Neither Age Nor Health Determines Whether You Need an Estate Plan

There’s an oft-cited, paraphrased quote attributed to George Bernard Shaw: “Youth is wasted on the young.” In many ways it’s true. When we are young, we rarely appreciate the beautiful gift of youth. We waste our talents and time on unworthy endeavors, at least most of us. There are a select few on whom youth is not wasted. Olympians belong in that select group. Olympic hopefuls devote hours upon hours to training, travel long distances to compete, and do it with injuries that would sideline the rest of us. In addition to the foregoing, Olympic hopefuls face other unique issues that mere mortals do not. Over the course of their athletic career, they will need a coach, manager, one or more doctors, and, perhaps, a public relations team. Olympians need to understand the myriad rules for their individual sport and must comply with the Olympic Charter and the rules of the International Federation governing their sport. Finally, those elite athletes medaling at the Olympic games will need a qualified tax professional to understand the rules regarding how the Internal Revenue Code (“Code”) views their winnings. These are heavy burdens for the young that disprove, or at least question, Shaw’s famous quote.

The International Olympic Committee awards the gold, silver, and bronze medals, but it does not distribute cash prizes to the winning athletes. The United States Olympic & Paralympic Committee (“USOPC”), along with similar committees in other nations, gives money to the medal-winning competitors. The USOPC awards a gold medalist $37,500, a silver medalist $22,500, and a bronze medalist $15,000. Athletes receive cash prizes on a per medal basis, thus an Olympian receiving three gold medals would take home $112,500 total cash along with three gold medals. Interestingly, the medals themselves have little monetary value. Perhaps unsurprisingly, for many years the Code included the value of any medal awarded together with any prize money as income under Code Section 74 for federal income tax purposes.

That changed after the Olympic Games in Rio de Janeiro in 2016 when the Obama Administration decided to reward the personal sacrifice involved in training and representing the United States on an international stage. As amended, Code Section 74 imposes a “victory tax” on any athlete earning more than $1 million in income after deductions at a top marginal rate of 37% but excludes from income the earnings and medal for athletes whose income is below that amount. Thus, more famous Olympians such as Roger Federer, Serena Williams, and Michael Phelps would be subject to the victory tax, while others, such as the relatively unknown pole vaulter, Katie Nageotte, may owe nothing on their Olympic winnings.

Generally, the host country has special tax treatment rules for non-resident athletes that do not require payment of taxes in that country; however, some countries impose other requirements, like “donating” a portion of the prize winnings to charity. Unfortunately for the athlete, donating Olympic prize money to a charity in that situation does not provide a tax benefit to the athlete because prizes and awards donated to charity are excluded from income only if “the recipient was selected without any action on his part to enter the contest or proceeding” pursuant to Code Section 74(b).

Notwithstanding that taxes may not be owed in the host country or the United States as long as the athlete’s income level does not exceed $1 million, Olympic athletes still need to determine if they owe taxes to their resident state or any other state in which they competed. Athletes should seek out a qualified professional to help them determine whether they can deduct any travel, training, or other expenses incurred on their way to Olympic glory. Once an athlete has achieved that elusive gold medal, the athlete will, no doubt, need more help to navigate endorsement deals and contracts that will likely result from their newly found success. It’s not often that young individuals in peak physical condition would think to seek out an Estate Planning advisor, but as the above demonstrates, it’s become a necessity. The attorney can advise the athlete regarding their winnings and help the athlete create a plan for those winnings and their other assets.

Frankly, it’s not just Olympic athletes that need to be thinking about Estate Planning. With the loosening of rules allowing college athletes to monetize their name, image, and likeness, they, too, need to consider Estate Planning. Those rules are new, complex, and likely will evolve quickly. This makes tax planning important for not just Olympic athletes, but college athletes, as well. It’s a good idea for anyone aged 18 to have at least the basic Estate Planning documents that include a Will, or Will substitute also known as a Revocable Trust, a Property Power of Attorney, a Health Care Power of Attorney, an Advance Health Care Directive / Living Will, and a HIPAA Authorization. These documents should clearly lay out who should make decisions if the young adult cannot and who should have access to their protected health information.

Although Olympic athletes may be unpaid athletes competing for the love of the sport, the recently relaxed rules regarding amateurism and sponsorships allow athletes to be compensated for their efforts and achievements. With these relaxed rules comes the opportunity for taxation and planning. Youth need not be wasted on the young, young adults should be encouraged to consider their own Estate Planning needs. From those elite athletes competing on an Olympic stage to a college freshman leaving the nest for the first time, these individuals should have a comprehensive Estate Plan. It’s never too early to start this process, and as the last two years have taught us, preparation is the key to avoiding crisis.

