Monthly Archives: October 2022

Creating an Estate Plan that includes a Revocable Trust, pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization provides numerous benefits during life and at death. During life, the plan provides directions to your family regarding your medical care and finances if you become incapacitated or are otherwise unable to articulate your wishes. At death, the plan acts as a set of instructions to your fiduciaries regarding the distribution of your assets. Unfortunately, as most understand, signing the documents alone does not solve every problem or guarantee that everything will work as intended. Sometimes, there are things that the grantor or testator does or fails to do that undermine an Estate Plan.

Some clients prefer to avoid hiring an attorney for estate planning and take matters into their hands by titling assets so that said assets pass outside of probate. Of course, clients have other ways to avoid using the services of an attorney. Numerous organizations such as Legal Zoom, RocketLawyer, and Will Maker all claim to permit an individual to create estate planning documents without hiring or consulting an attorney. Documents created using these services sometimes lack basic elements such as a residuary clause, fail to include lapse beneficiaries, or fail to meet the statutory requirements for validity. Any items not specifically devised by a Will or Trust, or things not owned at the creation of the documents pass pursuant to the terms of the residuary clause. If the documents do not contain the residuary clause, it’s not clear how those assets will pass. Likewise, if the Will or Trust fails to name lapse beneficiaries, that also causes problems. For example, if a specific devisee predeceases the testator or grantor and there’s no lapse beneficiary, then the assets pass to the residuary beneficiary which may or may not have been the grantor’s intent. If the residuary beneficiary predeceases the grantor and there’s no lapse beneficiary, or if the documents lack a residuary clause, that creates even more confusion. In situations in which the documents lack a residuary clause or lapse beneficiaries, the fiduciary likely would need to petition the court for an order directing the distribution of the assets. This causes a delay in the distribution of the assets along with increased expense for the estate ultimately reducing the amount passing to the beneficiaries.

Even if an individual retains the services of an attorney to create their Estate Plan, that’s not the end of the attorney’s role. The client should consult the attorney to update the plan whenever major life changes occur. The death of a spouse, being one of the most critical such life events. Upon the death of a spouse, the surviving spouse should contact me to ensure proper administration of the estate and trust. If a client fails to contact me upon the death of their spouse that can cause significant issues. For example, many estate plans utilize a “Family Trust” or “Credit Shelter Trust” to hold assets of the decedent spouse equal to their unused Applicable Exclusion Amount. Pursuant to Internal Revenue Code Section 2010, in 2022 an individual may transfer up to $12.06 million (the Applicable Exclusion Amount) upon their death without the imposition of transfer tax. Some Estate Plans with a Family Trust requires the establishment of that trust as soon as practical after the death of an individual. If a Trustee fails to do this, said Trustee has breached their fiduciary duties to the beneficiaries of the Trust. Further, imagine the difficulty in trying to fund that Family Trust several years later when assets may have changed in value, been sold, or have otherwise been depleted.

Even if the decedent’s plan did not mandate the creation of a separate Trust, other decisions impact the estate and trust. For example, perhaps an intended beneficiary recently won the lottery. That beneficiary could disclaim an inheritance and let it pass to the next beneficiary under the plan. A qualified disclaimer under Internal Revenue Code Section 2518 allows an individual to refuse a gift or bequest without transfer tax consequence and must be made within nine months of the creation of the interest. I always walk an individual through the process and he/she will know the requirements for a qualified disclaimer. Many plans that leave everything to a surviving spouse include disclaimer language that gives the surviving spouse the option to decide whether to disclaim assets and use the decedent spouse’s unused Applicable Exclusion Amount thereby saving estate taxes upon the surviving spouse’s later death.

Creating an Estate Plan without an attorney saves neither time nor expense, in fact, it’s likely to cost the family more in the long term.

Creating an Estate Plan that includes a Revocable Trust, Pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization provides numerous benefits during life and at death. During life, the plan provides directions to your family regarding your medical care and finances if you become incapacitated or are otherwise unable to articulate your wishes. At death, the plan acts as a set of instructions to your fiduciaries regarding the distribution of your assets. Unfortunately, signing the documents alone does not solve every problem or guarantee that everything will work as intended. Sometimes, there are things that the grantor or testator does or fails to do that undermine an Estate Plan.

Creating an Estate Plan requires an individual to disclose sensitive information to create the plan. Many of us agonize over a discussion focusing on mortality, yet that’s exactly what a discussion about Estate Planning does. A comprehensive Estate Plan though implements a plan for that eventuality. People creating an Estate Plan often make the mistake of failing to inform their beneficiaries and fiduciaries of the plan. While the conversation may be awkward, having it not only lets your loved ones know of your plan and their role therein but also prevents hurt feelings and potential litigation if the plan deviates from a beneficiary’s expectation.

