Estate Planning Bits

No bankruptcy protection for inherited IRA

In June of 2014, the U.S. Supreme Court heard a case and unanimously ruled that an Individual Retirement Account (IRA) left to a non-spouse beneficiary was not to be a protected asset from a bankruptcy proceeding. This ruling changed how inherited IRAs are to be treated in bankruptcy; previously, an IRA was an exempt asset, but this case now alters the rule on the protection or non-protection of inherited IRAs.

The facts of the case were that a husband and wife filed for bankruptcy in 2010, claiming that an IRA the wife inherited from her mother (worth approximately $300,000.00) was a qualified retirement fund and therefore should not be applied towards the claims of creditors. Several years later, the case made its way up to the U.S. Supreme Court, which determined that the client was not going to have protection from bankruptcy proceedings for those assets.

Essentially, the prior concept protecting IRAs from bankruptcy proceedings was a consideration by the court that a self-funded IRA was a protected account because the contributor was working and the funds were sheltered from taxes. In the case discussed above, however, the court treated an inherited IRA differently; since it was not saved by the taxpayer/bankruptcy filer, it did not receive the same protection from bankruptcy proceedings. Basically, a person can no longer deposit money and contribute to a rollover/inherited account, and is also required to take distributions, whereas a self-contributed IRA is not required to make distributions until the required minimum distribution date occurs.

It is important, therefore, to pay attention to all court rulings, and presume that only a self-contributed IRA would be protected from proceedings in the unfortunate event of a bankruptcy. If a person is considering bankruptcy, and has received funds, it is crucial to plan for the protection of those assets. A wealth creation and wealth protection plan should be implemented in all cases, as this important new decision affects non-contributed, or inherited IRAs. 

Hyman G. Darling, Esq.

Image credit: AAG with permission

Estate planning checklist: assets and your will (Part 1)

Estate planning is not a static project to be finalized and then put on a shelf, never to be reviewed again. In truth, it is a never-ending process; one which requires periodic review in order to remain pertinent. At least every 5 years and upon major life events, pull out the documents and make sure they continue to be relevant. Further, periodic statutory changes dictate that your intentions will be best attained if documents are reviewed.

Over the next several weeks, we will explore some of the areas that might need your attention...

 

Part 1

 

Prepare a List of Assets:

At the core of any good estate plan is a list of all of your assets, with estimated values. Generally this will include bank accounts, securities, real estate, retirement funds, insurances (life or disability), annuities, business valuations, and tangible personal property, just to name a few. Identify whether each asset is owned in your name alone (and with or without a beneficiary designation); jointly with another; or whether it carries a beneficiary designation or is held in trust. This information informs an estate planning attorney as a beginning point. After your estate plan is fully developed, do not be surprised if assets are re-titled or change columns.

Consider having a last will and testament: 

A last will and testament controls only those assets that are held in your name alone, and without a designated beneficiary, at your time of death. These are the only assets that go through the probate process. Your will provides a road map as to who you would like to receive your probate assets. It can also provide for forgiveness of debt or allow someone temporary use of an asset (such as living in a home until X age, or Y event occurs). Generally, a will allows you to control and determine who inherits your estate at your death. 

Under the Massachusetts Uniform Probate Code, (MUPC) which went into effect March 31, 2012, the probate process has now been expedited and no longer requires as much court intervention or oversight, although court supervision is available where appropriate. 

If you pass away without a will, (referred to as dying “intestate”) state law will dictate how your assets get distributed. Historically, if you died intestate, survived by a spouse and children, your assets were allocated between them. Under the MUPC, if you die intestate and are survived by your spouse and children of both you and your spouse, (whether biological or adopted) then your spouse will receive your entire net estate, without any portion specifically allocated to the children of both you and your spouse. 

The MUPC also changes the title of the person appointed to oversee the administration of an estate to a personal representative (PR). Further, the MUPC provides a list of individuals who have priority to serve as your PR. At the top of the list is your spouse, and then a child (over the age of 18), etc.

 

Lisa L. Halbert, Esq.