It Can Be Scary to Die Without an Estate Plan…the HORRORS of Intestacy

October brings fall, pumpkin-spiced everything, and macabre things. Ghosts, ghouls, and goblins may Monster Mash through your mind; however, when I think of something truly terrifying, it’s dying without an estate plan. Although the pandemic encouraged people to consider what would happen at their death, many folks believe that they “have time” or are overcome with feelings of superstition and dread when considering planning for the end of their life, as if by planning for death, they invite it. The chilling truth is that most of us have no idea how much time we have and when we will depart our mortal coil. Accidents happen, and an alarmingly high number of people die without an estate plan, which can lead to disastrous results.

The excuses for failing to create a plan run the gamut, from being young or childless to being single or refusing to face mortality. Many people believe that if their assets do not exceed a certain amount, then they needn’t worry about an estate plan. Whatever the reason, failing to create an estate plan causes chaos at your death, leaving your loved ones in the lurch. Inevitably, assets will need to be transferred and, without a clear set of instructions that a comprehensive estate plan provides, you are leaving a mess for those grieving your demise.

Dying without a will or trust is called dying intestate. It’s so common that states have created statutes to address the issue of intestacy. Wills and trusts address numerous issues such as who will care for minor children or pets, how and when assets will be distributed, who will oversee the distribution of those assets, and how taxes will be paid. If you die without any estate planning documents in place, state statutes will determine how and to whom your assets will be distributed without any input from you or the loved ones you leave behind. Many states’ intestacy laws give only a portion of assets to the surviving spouse and give the remainder to descendants, without regard for the needs of individual recipients. This includes those who may have special circumstances, such as receiving governmental benefits.

If you die intestate, then your estate will likely need to go through probate. An individual will petition a court for appointment as executor, personal representative, or administrator, which will give that individual legal authority to collect and distribute your assets. That individual likely will need to retain an attorney to understand and navigate the complex court system. A judge oversees the many steps involved in this public probate process. The judge will issue Letters of Administration or similar documents that give the executor power to marshal the assets of your estate. If your family disagrees about who should serve in that capacity, then the court will make that decision and could appoint a total stranger. Usually, statutes entitle the executor to take a commission or fee as compensation for their services. Imagine, a stranger and the public knowing your personal business and then that stranger being paid out of your money to give your assets to the people whom you didn’t even select. There’s something incredibly unsettling about that.

The treat in this tale of woe is that you control your own destiny, at least concerning your estate plan. By contacting an attorney, you can accomplish your goals, keep your estate out of probate and die testate, that is with an estate plan such as a Will or trust. As part of the estate planning process, your attorney will guide you through the perils of failing to plan and make suggestions and recommendations about the legal documents necessary to accomplish your goals. Most people feel relief and well-being upon executing their estate planning documents. Creating an estate plan allows you to determine who will care for your minor children, how your assets will be distributed to those children, who will control those distributions, when those distributions should be made, and whether distributions should be made to individuals, charities, schools, or museums. A comprehensive estate plan prevents disputes among beneficiaries and provides for tax planning, if appropriate. Working with a qualified estate planning attorney will allow you to determine what will happen to your children, your pets, and your property after your death.

Dying without a Will can haunt your family years after your demise. Even if this ghoulish endeavor gives you the chills, it’s important to undertake this task before it’s too late. Financial trouble, delayed distribution of assets, and stress are just a few of the frightening things in store for your family if you die intestate. Most individuals find the probate process as torturous as touring a sanitorium; however, you can circumvent it. Avoid the tragedy of intestacy by creating a set of instructions regarding what you want to happen when you die, otherwise known as an estate plan. 

The Kiddie Tax is No Child’s Game

Knowing and understanding the complexities of the Internal Revenue Code (“Code”) allows estate planning practitioners to provide advice regarding potential tax consequences of a transaction while creating inventive ways to avoid or reduce that taxation. One example of that creative planning led to the enactment of the “Kiddie Tax” which was born with the overhaul of the Code in 1986. The Kiddie Tax was designed to discourage wealthier individuals from transferring investment assets to a child to utilize that child’s considerably lower tax bracket. By holding those assets in the child’s name, rather than the parent’s name, the income generated by those assets would be taxed at the child’s lower marginal rate thereby saving significant tax dollars.