Clients may hesitate to discuss their plan because they worry that a beneficiary who knows that they will receive an inheritance will lose motivation to work hard. Others may worry that disclosing the information will cause current conflict or believe that the details of their plan should remain private until after their death. Still, others may have a hard time assessing family dynamics or the limitations of their intended beneficiaries. An experienced Estate Planning practitioner assists a client in working through these concerns and encourages an open dialogue with the beneficiaries and fiduciaries to reduce conflict after death. As Trust and Estate litigators know, a beneficiary whose inheritance failed to meet their expectations makes a great client. Plenty of contentious battles begin because the grantor treated one beneficiary differently than another or one person decided something of which another disapproved.

Having a conversation with the beneficiaries during and at the end of the process provides several benefits. First, it allows the client to provide the beneficiary with their underlying reasoning or motivation for creating the plan. That helps the client understand and manage the beneficiary’s expectations and address the beneficiary’s questions or concerns. Second, the conversation might help the grantor or testator better understand the beneficiary’s needs. That conversation may serve as motivation for the beneficiary to undertake their own Estate Planning. Third, the conversation helps prepare the beneficiary for experiencing the testator’s end-of-life. Imagine a healthcare agent faced with the decision to terminate life support, now imagine they never had a conversation with the individual hooked up to the machines. Imagine trying to make that decision without all the information. A conversation about your wishes with those who will make the decision reassures them that they know what to do when the time comes.

Having a tough conservation with your beneficiaries about the contents of your plan goes a long way toward preventing litigation. Unfortunately, it can’t prevent all litigation. The plan itself also plays a role. If the plan fails to address incapacity, that could cause significant issues. A comprehensive Estate Plan that includes all the documents noted above addresses incapacity if the Revocable Trust has been funded and contains provisions regarding who serves as Trustee if the original Trustee (who is typically the Trustor) cannot because of incapacity and how distributions from the Trust should be made during the period of incapacity. If there are assets outside the Trust, then the Attorney-in-Fact acting under the Property Power of Attorney can make decisions about those assets. Relying upon the Property Power of Attorney could cause issues if the Power of Attorney is outdated or otherwise insufficient. In any scenario, the individual acting pursuant to the Health Care Power of Attorney will control decisions regarding health care for the incapacitated individual. If an Estate Plan lacks these documents or the documents don’t properly address and plan for incapacity, then the family or loved ones will have to go through the time, effort, and expense of initiating incapacity proceedings.

As this article has demonstrated, while there are reasons that folks want to keep the details of their Estate Plan secret, that can backfire in big ways. Further, failure to include provisions in an Estate Plan can result in expensive litigation for the estate, ultimately reducing the benefit to the beneficiaries. I encourage clients to have tough conversations, includes provisions that address a range of circumstances that the client might experience in their life, and ultimately creates a plan that honors their legacy and protects their beneficiaries. Any plan that fails to address these matters ultimately fails the creator of the plan and their loved ones, at a time when they are least equipped to deal with it.

Creating an Estate Plan that includes a Revocable Trust, pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization provides benefits both during life and at death. During life, the plan provides directions to your family regarding your medical care and finances if you become incapacitated or are otherwise unable to articulate your wishes. At death, the plan acts as a set of instructions to your fiduciaries regarding the distribution of your assets. Unfortunately, as many practitioners understand, signing the documents alone does not solve every problem or guarantee that everything will work as intended. Sometimes, even a properly executed Estate Plan contains mistakes.

Let’s start with what seems like an obvious mistake, leaving assets outright to a minor beneficiary. Any Estate Plan that gives assets outright to a minor beneficiary has disastrous consequences. Although most states have statutes that prevent a minor beneficiary from inheriting money or assets directly, some permit the minor to hold title to certain assets, such as real estate. Of course, even if the state allows minors to hold title to real estate, minors cannot contract and therefore cannot alone exercise the bundle of rights associated with property ownership. Other states have statutes that let a parent take the property on the minor’s behalf if the assets do not exceed a modest amount, but inheritances often exceed that amount. If the Estate Plan does not properly address minor beneficiaries, the fiduciary distributing the assets will need to ensure that he or she distributes the assets to the appropriate party, which could require petitioning the court for the appointment of a guardian or conservator to take title to the assets on the minor’s behalf. Guardianship proceedings involve significant time, trouble, and expense, and often mean continuing court oversight. If instead, the Estate Plan contains provisions for the establishment of a trust along with the appointment of a trustee or a custodian for the property going to the minor, that can save the fiduciary, the estate, and by extension, the beneficiaries, tremendous time, and effort while giving the minor immediate access to the assets.