Image credit: Rowena of the Rants under Creative Commons license

 

Disinheritance – your will is what is remembered!

A prior blog post about disinheriting a child received the most comments of all posts written since this blog’s inception, in June of 2005!

Many people described the pain and emotion of being disinherited. Some added that some of their siblings probably should have been disinherited, as the funds that these beneficiaries received were basically spent on drugs, alcohol, or gambling addictions. They felt that funds were wasted and could have been used for a better purpose, such charitable support or perhaps being left in a trust for that child or other relative.

In any event, there is no right or wrong, but when you write your will, you do have the option to include, exclude, limit, or restrict the funds that are being left to specific individuals and in the specific proportions. Unfortunately, many of the commenters stated that as a result of disinheritance, their family “fell apart,” and relationships were never the same.

Of course, some of the beneficiaries felt that their parent was not in sound mind, possibly delusional, or perhaps under the undue influence of another family member, or was taking pain medication and near death when the document was signed. These individuals certainly had the right to challenge the will or trust in order to claim their inheritance and “right the wrong” as one particular family member had stated in the will.

Many times, with this airing of dirty laundry, what comes out is who is perceived to have loved “mom” best, was the golden child, or felt they were entitled to more than they received. It must be remembered that there is legal standard regarding personal family decisions. It must again be reiterated that no one has a right to inherit except a spouse in most states, and a person in their right mind, who is not unduly influenced, has the absolute right to establish who will receive and who will not upon their death. Often times, a person does not recall what was given during lifetime and forgets that there were gifts made that are intended to be equalized upon death.

While it is unfortunate that many times family relationships are destroyed because of such financial issues, the bottom line is that when a challenge is made to a will, it is basically a lawsuit against the people who got the money by the ones who did not get the money, and that certainly gets personal. Sometimes the legal process doesn’t work as well as it should, but we must remember that it is up to the person writing the will and usually their counsel and trust advisors, who will assist with the decision making process and allow the documents to be signed after proper counseling.

If a person loses their suit, it may be helpful to have them get professional counseling in order to attempt to resolve the issues and allow them to get on with their life.

 

Hyman G. Darling, Esq.

Photo credit: Microsoft 

Estate Planning for Blended Families: Considerations for cohabitating or married couples with kids from other relationships

The modern family of today is often a mix of spouses, exes, kids, and steps who somehow find a way to make it all work. Estate planning for such an intricate blended family may be a little tricky, and there are lots of factors to consider. 

While traditional estate planning documents are critical, it is also important to consider a prenuptial or a cohabitation agreement. Either one of these agreements should spell out, in as much detail as possible, what will occur if the relationship dissolves, regardless of whether or not the couple is married. 

One of the major issues that this agreement should address is housing. When a couple purchases or rents a home together, if the relationship falls apart, and both parties are liable on a mortgage, what will happen?

Additional life insurance may be necessary if one of the parties is under an order of the court from a prior divorce decree wherein a percentage of assets is required to be maintained for the benefit of children from the prior marriage.

It is also important to consider each party’s health proxy and durable power of attorney. Who will be in charge of making decisions in the unfortunate event that one individual becomes incapacitated?

A will and possibly a trust should also be considered, and provisions within these documents should fairly closely mirror the prenuptial agreement to conform with all of the requirements set forth in that agreement, which may be construed to be a legal contract.

In addition, if there are any requirements under an order of the court from a prior divorce decree, those provisions should also be reviewed and included within one’s will.

When assets of relatively equal value are owned, some couples choose to retain their own assets in the event of a divorce, however, in the event of a death, some additional assets would be left to the survivor. Other options may include a possible phasing in of assets.

Health insurance should also be considered prior to marriage. Both parties may be receiving health insurance from a former spouse. The previous divorce decree, any modifications, and separation agreement should be reviewed carefully ensure that all benefits are maintained or solutions may be implemented.

The issue of life insurance and qualified plans such as 401(k)s, IRAs, 403(b)s, etc. should also be reviewed. It is very important to understand that such assets pass by beneficiary, not by will. Therefore, whoever is named as the beneficiary of these assets will receive them without the need of having those assets pass through probate.