As originally enacted, the Kiddie Tax applied to the investment income of a child under age 14 by imposing the parents’ marginal rate to that income, effectively limiting the benefit of transferring the investment to the child. Divorced parents and parents filing using the “married filing separately” status posed unique complications in determining the amount of tax due. The Kiddie Tax has been modified several times since its enactment, sometimes with particularly unpleasant results. In 2018 and 2019, the Kiddie Tax saw its most draconian application to date. As part of the Tax Cuts and Jobs Act of 2017, the brackets and tax rates normally applicable to estates and trusts were applied to the unearned income of children. As you can imagine, that resulted in income taxation for a child’s unearned income at rates even higher than those of the parents in some cases. That change was met with considerable backlash which led to the passage of legislation that returned the Kiddie Tax to parents’ rates. Note that families who paid the Kiddie Tax in 2018 or 2019 have the option to file an amended return and apply the parents’ rate to the child’s unearned income during those years. If you believe that this could apply to you, you should consult with a qualified advisor to determine whether you have time to amend.

In its current iteration, the Kiddie Tax applies to unearned income for any dependent under age 18 at the end of the tax year and college students aged 19-23. If a child has unearned income that exceeds $2,200, then that income will be taxed at the parents’ marginal income tax rate, rather than the child’s rate. For a child with unearned income that does not exceed $11,000, that child’s parent may elect to report the child’s unearned income directly on the parent’s Form 1040 without filing a separate return, as long as no withholdings or estimated tax prepayments have been made for the child. If, however, a child earns more than $12,400, between earned and unearned income that child needs to file their own return. Regardless of whose return reflects the unearned income, it will be taxed at the parent’s rate. For a child with both earned and unearned income, the rules become more complex. The Code creates exceptions to the Kiddie Tax for a child with earned income totaling more than half the cost of their support and for any child that uses the filing status “married filing jointly.”

Taxable interest, dividends, capital gains, taxable scholarships, income attributable to gifts from grandparents (such as inherited IRAs), and income attributable to custodial accounts established under the Uniform Gifts to Minors Act all qualify as unearned income. The Code exempts income attributable to wages, salary, tips, and self-employment from the Kiddie Tax. The tax-deferred interest earned on 529 plans and custodial 529 plan accounts are also exempt. As noted above, the Code subjects investment earnings from other custodial accounts to the Kiddie Tax; however, those investments may be converted to custodial 529 plans to take advantage of the inherent tax benefits attributable to 529 plans.

Let’s review an example to see how the Kiddie Tax works in application. Assume that Goldie established a trust for the benefit of her minor dependent daughter, Kate, in 2020, naming Kurt as Trustee. Goldie funded the trust with assets that produced $1,100 of income that year and Kate had no earned income of her own. Because the standard deduction for Kate is the greater of $1,100 or $350 plus her earned income, neither Kate nor Goldie has any income tax consequences. If we change the facts so that the income from the trust was $2,200, then the first $1,100 would be covered by the standard deduction and the $1,100 over the standard deduction would be taxed at Kate’s marginal rate. If the trust earned $2,500, then the additional $300 would be taxed at Goldie’s marginal rate, rather than Kate’s, because it exceeds the allowable $2,200 of unearned income. As this example demonstrates, the unearned income to a child impacts the parents’ tax return much more significantly than the child’s return and this occurs even if the parent truly intended to make a gift to the child.

It’s easy to overlook unearned income when considering whether to establish a trust for the benefit of a child and most often that conversation focuses on the estate and gift tax consequences, rather than potential income tax consequences. As this article makes clear, though, unearned income and the potential application of the Kiddie Tax needs to be part of the total consideration when establishing a trust for the benefit of a child. If you have concerns about the application of the Kiddie Tax to you or your children, or if you want to consider whether amending your 2018 or 2019 income tax return may result in a refund for you.

Create A Great Funeral Day

On Halloween, October 31, we celebrate ghosts and scary things. The spirits of the deceased are remembered on November 1 and 2, All Saints Day and All Souls Day, respectively, also known as the Day of the Dead celebration.

Yet, you might not know this October 30 is the 22nd annual Create a Great Funeral Day. Before Halloween ghosts and Day of the Dead spirits can go a-haunting, there’s usually a funeral or memorial service – the party no one wants to plan.

Confronting the idea of our own death causes uncomfortable thoughts. Rather than facing the inevitability of our dying, our culture denies death. Yet at the same time, we have this enormous celebration of scary and death-related things at Halloween.

The idea behind Create a Great Funeral Day is to consider how you would like to be remembered. By letting loved ones know how you’d like your life celebrated, the survivors’ experience can be so much easier.

Create a Great Funeral Day began in 2000, started by Stephanie West Allen. She saw her husband struggling to pull together a meaningful funeral for his mother, who had left no directions before she died. Observing his grief, Allen felt that knowing what her mother-in-law might have wanted would have eased the pain of memorial service preparations.

Why do people hesitate to discuss funeral planning, let alone do anything concrete about it in advance?

