time, or to prevent spending extra money on fees for professional services to revise what was previously a valid drafted will.

I have even received letters from clients who decide to make a change, but they never got around to getting into the office to formalize those changes. They think that this will suffice in case there is an accident, and they think that these letters of instructions will help. Although it is helpful to have something in writing that expresses a client’s desires, the Will itself may not be legally altered by these signed letters. 

These errors in judgment on the part of a client may cause the intended changes to be ineffective and also cost the estate a significant amount of money if and when the Will is probated and a contest to the Will is defended by the estate. Those changes, which are likely relatively minor, are not expensive, and in some cases, a simple codicil, (document that changes the Will,) may be all that is necessary, as opposed to re-drafting the entire Will. 

When a change in circumstances, assets structure, or a family situation occurs, it is best to contact your attorney so that your Will may be made promptly and correctly changed. At the same time, it may be advisable to review the individuals named within your Will as guardians, executors and trustees, as well as other documents, such as your Health Proxy and Power of Attorney, to ensure that the proper named are still appropriate to serve in their respective capacities.

There may also be changes in the total assets you own, which may require that a trust to be created. Or, if assets have significantly diminished, then it is possible that the need for a trust has diminished and reciprocal Wills may suffice.



By: Hyman G. Darling, Esq.

Demystifying terms used by estate planning attorneys

Agent: The person given legal authority to make financial decisions for a person through a durable power of attorney document or the legal authority to make health and medical decisions for a person through a health care proxy document.

Artificial Life Support: Medical equipment and other technology used to prolong the life of a person who is seriously ill by sustaining essential body functions, like breathing.

Assets: Personal possessions of value, including cash, bank accounts, real estate, vehicles and investments.

Beneficiaries: The people named in the will to receive the estate of the person upon his or her death.

Conservator: The person appointed by the courts to make financial decisions on behalf of a person.

Custody: Legal responsibility of a person.

DNR:  Stands for “Do not resuscitate” and refers to a person’s instructions that, if his or her heart or breathing stops, the doctor should not try to restart it.

Durable: When a power of attorney document is durable, it is valid even after the person with dementia can no longer make his or her own decisions.

Execute: To legally sign or “carry out” a legal document.

Executor: The person named in a will to manage the estate of the person upon his or her death.

Grantor: The person for whom a living trust is created.

Guardian: The person appointed by the courts to make health care decisions on behalf of a person (sometimes also includes financial decisions.)

Health care agent: The person given legal authority to make health care decisions for a person through a health care proxy document.

Legal capacity: The level of judgment and decision-making ability needed to sign official documents.

Probate:   The process used by the court to distribute the property of a person who has died.

Trustee: The individual or bank chosen to manage the property (assets) in the trust document of a person.



by: Todd C. Ratner, Esc.

Five trust myths

Hardly a day goes by where a client does not tell me that they need a trust.  

 

• Okay. So everybody needs a trust? Some people have assets totally in joint accounts with their children. These assets will pass outright to your children upon your death without the need for probate. However, your children then receive the funds outright and the assets are subject to their creditors, former spouses, etc. If this is not your intended or desired result, then a trust may be appropriate. In such a case, funds could be held for the benefit of your children with an allocation of specified amounts or percentages being distributed at various ages.
• A trust will save taxes. Just because assets are in a trust, that doesn’t necessarily eliminate or save estate taxes. If the trust is a revocable trust, your still own all the assets, and all income received from assets in the trust will be taxed to you at your own income tax bracket. Likewise, all assets will be includable in your estate for estate tax purposes. Therefore, although the assets will not pass through probate, they are subject to all Estate Taxes.
  
• All trusts are not probated. This usually is the case, but it is important to coordinate the ownership of assets put in the trust. For instance, if you own a house and have a trust, but you maintain the property in your own name, then the assets must pass through the probate proceedings in order to get into the trust. If a deed is drafted, signed, and recorded before date of death, then this asset will not pass through probate, but rather, will be held in the trust to be administered and distributed in accordance with the terms of the trust.
  
• All trusts are the same. This is certainly not the case, as the need for different distribution requirements in each trust may be based on the family needs for money, status of your children and grandchildren, etc. Each trust should be individually drafted, and although much of the language may be required or standard, the essence of the trust is such that it must be changed in order to comport to the wishes of your family.
  