Likewise, if assets are intended to pass to a trust or to individuals listed in a will, it is important to obtain change of beneficiary forms and have them signed and forwarded to the plan administrators at insurance companies when the documents are signed.

The bottom line is that there are many important considerations and decisions to make before remarrying or moving in with another person.

 

Hyman G. Darling, Esq.

Photo credit: Microsoft 

Beware contesting wills and trusts with a no contest clause!

Every once in awhile, there is a case that is worthy of writing about to help our clients understand their rights and obligations.

In some legal documents, lawyers include language known as a no contest clause or an in terrorem clause. This helps to prevent individuals from contesting wills and trusts, and in many states, these are held to be valid so that if a person does contest, they forfeit and lose their rights under the trust or will. In some states, however, these clauses are not valid, and in some instances, they are valid only if the objector to the will or trust is successful.

A recent case in New Hampshire involves a significant estate, (over $100,000,000,) where the decedent left funds in trust. The trustees had the obligation to invest the funds and make distributions, but at one point, some of the beneficiaries objected to many of the decisions of the trustees, but they ultimately resolved the matter by a mutually agreeable settlement which was filed with the court.

A few months later, one of the disgruntled beneficiaries, who still was not happy, proceeded to bring an action against the trust, attempting to remove the trustees, sue for breach of fiduciary duty, and made other allegations and complaints in her capacity as a beneficiary.

This trust contained a no contest clause, and one of the affirmative defenses and arguments of the defendant trustees was basically that the plaintiff beneficiary would forfeit her share if she contested. After many weeks of hearings with many witnesses, including many nationally recognized legal scholars who testified, the court, in a 50+ page decision, decided that the plaintiff did not have a case and enforced the no contest clause.

The plaintiff in this case was not only prohibited from receiving any further distributions based on the in terrorem clause affirmation by the court, but she was also ordered to reimburse the trust for all of the distributions made to her from the date of the filing of her action, as well as pay all of her own legal fees and costs, which were apparently in the hundreds of thousands of dollars.

It is important, therefore, to be sure that before contesting any case, you read all of the language of all documents, including any amendments or codicils, to determine whether there is the no contest clause. If so, you must make a difficult decision whether to proceed and gamble away your rights in your attempt to void the document, because if you are not successful, the net effects will likely be financially devastating.

Not only did the above plaintiff lose the case, but she had to repay funds received as well as pay all her own costs and expenses. She is now removed as a beneficiary from this trust, thus providing the other beneficiaries with significantly more money.

As unhappy as she may have been with the prior trustees, and for whatever other reasons she brought the action, she certainly would have been better off merely maintaining her status quo as an unhappy beneficiary.

 

Hyman G. Darling, Esq.

Photo credit: Microsoft 

 

Wills and omitted children – beware unwanted consequences

Although a spouse may not disinherit a surviving spouse, the law provides no obligation that you must to leave property to your children. But the law does require that you mention your child within your will in order to omit him or her.

Any child not mentioned there is considered an omitted or pretermitted child, and therefore, entitled to an intestate portion of your estate. In order to avoid this potentially unwanted scenario, you must mention the child within your will without leaving him or her any property.

For example, suppose the Smiths have three children, Jack, Ella, and Emily. When it comes to disposing of their property, the Smiths do not wish to provide for Ella. Therefore, they must express within their respective wills that they do not wish to leave anything her. Oftentimes, parents provide a handwritten letter to their attorney that explaines their reasons for omitting their child.

It is also important to ensure that all assets are titled properly, as assets that are jointly owned and/or have designated beneficiaries pass outside of your will. So, if you are interested in providing for a child, your assets must be thoroughly reviewed to ensure that your plan ultimately meets your desired wishes. An experienced estate planning attorney would be of great assistance.

 

Todd C. Ratner, Esq.

Photo credit: Microsoft   

 

The probate of your loved one's will: New administration options now available

On March 31, 2012, the Uniform Probate Code, an extensive and important piece of legislation became effective in the Commonwealth of Massachusetts. This greatly transformed the administration of wills and estates. Under the new law, there are several types of administration options available.