Social psychologists cite the Terror Management Theory, that all human behavior is ultimately motivated by the fear of death. Death creates anxiety, not only because it can strike at unexpected and random moments, but because its nature is essentially unknowable.

The awareness of our own eventual death, called “mortality salience,” affects our decision-making in the face of this terror. Many people decide to avoid the topic.

Create a Great Funeral Day prompts us to be mindful of our mortality. This self-awareness enables us to plan reflectively in advance, so we don’t leave our families to react disorganized and stressed, after our death.

Blue Öyster Cult’s 1976 hit song, “Don’t Fear the Reaper,” is a perennial favorite on classic rock stations. Its intended message is that love transcends the actual physical existence of the partners. The Reaper refers to the Grim Reaper, a traditional personification of death in European folklore.

A fear of funeral planning equates to fear of death. Those who hold fear in one area of their lives often have fear in other areas. It won’t kill you to move away from the fear of funerals.

Act with love, plan ahead, and talk about what you might want. Your courage will help your family reduce stress at a time of grief, save money, and create a meaningful, memorable “good goodbye.”

On Create a Great Funeral Day, don’t fear the Reaper. Need more cowbell.

How Estate Planning Documents Help Prevent Elder Abuse

With age comes wisdom and often, vulnerability. While aging is inevitable, it’s often hard to face as previously routine tasks become more difficult or require the assistance of another. Suddenly, keeping up with the latest technology overwhelms an individual who abandons the project in frustration. Minds become addled and scam artists more creative making recognizing a scam more difficult. As a cruel backdrop to this increased vulnerability, once dutiful children seldom visit and outings with friends become sporadic. Loneliness ensues only exacerbating the helpless feelings that may accompany aging. These factors together with the continued global pandemic and our increased reliance on technology to connect create the perfect storm for exploitation of the elderly. Studies show that one in ten people over the age of 60 has experienced some form of abuse. Our aging population has never been more vulnerable, and we have a duty to protect them.

Unfortunately, abuse occurs and often isn’t discovered until months or years later, in some cases much too late to take corrective action. Telephone and mail scams jump to mind as examples of rampant elder abuse; however, sometimes the abuse comes from much closer sources. A family member, long-time friend, or even a trusted caregiver may take advantage in a needy situation. These individuals may rationalize their behavior because of their increased presence in the elder person’s life. If that individual provides access to certain necessities like rides to the doctor or helps with groceries, the situation becomes more complex and ripe for abuse. Pick up any newspaper, magazine, or browse the headlines online and you can find a story about the exploitation of the elderly. It has become an increasingly common, although preventable, occurrence.

Obviously, it’s hard to attribute the issue to just one cause. Usually, several factors lead to an abusive situation. As the following example illustrates, it’s a slippery slope. Assume that Denise took over check-writing duties to ease the emotional burden on her newly widowed mother, Molly. Molly expresses her immense gratitude for Denise’s help and tells her that she’d like to thank her and offers to pay tuition for her grandson, Graham. If Denise refuses the offer, it’s clear that she has done nothing wrong. Here Denise had the opportunity to use funds for her own benefit but refused. Perhaps Denise’s sense of duty prevented her from stroking the check, perhaps she knew that she lacked the legal authority, or perhaps she simply wanted to avoid a fight with her brother after her mother’s death.

Assume that several months pass and Denise moves Molly into Denise’s home because Molly started wandering the neighborhood. Although there are times that Molly sounds like herself, at others she’s elsewhere. The next time Molly mentions Graham’s tuition, Denise writes the check immediately. Here, it’s a little less clear whether Molly really intended for Denise to use the funds and whether Denise had the authority to write the check. That depends upon whether Denise was listed as a co-owner on the account or was acting pursuant to authority granted under a property power of attorney or as successor trustee under a trust. Even if Denise were acting under a property power of attorney or trust agreement, in most states, Denise has a duty to act in the best interests of Molly. In paying Graham’s tuition, Molly likely breached that duty.

Now let’s assume that Denise has been experiencing financial trouble and decides to write the check without any direction from Molly or completes the payee on a pre-signed check. Even though Molly had previously expressed her gratitude to Denise, Denise likely lacked proper legal authority to make that expenditure and could find herself facing charges of elder abuse. If Denise made an equal distribution to her brother, Sonny, or if Denise quit her job to provide full-time care to Molly, she still likely exceeded the scope of her authority in making distributions from Molly’s account. The foregoing example demonstrates the difficulty in drawing a bright line regarding the behavior, how easily even a well-meaning individual could misstep, and the importance of protecting the elderly against this type of exploitation.