• A trust will avoid prevent funding a stay in a long term care facility. Unless the trust is irrevocable, and has been funded five-years prior to your institutionalization on a permanent basis, the funds in the trust are subject to be spent on your care. Likewise, in the event that the trustee has any discretion to utilize the funds to or for the benefit of the beneficiary, (you,)who may be institutionalized, then those funds are also deemed to be available to be spent and used for your care.

In listening to Suze Ormond, it was interesting to learn that she felt that most people will or should need a trust. This is not the situation in every case, even though there are many different types of trusts that serve a family well in obtaining maximum tax benefits, avoiding probate, and minimizing fees.

By: Hyman G. Darling, Esq.

Trust Basics – a primer

People have benefited from the use of trust documents for many generations. However, trusts have increasingly become common estate planning tools among the middle class. Trusts are very adaptable tools that can provide solutions to common estate planning, asset protection, and elder law concerns. A trust is a separate entity that holds assets for the benefit of named persons.

The person who creates the trust is the “Grantor” (also referred to as Trustor, Creator or Settlor.) The person(s) who benefits from the trust are the “Beneficiaries.” The trust itself is a document that often looks and feels like a will. However, the distinction is that a trust owns assets, which are managed by the “Trustee There are many different types of trusts.

A very common trust is called the Revocable Living (Intervivos) Trust, which oftentimes works as follows: Mom and Dad, referred to as the Grantors, create the trust, making themselves the primary beneficiaries. Mom and Dad title their assets in the trust so that the trust is the “owner” of their assets. Mom and Dad are their own Trustee, maintaining control during their lifetime. Upon their death, the Successor Trustees (oftentimes their child(ren)) distribute the assets to the beneficiaries (usually the same children.)

Among the many benefits of the Revocable Trust is the orderly distribution of the assets on death, and the Trust provides a vehicle for managing assets during the incapacity of the Grantor. It is oftentimes thought of as a will substitute, which avoids probate at death. In addition to the Revocable Living Trust, other trust documents include the Credit Shelter Trust, Supplemental Needs Trust, Irrevocable Life Insurance Trust, Special Needs Trust, and the Medicaid Trust, among others. Examples of the benefits of a trust include:

• Asset protection from future nursing home costs
• Reduction of the likelihood of will contests
• Coordination of the distribution of assets through one vehicle
• Avoiding Probate Protecting assets for Medicaid eligibility
• Providing for pets

Providing for the education of children, grandchildren, or others Saving on estate taxes Providing for assets to be held for beneficiaries with special needs Providing maximum privacy Preventing court control of inheritance of minors Providing for assets to be held for beneficiaries who have creditors or who cannot Due to the many trust options available, it is best to speak with an experienced estate planning attorney to both select the trust that is appropriate for you and to have the trust prepared to best suit your individual needs

By: Todd C. Ratner, Esq.

Charitable Gift Annuities - a new twist to Savings Bonds

Most people who have savings bonds hold them for reasons such as having a rainy day savings or for a specific purpose in the future. Many of these bonds were purchased many years ago and have accrued a significant amount of interest over the years. And all that interest will be taxable by the IRS when they are redeemed.

Very often, bonds are found in a safe deposit box or in a drawer when a person dies. Since E bonds and EE bonds may no longer be converted into H bonds with the interest being deferred, a person normally cashes in these bonds, pays the tax, and either spends or reinvests the net proceeds.

However, you may want to have your cake and eat it too. While you may wish to make a donation of the savings bonds to charity, you cannot do so during your lifetime, as savings bonds may not be transferred to an organization this way. However, they can be used in a gifting arrangement, whereby the bonds are cashed in, and then the net proceeds are given away.

To the extent that you itemize your taxes, you will receive an income tax deduction for the value of the gift to the charity, which will be an offsetting deduction against the interest reported on your income tax return as taxable income. However; if you want to derive some income from the gift, you may convert the assets into a charitable gift annuity. The result will be receipt of income during your lifetime and a charitable deduction for a significant portion of the gift.