Informal Administration 

In most cases, the administration of an estate may proceed informally. This type of administration provides that the personal representative under the will, formerly known as the executor, may be appointed as quickly as 7 days after the proposed personal representative sends notice by mail to the interested parties.

Upon appointment, the personal representative may commence the collection of assets and attend to other administration matters. Although certain procedures remain, such as preparing an inventory, publishing notice in the newspapers, and circulating accounts, these are not under the mandatory supervision of the court. As such, the new law depends upon the personal representative to privately perform these tasks.

This type of administration is best when beneficiaries are agreeable and the circumstances of the estate are non-controversial. In the event a controversy arises, a beneficiary or the personal representative may elect to file with the court to begin a formal administration.

Formal Administration

Under the new law, a formal administration proceeding is “…litigation to determine whether the decedent left a valid will.” This is the judicial determination of the validity of a will or the appointment of an appropriate personal representative, but after the court has made such a decision, the estate administration is unsupervised. This type of administration may be brought within three years of death, even if informal probate has been granted. It will be best when there is some legal question regarding the proceedings, the possibility of controversy among the beneficiaries, or if questions arise about a previously commenced informal administration.

Supervised Administration

This type of administration requires continued supervision by the court of the activities of the personal representative. The personal representative may not make any distribution of the estate without a court order. Supervised administration is best in complicated and controversial estates, where continual access to the court will be a necessity.

Voluntary Administration

The new law continues to provide for voluntary administration, but increases the size of the estate eligible for this proceeding. In the event that no probate has commenced within 30 days after death, a statement may be filed with the court providing under oath that the signatory will administer the estate according to the will or as provided under the laws of intestacy. There is no further court involvement.

In order to be eligible for voluntary administration, the decedent must be a resident of Massachusetts, cannot own real estate at the time of their death and the decedents’ assets, excluding a car, must be $25,000 or less.

An experienced estate planning attorney would be of great assistance in providing insight into which administration process is best suited for your situation.

 

Todd C. Ratner, Esq.

Photo credit: grabschmuck

Preparing for your vacation

Vacation season is coming soon after the holidays. Are you planning a trip?

When planning to travel, it is common to experience nervousness. What would happen if you did not make it safely to or from your destination? Fortunately, you can establish an estate plan before your trip and quiet those fears. 

A simple plan includes a health care proxy, durable power of attorney, last will and testament, and possibly a homestead declaration. 

Should you experience an illness or injury while traveling that leaves you unable to handle your medical or financial decisions, having a health care proxy and durable power of attorney in place will make a world of difference. A health care proxy is a document in which you designate someone to make health care decisions for you if you are incapacitated. Similarly, a durable power of attorney is a document in which you designate someone to make your financial decisions. Having these documents in place allows the trusted person you have named to start handling your affairs as soon as you need assistance. 

God forbid you should pass away while traveling. Your family and loved ones would surely be shocked and distraught. But in the event that tragedy occurs, a last will and testament can provide some order during that otherwise difficult time. Your will sets forth the distribution of your probate estate, which are the assets that you leave in your name alone with no named beneficiary. In your will, you will also designate an executor, who is the person who will be responsible for carrying out your plan. Should you have minor children, you will also name a guardian, and possibly a trustee, who will be responsible for taking care of your children in your absence. This planning takes a tremendous burden off of your family members. 

For homeowners, a homestead declaration is a necessity. This is a one-page form that, once recorded in the Registry of Deeds, affirms that your principal residence is your homestead. It will protect the equity in your home up to $500,000 from judgments that arise after the declaration was recorded. Should you happen to cause an accident while traveling, the declaration will ensure that even if you are sued and your insurance is not sufficient, up to $500,000 of the equity in your home will be protected.

Gina M. Barry, Esq.