The simplest, most effective way to prevent elder abuse begins with a well-drafted estate plan. The plan should include specific powers exercisable by the fiduciary, as the attorney-in-fact, or as successor trustee. A well-drafted estate plan that specifically prohibits or provides express powers gives instructions to the fiduciary, financial institutions, and third parties about the principal’s expectations, even when the principal loses the ability to express those preferences. These clear directions mean that more people know what should happen thereby decreasing the potential for abuse.

Most states have enacted laws with significant punishments designed to prevent elder abuse. Many also have agencies designed to receive reports of abuse and intervene, if warranted. If a family member has concerns about whether dad’s new friend has nefarious intent, consult an attorney to discuss options and make sure to keep communication open and non-judgmental. Some of these scams bring feelings of shame which makes it difficult for the victim to admit what happened. An experienced estate planning or elder law attorney can help discern signs of abuse and suggest controls, checks, and balances to protect against it.

It’s important for us to look out for one another. As we continue to navigate the ongoing pandemic, we need to encourage interactions and connections with family and friends. Periodically review estate planning documents to ensure that the fiduciary appointments serve the best interests of the principal. If one of the fiduciaries has experienced a change in circumstances, consider whether naming a co-fiduciary or another fiduciary altogether provides comfort. These safeguards will help protect our most vulnerable – the elderly.

Charitable Planning in Times of Crisis

The ongoing global pandemic and recent September 11 anniversary provide us with a great opportunity to re-evaluate our goals. At the outset of the pandemic, we were forced to make drastic changes to our everyday lives. Even now, countless health care workers continue to endure long hours in overrun hospitals with insufficient supplies struggling to save lives in the face of growing admissions. Across the country and around the planet, people have looked for ways to help. Many have done that by providing food, school supplies, and making and donating masks. In the months since we were first told to shelter in place, numerous individuals have taken steps to innovate, motivate and alleviate. Many of these acts have come in the form of contributions to charity.

If you wish to make a charitable contribution to an organization involved in combating the pandemic, you have several methods from which to choose. Of course, you can give cash outright to the charity. Donating cash entitles you to a current income tax deduction for the donation, up to 60% of your adjusted gross income if you donate to a qualified public charity. If the donation exceeds 60% of your adjusted gross income, you can carry the deduction forward for up to five years. This simple and straightforward method allows you to make an impact by simply writing a check. However, you may be able to give more or have it cost less if you donate in other ways.

Giving appreciated stock or other appreciated assets will get you a deduction for the full value of the asset, up to 30% of your adjusted gross income. Note that you can deduct the full value of the asset, notwithstanding that you paid much less for it and that had you sold it, you would have incurred up to 20% capital gains, possibly the 3.8% net investment income tax, and any state income taxes. Basically, donating an appreciated asset to charity allows you to take an income tax deduction for the capital gains you eliminated by giving the asset to the charity. If you want to gift stock to a charity, simply ask the charity to provide their transfer information and relay that information to your broker with a direction to transfer the stock to the charity. This method allows you to make a direct impact with a bit of research and a few telephone calls.

If you are contemplating a considerable gift, a charitable trust may appeal to you because it allows you to benefit a charity and yourself or your family. For example, a Charitable Remainder Trust (“CRT”) pays you or your family an income stream either for life or for a term of years and at the end of the trust term, the remainder goes to charity. You receive a current income tax deduction for the value of the charity’s remainder interest, determined actuarially. You receive a current deduction even though the charity receives nothing until many years in the future when the trust term ends. The amount of the deduction varies based upon the term of the income interest, the rate of payment, and the assumed interest rate.

If you have a non-publicly traded asset to contribute to charity, you might consider a Donor Advised Fund (“DAF”). DAFs have become some of the fastest growing charitable giving vehicles. A donor can contribute cash or other appreciated assets to a DAF; however, the DAF’s ability to accept non-publicly traded assets that other qualified charities cannot accept sets the DAF apart from other charitable giving options. If a donor were to give $1,000,000 of cryptocurrency to a DAF, that donor would receive an immediate income tax deduction for the fair market value of the cryptocurrency. The DAF invests the assets which continue to grow while the donor makes recommendations for grants to any qualified public charity usually with a few keystrokes or a telephone call. Once contributed, the assets cannot be returned to the individual donor or any entity other than a charity recommended by the donor. The DAF may allow the donor to name a successor advisor to make recommendations for continued charitable giving upon the donor’s death or incapacity.