By counting the income received from the gift annuity as well as the tax deduction for the gift, you may have more money left over time than if you had merely cashed the bonds in and paid the tax. Most tax exempt organizations will accept gift annuities, but the usual minimum for a gift is $10,000 in cash or other assets.


by: Hyman G. Darling, Esq.

What is involved when you are asked to be a Trustee?

Is it really an honor to be a trustee? When a friend or family member requests that you serve as trustee for them, you should never answer “yes” immediately. You will need to know specifically what your duties, responsibilities and potential liability may be as well as the time commitment being asked of you.

There are many types of trusts. Though it may be flattering and an honor to be asked, since you presumably are considered to be responsible, trustworthy and mature enough to handle the job, you must understand the terms of the trust, its length and specifically what judgment you must exercise in your capacity as the fiduciary. You will then have to exercise this responsibility to carry out the terms of the Trust as it is written. This may include the requirement to file a tax return, make discretionary distributions of income or principal among various family members, invest the funds in the Trust under the required standards set by the State and the Trust, and also balance the requirements being assigned to you in terms of carrying out your fiduciary duties.

You may be asked to make payments to or for the benefit of minor children, grandchildren or other beneficiaries. In some situations, you will have the discretion to make distributions unequally among these beneficiaries and will have to choose who shall receive or not receive funds from time to time. You must understand all family relations, get to know the beneficiaries and their needs, wants and concerns. The family may not be in agreement in many cases and may challenge your decisions, and you may need to seek legal assistance to make sure you are carrying out the terms of the trust. When a beneficiary does not like a decision you made, they may challenge your decision by filing a petition in court, possibly seeking your removal as trustee or challenging your fees.

Often investments are challenged if they lose money even in a down market. If the “Monday Morning Quarterback” beneficiary decides after the fact that the trustee should have known that the market was not going to increase, they may allege that the asset should have been switched to less risky/more conservative type of investments. If the market is on the upswing, the beneficiary may also challenge the trustee, stating that the assets did not compare favorably with a benchmark standard such as the S&P 500, Dow Jones Index, etc. Very often, it is better to delegate the task of investment advisor to a professional so that the beneficiary will be less apt to have any legitimate case against the Trustee for underperforming assets.

If you are named as the Trustee, you should read the entire document and have the attorney who drafted it explain it to you prior to accepting your duties as Trustee. In the event that there is any question as to the terms of the Trust, then possibly, you should seek a letter of opinion from the drafter of the document to explain and interpret the legal language within the Trust in case that drafter is not around when the Trust is administered. You may also wish to obtain a letter of instructions from the creator of the Trust so that he or she may identify exactly what was intended within the investment, distribution or administrative provisions of the Trust. Also, you should be certain that you have the right to resign from the Trust at any time without having to petition a court, which may be costly to pursue and possibly without the benefit of being reimbursed from the Trust.

By: Hyman G. Darling, Esq.

Your beneficiary designations – are they up to date?

Often, the assets that an individual plans to pass through their Will are carried out as desired. However, it is important to remember that only assets in a person’s name alone pass through probate. Assets that are joint or payable by a beneficiary designation, such as life insurance or retirement benefits, do not pass through probate, but rather, pass outright to the beneficiary.

Therefore, it is very important to consider and properly designate the names and back-up beneficiaries on retirement plans and life insurance, which are often times greater than other assets that may pass through a Will.

If you are single, you should check your beneficiary designation to ensure that your life insurance and retirement benefits pass to the desired beneficiary and in the correct proportion. For example, if you’re single without children, you may want your siblings or nieces and nephews to be your beneficiaries instead of your parents. Your parents could be elderly and institutionalized, which would mean that funds left outright to them will merely be used for long-term care expenses.

If you are single with a minor child, and if your child is the beneficiary of those benefits, he/she will receive them at age 18. In the meantime, a guardian may have to be appointed by the Probate Court to hold those funds for the benefit of your child, and the guardian may in fact be your divorced, former spouse.

If you are married, you would normally name your spouse to be the beneficiary of life insurance proceeds, but there should also be a secondary beneficiary in case you both die together in a common disaster. In this case, it may be appropriate to designate that the beneficiary is a trust for the benefit of your children, rather than leaving the funds outright to them. If there is no beneficiary designation made, then the balance of the funds that are paid by the insurance company will be payable to your estate, and thus have to pass through the probate process, making the distribution more costly, time consuming and public.