Photo credit: Microsoft   

Navigating the Minefield of Long Distance Caregiving

There comes a point when most of our nation’s elders will need assistance with various tasks, such as household management, bathing, dressing, medication management, meal preparation and eating, transferring, and/or using the restroom. In the past, such assistance was typically provided by family members, however, with the increased mobility of our society, it is now common for family members to be too physically distant to provide hands-on care

It is also common for an elder to be unwilling to move closer to their family, even if staying where they are means receiving care from someone other than their family members. Although the distance creates many hazards, steps can be taken to allow successful navigation of the minefield of legal, financial, and administrative issues that lie in wait for the long distance caregiver.

The most common legal issue associated with providing proper care and oversight from a distance involves establishing proper legal authority to ensure ongoing care in the event of incapacity of the elder. This legal issue can be easily resolved through the elder’s execution of a durable power of attorney and health care proxy. These documents give someone the elder chooses the authority to make financial and medical decisions on their behalf if they are incapacitated.

In addition, end of life decisions should be discussed with the elder, and their wishes should be memorialized in writing within the proper legal document. Ideally, the estate plan will also include a will, which provides clear instructions as to the disposition of the elder’s estate upon their passing away.

This is just the tip of the iceberg. If you are caring for your aging parent from afar, call us, and we’ll help you set up the proper documents for their care.

 

Gina M. Barry, Esq. 

Photo credit: Microsoft   

No contest clauses – are they contestable?

Sometimes a client requests that a so-called no contest clause or interrorem clause be inserted within their estate planning documents, usually their wills and trusts. Within a will and trust, this language basically states that if a person contests the will or any part of it, or joins in the contest with any other person who may have contested, then their rights and any potential benefit they were to receive is forfeited.

If a person contests a will, and they were otherwise excluded, there is basically nothing for them to lose this action. Of course, if they are not successful in contesting, the court may award damages, including attorney’s fees to the victorious side in those situations. Normally, the allowance of attorney’s fees is discretionary, and unless the contestant does not have significant or substantial evidence to present to the court, they may be assessed counsel fees on both sides.

In order to prevent one from contesting a will, it is often desirable to establish a trust. In a will contest, the contestant merely needs to file a formal appearance in court with a written objection, and these documents are sufficient to warrant having a hearing.

However, if an objection is made and the assets are in a trust at the time of the death of the client, the mere objection may not be sufficient to cause the contest to be heard by the court, but rather, the contestant will have to hire counsel and file a formal complaint or a lawsuit against the trustee in an attempt to invalidate all or a portion of the trust.

This certainly causes additional expense and effort, as opposed to a will contest. In many cases, it is desirable to leave the person who may contest the will a sum of money, such as $5,000 or $10,000. If they were to contest the will, they risk forfeiting the allocated amount, which may likely cause the contestant to seriously consider whether they wish to file an objection or merely accept their bequest and allow the estate to be distributed as stated.

Sometimes, this language is also included in one’s health proxy and power of attorney, to eliminate a person from ever having the opportunity to make any comments, serve as the agent, or have any say in the decision-making authority of the person named.

The no contest clause may not be valid in all states, and it is important that the person drafting the documents knows whether the clause will be upheld in the state where they live or may reside in the future. There may also be an ancillary probate, which means that there may be assets in another state to be probated, thereby giving the potential contestant another “bite at the apple.” One state may have more lenient interpretations of a no contest clause, or it may not be valid at all, which may make it very important to have assets in that jurisdiction placed in a trust in order that the privacy of the clauses and distributions will be protected to the extent allowable.

Most of the no contest clauses that are written are due to some lack of relationship between a person and a proposed beneficiary or heir, or there may be an estrangement in the family that warrants the specific no contest language.

The no contest clause is a tool that gives direction to the beneficiary and the court that the decedent does not wish to leave a person funds for any reason. When preparing documents in this situation, it is necessary to have professional advice so that the language will be as bullet proof as possible, as most of the online or do-it-yourself forms do not include the appropriate language to omit a person. It should also be noted that in most states, a person may not omit their spouse. Most other beneficiaries may be omitted, however, as there is usually no law to allow a child or grandchild to be entitled to inherit.

 

Hyman G. Darling, Esq.