The Qualified Charitable Distribution (“QCD”) presents another option to consider if you are taking distributions from your traditional Individual Retirement Account (“IRA”). If an individual makes a charitable contribution from an IRA that does not qualify as a QCD, the Internal Revenue Code treats the contribution as a distribution and includes it in the owner’s gross income. This occurs whether it was a direct transfer from the IRA custodian to the charity or distribution to the owner who subsequently made the transfer to the charity. The owner could take a charitable contribution deduction, but only as part of itemized expenses (unless the deduction falls below $300 for an individual or $600 for a married couple). With a QCD, the owner directs the IRA custodian to transfer funds directly from the IRA to the charity. The QCD excludes the distribution from the owner’s income while satisfying the Required Minimum Distribution (“RMD”). The QCD counts toward any RMD for the year and can begin at age 70 ½ notwithstanding that age 72 now represents the beginning age for RMDs after the Secure Act. The QCD presents a powerful charitable planning tool for anyone required to take RMDs or for those age 70 ½.

Estate Planning Reduces Stress During High Anxiety Times

Everyone who lived through September 11, 2001, shares a common experience. Although colored by our individual circumstances, we remember looking at the horrific images of destruction and misery and wondering why this tragedy occurred. Since that fateful day, Americans have flocked to churches, synagogues, mosques, and other places of worship seeking answers to questions regarding the meaning of life and the existence of suffering.

This national tragedy continues to affect all of us to varying degrees. We face similar issues in environmental calamities such as hurricanes, tornadoes, wildfires, and in personal struggles such as the COVID-19 pandemic and unexpected illnesses. In each instance, we prepare the best we can. We can prepare ourselves for these unforeseen circumstances by planning what should happen in the event a crisis strikes. Basic estate planning relieves stress at the time of crisis both for us and for those whom we love. The basic estate plan includes five documents: Property Power of Attorney, Health Care Power of Attorney, HIPAA Authorization, Will, and Revocable Trust.

Through a Property Power of Attorney, you designate an “Agent” who will make financial decisions for you when you are unable to do so. This Agent has the legal authority to act on your behalf and may be your spouse, a parent, or a trusted friend. Without this document, if you are missing or incapacitated, no one can act for you. Without it, if you were missing or incapacitated and your family needed to refinance your house to pay for bills, it could only be done by someone going to court and having you declared incompetent. Incapacity proceedings usually require the services of an attorney. That arduous process often leaves those involved emotionally drained.

A Health Care Power of Attorney designates an “Agent” to make health care decisions for you if you are unable to make them yourself. With this document in place, you can rest assured the person you trust will have the legal authority to make medical decisions for you. You also may wish to prepare a Living Will or similar document which expresses what you would want to be done regarding end-of-life decisions.

A HIPAA Authorization allows people whom you designate, such as your Agents or others, to access your protected health information. It’s through this access to your health information that the decision-makers you’ve chosen can make informed decisions.

A Will has several functions. First, and most importantly, under the laws of most states, it is the only way you can designate whom you wish to serve as guardian for your minor children. Without a Will the court will decide who will be guardian, regardless of your wishes. Unfortunately, no matter how caring the judge may be, that judge does not know and love your children as you do. Second, the Will distributes any assets that are held in your individual name at your death to your intended beneficiaries. Without a Will, the state determines how and to whom to distribute your assets under the laws of “intestate succession.” Unfortunately, this set list ignores your specific circumstances and assets often do not go to the desired person or in the desired manner. Third, the Will names someone as your Personal Representative or Executor to carry out the instructions set forth in your Will. Certain types of Wills, called pour-over Wills may “pour” your assets “over” into a Revocable Living Trust (“RLT”), to be distributed by its terms.

Even with a Will, any assets you own at death must go through “probate” to be distributed to those designated by you. Probate is the process of transferring title from the person who died to the person who has the right to receive the property. Depending upon the state and the situation, this process can be expensive, time-consuming, and emotionally draining for those left behind.

Setting up an RLT to hold legal title to your assets during your lifetime avoids probate. The RLT acts as a Will substitute upon your death and vests the successor Trustee with the legal authority to collect assets, pay your debts, expenses, and taxes, and dispose of the assets as set forth in the RLT. As a result, the assets avoid probate because the RLT owns the assets and the trust did not die. Even though the RLT holds legal title to the assets, you retain complete control of the assets during your lifetime and can make changes to the RLT. If you become incapacitated, the person you have chosen as your successor Trustee will manage the assets for you, much like the Agent under your Property Power of Attorney. The RLT provides great flexibility in allowing you to direct how and when the assets will be used after your death. For example, you can include provisions that ensure your children do not squander money but, rather, keep the money for higher education.