Regardless of your life situation, your beneficiary and back up beneficiary designations should be reviewed often to ensure that they are properly completed. For instance, you may have made your spouse the beneficiary designation of a life insurance policy, but what happens if you are now separated or divorced? Upon your death, the beneficiary designation is payable under a contractual relationship, regardless of what your Will says, and therefore, the proceeds will be payable to your ex-spouse, which is probably not what you want.

Many beneficiary designation forms also permit a portion to be paid to multiple beneficiaries rather than having all funds left to one particular beneficiary. Whether a specific beneficiary receives a dollar amount or a percentage of the proceeds, the form should be reviewed often and kept with all your other important papers, such as the policy itself, your Will, Health Care Proxy, Power of Attorney, and Trust, if applicable. As much care should be taken to complete these important forms all the rest of your legal documents.

By: Hyman G. Darling, Esq.

Special Needs Trusts – protecting government benefits for your loved one and much more

Special needs trusts can fund more than their name implies. Importantly, they can be structured and managed so that trust distributions do not reduce government benefits such as Supplemental Security Income (“SSI”) or Medicaid.

Government benefits generally aim to fund basic living necessities like shelter, food, clothing, and medical expenses. Special needs trusts can supplement these government benefits thereby enhancing the quality of life of a disabled person.

The breadth of disbursements available from a special needs trust is limited by the trustee’s duty to act in the best interest of the beneficiary and by limitations on distributions that would replace governmental benefits already being received. Still, the trustee could purchase a new home, make a down payment on a new home, or fund a security deposit for an apartment.

Domestic appliances, such as televisions, stereos, computers, microwaves, refrigerators, and washers or dryers, can be purchased and maintained with funds from a special needs trust. Domestic services, such as cable television, internet access, house cleaning, and home improvements, can also be funded by a special needs trust. The special needs trust can even put new drapes in the living room, towels in the bathroom, and linens in the bedroom.

Special needs trusts are also flexible enough to support extracurricular activities. They can pay for clubs and dues, massages, tickets to sporting or concert events, and haircut or salon services. They can pay for transportation to the club or ball games, including taxi service, a rental car, a bus pass or even a new car. And, when it is time for a vacation, the trust can also fund travel and lodging.

Special needs trusts are very effective when they are designed and administered correctly. A properly designed and administered special needs trust can vastly improve the quality of life of the disabled beneficiary while still allowing the disabled individual to maintain vital government benefits.

By: Gina M. Barry, Esquire

Trustee abuse of James Brown’s estate? The moral - trust but not blindly

James Brown died Christmas Day 2006. Yet, the self-described “hardest working man in show business” is still putting on a show. This time, however, it is being played in the South Carolina State court.

A recent lawsuit filed by two court-appointed trustees of his estate accuses his longtime business managers, the initial trustees of the estate, of pillaging millions of dollars from Brown through their roles as trustees of Brown’s estate. Due to complaints from Brown’s heirs of mismanagement, the former trustees were removed in 2007.

The majority of Brown’s estate was held in a trust and in James Brown Enterprises, which was controlled by the former trustees. The new complaint alleges that the former trustees received an “exorbitant” fee of $4.9 million. The complaint also alleges that a deal to refinance bonds owned by Brown would have generated fees of at least $2.7 million for the trustees but would ultimately have cost Brown around $5 million.

With the increased sophistication of estate plans, more and more people are performing the roles of a trustee. Generally, a trustee owes a duty of loyalty to the beneficiaries of the trust. Furthermore, the trustee must exclude all selfish interest and all consideration of the interests of third persons by devoting himself or herself completely to the beneficiaries’ interests.

Perhaps the most common area of controversy in probate matters is the interaction between beneficiaries and trustees. A properly drafted trust can limit the possibility of trustee abuse by providing the necessary safeguards to ensure that the trustee(s) exercise good faith and act solely in the interests of the beneficiaries. The trust should provide appropriate trustee removal powers and detailed directives on how the trustee shall serve the beneficiaries.

By: Todd C. Ratner, Esquire