Finally, as part of your estate planning, you need to consider how other assets will pass upon your death. Periodically review the beneficiary designations on your 401k, IRA, or other qualified plan assets. Often, circumstances change, and you need to update your beneficiary designations to change with the times. This becomes increasingly important as retirement assets comprise a larger and larger portion of the typical person’s assets. Periodically, you should review the beneficiary designations for life insurance and any other assets which transfer automatically at death. Many financial accounts have such designations.

Unfortunately, we cannot eliminate the possibility of tragedy in our lives. However, we can reduce our anxiety at such times with a comprehensive estate plan that provides instructions to our loved ones regarding what should happen if tragedy occurs. This article reviewed the basic documents. Other considerations such as beneficiaries with special needs, creditor protection, income taxes, divorce protection, and estate taxes impact your plan. 

Changing “Irrevocable” Trusts Through Use of a Trust Protector

While judicial and nonjudicial modification and decanting derive from state law, trust protector provisions originate from the trust instrument itself and by extension, from the grantor. The grantor decides which powers to give a trust protector. For example, the trust protector may possess the power to remove and replace a trustee or appoint additional trustees; to direct, consent, or veto investment decisions; to modify the trust in response to changes in tax or state law; to change governing law or situs; to appoint assets to a class of people or charity in a non-fiduciary capacity; to alter beneficial interests in the trust; to modify the trust in response to changes in trust assets; or to turn off grantor trust status. Think about the trust protector as someone who fixes a specific issue only and has no input regarding daily trust administration.

You may be wondering how a trust protector differs from a trust advisor, distribution advisor, or special trustee. The powers given, rather than the name used, determine whether the party is a trust protector. Trust protectors have a limited but vital role and maintain the power to adjust the trust in the future, long after the creation of the trust and perhaps, after many generations when the trust needs a quick fix. Any time you change an irrevocable trust, ensure that there are no unintended tax consequences, either to a beneficiary, or the grantor.

While it is tempting to think of a trust protector as a trustee, remember that the trust protector may not have the same fiduciary duties as the trustee. State law determines whether trust protectors have fiduciary duties. Some states, like Missouri, have statutes that presume that the trust protector is a fiduciary but allow the grantor to override that presumption in the trust instrument itself. Other states, like Alaska, impose the reverse presumption that a trust protector is not a fiduciary and require that the trust protector be made a fiduciary in the trust itself, if desired. Remember to consider the interplay between the trustee and the trust protector, especially if you intend for the trustee to take direction from the trust protector.

Donald established a trust for the benefit of his nephews, Huey and Dewey, naming his nephew, Louie, as trustee and Webby Vanderquack as trust protector. Louie makes distributions to Huey and Dewey in his sole discretion, for the lifetime of each of Huey and Dewey. Huey, Dewey, and Louie recently had a falling out over rights to their latest movie. Louie threatens to withhold distributions to Huey and Dewey. Webby, as the trust protector, can remove Louie and replace Louie with Donald’s friend, Mickey. In this situation, the trust protector exercises her power to name a new trustee who will resume distributions to the beneficiaries without the current trustee’s cooperation and without court intervention thereby solving the issue. This is but one example of the many ways that a trust protector can exercise her listed powers and fix the trust to better address beneficiary needs.

If you have concerns about how an irrevocable trust can adapt to changing needs over time, consider naming a trust protector who can adjust the trust to account for changes in beneficiaries’ needs or changes in the laws. Trust protectors avoid court, do not require the cooperation of the trustee or beneficiaries, and can solve a problem quickly. The use of a trust protector adds flexibility to a trust, especially when limitations or obstacles prevent judicial and nonjudicial modification or decanting. Remember that the trust protector has the powers listed in the trust. With some careful consideration of the trust protector’s powers, it’s easy to create an irrevocable trust that will evolve with changing needs.

The Five W’s of Holding a Memorial Service

Have you ever wondered what information they need to create a moving, memorable memorial service or funeral? You can use this checklist of questions to have answered BEFORE a loved one dies. Many of these questions are directed to “you,” but you can direct them to someone else.

Have arrangements been made for cremation or burial with a funeral home/cemetery, cremation service provider, or body donation service?

What is the contact information for that (those) service provider(s)?

If arrangements have been made, has funding been provided through insurance (pre-need, final expense, or other), a payable on death account, or some other method?

These next questions cover the Five W’s: the Who, What, When, Where, and Why of holding a memorial service — important details that will help make a memorable, meaningful, moving event.

Who do you want to conduct a celebration of life, memorial service or funeral? That could be trusted clergy, a celebrant, a talented friend or relative, or another special person. What is their contact information?

Who else do you want to speak at this event about your life? Would you want to honor specific people by inviting them to participate in another way, such as singing, dancing, playing music, or reciting a reading?

Who needs to be invited to your life celebration and what is their contact information?

What organizations need to be contacted to alert fellow members and friends about the memorial service?

What — if any — organization(s) would you have people support with memorial donations in lieu of flowers?

What three or four pieces of music are meaningful to you and why? Would you want a musician to play a particular instrument as part of the event?

What poems, prayers or other readings have significance for you?

What motif or theme best represents your life? Items reflecting your values, hobbies, and handiwork can be on hand at the event, and even given away to attendees as memorial gifts.

What are your favorite colors and flowers (if any)?

What words of wisdom would you want to share with those who want to celebrate your life?

What do you want done with your remains, if cremation is your choice? (Saying you don’t care isn’t helpful.)

When would be a good time to celebrate your life? Would you want to associate this event with a particular holiday or time of year? Does your family need to coordinate travel around school schedules?

Where do you want to hold your life celebration event? If you are religious, would you want it held in your congregation’s house of worship? If you aren’t religious, what meaningful places could accommodate a ceremony and a party?

Why is a specific location for your life celebration important to you?

What other details might you wish to specify? To provide particular foods or drinks? Have a balloon release or candle-lighting ceremony? Gifts to give the guests?

Do you have any special requests for guests attending your life celebration? Some suggestions – dress in a particular color or style of clothing, bring a donation for a charity, or bring a story or photo to share at the event.

Changing “Irrevocable” Trusts Through Decanting

Unlike judicial and nonjudicial modification or the use of a Trust Protector, decanting relies upon an extension of the trustee’s existing power to distribute trust assets.  In states that recognize decanting, the trustee exercises their power to distribute trust assets and moves them from a trust with unfavorable terms to a trust containing more favorable terms, much like pouring wine from the bottle into a decanter brings better flavor to the wine.

Depending upon state law, the new trust could provide opportunities to correct a drafting mistake, clarify ambiguities, correct and update trust provisions, remedy problems in administration, change trust situs, expand or limit trustee powers, restrict beneficiaries’ rights to information, provide asset protection, adjust trustee succession, appoint a trust protector, alter distributions, or adapt trust provisions to address changes in beneficiaries’ circumstances.  Over half of all states have enacted statutes authorizing decanting.  Each state’s statutes regarding decanting vary widely, although most recognize that if a trustee has discretionary power to distribute trust corpus to the beneficiaries, such power constitutes a special power of appointment enabling the trustee to appoint the trust corpus to a new trust for the benefit of those same beneficiaries.

Even if your state statutes do not specifically authorize decanting, you may still have options.  If the problematic trust allows for a change in situs, then the trustee or other authorized party can utilize that provision to move the administration of the trust to a state that allows decanting.  Once the trustee changes situs, then the trustee can take advantage of the new state’s decanting statutes.  Most states that allow decanting have adopted some form of the Uniform Trust Decanting Act. Note that experts tend to cite South Dakota as the state with the most favorable decanting statute.

Let’s review an example to see the practical application of decanting.  Assume that Donald established a trust for the benefit of his nephews, Huey, Dewey, and Louie naming Webby Vanderquack as Trustee (Webby is an independent trustee because she is not related or subordinate to Donald).  Webby makes distributions to Huey, Dewey, and Louie in her sole and absolute discretion and the terms of the trust provide for outright distribution to each of Huey, Dewey, and Louie in a few years.  Huey recently became disabled and receives government benefits.  Huey has expressed concern that he will lose his benefits if he receives the trust assets outright.  Dewey just finished his third stint in rehab and Louie is in the middle of a nasty divorce.  Webby proposes to decant the trust assets to a new trust that contains a special needs trust for Huey’s benefit and lifetime trusts for each of Dewey and Louie.  This new trust provides additional protections for Huey, Dewey, and Louie, based upon circumstances that Donald could not have reasonably anticipated when he established the trust.  This is but one example of the myriad ways that decanting allows the Trustee to create a new trust that better addresses the beneficiaries’ needs without unfavorable tax consequences.

If you think that decanting might provide a solution for your trust troubles, make sure that you consult a qualified Estate Planning attorney regarding your state’s decanting rules.  The trustee needs to comply with their fiduciary duties which becomes more difficult if the trustee occupies the dual role of trustee and beneficiary.  You want to ensure that you avoid unintended tax consequences to the grantor and beneficiaries.

Decanting provides a great estate planning opportunity in the current environment.  Clients alike are encouraged to review their plans, especially irrevocable trusts created many years ago to confirm that those trusts accomplish the goals of the grantor and properly protect the needs of the beneficiaries.  If the trust fails to properly address beneficiary needs or otherwise could use some tweaking, decanting provides a great opportunity to re-write the trust with more favorable terms.