Even if all the beneficiaries in a plan have attained the age of majority, other life factors may require the implementation of a plan that leaves assets in trust rather than outright to the beneficiaries. For example, beneficiaries known for spending money, battling addiction, facing legal woes, or dealing with creditors need the benefit of a trust holding their inheritance, rather than outright distribution. Implementation of a trust structure for beneficiaries with certain problems protects the inheritance and by extension, the beneficiaries from those problems. Savvy practitioners will encourage long-term thinking and planning for these issues while achieving the client’s goals and protecting their legacy.

Finally, if a beneficiary receives government benefits, then that, too, deserves special consideration. Failing to plan for a special needs beneficiary may cause a disaster in an Estate Plan, usually including loss of benefits for a beneficiary receiving public assistance. If a client wants to leave money or property to a special needs beneficiary, then it’s important that the assets pass through a Special Needs Trust to the beneficiary to preserve that beneficiary’s benefits. The trust needs to meet certain requirements to qualify as a Special Needs Trust and if it does, then the beneficiary will maintain his or her benefits. In addition to provisions for any beneficiaries currently receiving benefits, it’s important that the plan include provisions that authorize the creation of a Special Needs Trust for any beneficiary receiving government benefits at the time of distribution, not just upon the creation of the plan. Estate Plans need to have flexible provisions that allow evolution of the plan to meet changing needs and circumstances.

As this article has demonstrated, certain categories of beneficiaries require special provisions to protect them in an Estate Plan. Although folks undertaking Estate Planning think about which assets should go to whom, a qualified Trusts and Estates attorney understands that the intended beneficiaries impact the plan tremendously. I always include the proper provisions in the plan to address the age and situation of the beneficiaries and to account for the inevitable changes that will occur in the beneficiary’s circumstances over time. Any plan that fails to address these matters ultimately fails the creator of the plan and their loved ones, at a time when they are least equipped to deal with it.

As most individuals realize, creating an Estate Plan that includes a Revocable Trust, pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization provides benefits both during life and at death. During life, the plan gives directions regarding your finances and medical care if you become incapacitated or are otherwise unable to articulate your preferences. At death, the plan provides instructions regarding who should distribute your assets, in what manner, and to whom. If only drafting and signing the documents were enough; however, as I can attest, there are numerous issues that cause the best-laid plans to go awry.

As a threshold matter, the worst mistake is failing to plan. Many people procrastinate when it comes to their Estate Planning for various reasons, such as lack of money or time, an unwillingness to face their own mortality, or indecision regarding their affairs. The excuses never end. Failing to prioritize your Estate Plan or failing to ensure its completion leaves your affairs and your family in limbo both during life and after your death. Without a proper Estate Plan, the state of your domicile controls distribution of your assets upon your death. When you die without an Estate Plan, that’s called dying intestate and the laws of intestacy in your state of domicile control what happens to your assets upon your death. Intestacy laws usually give at least half of your assets to your surviving spouse and distribute the remainder among your children, all outright. Outright distribution could have disastrous consequences for any special needs beneficiary by making them ineligible for the benefits that they were receiving. Outright distribution causes issues for a minor child by requiring a guardianship for such child to receive the assets. Finally, the distribution pattern may or may not match your intended plan of distribution. Creating a comprehensive estate plan that consists of the documents noted above avoids this result and solves the threshold issue of failure to plan.

Even with the documents noted above, an Estate Plan may not work as intended. For example, consider the couple that creates an Estate Plan when their children are young but then fails to update it as their children reach the age of majority, marry, and have children of their own. Each of those milestones represents a time that the couple should revisit their plan and update it accordingly. Even in the absence of major life events, it makes sense to review and update an Estate Plan every few years to ensure that it continues to accomplish your goals, especially as they change, and that it reflects any changes in the law.

Some individuals try to avoid creating an Estate Plan by using titling mechanisms to transfer their assets at death. Practitioners often cite avoiding probate as one of the reasons for creating a Revocable Trust to govern the distribution of your assets at death. As I know, probate avoidance comes in other forms. For example, taking title to an asset as joint tenants with rights of survivorship avoids probate as long as the other joint tenant(s) survive. However, using that form of joint ownership raises certain issues that using a Revocable Trust does not. Because joint tenants each have rights to the entire asset, a joint tenant could deplete a joint account without the permission or knowledge of the other joint tenants. In addition, joint tenants could share legal worries. Property owned as joint tenants with rights of survivorship becomes vulnerable to legal claims of each joint tenant, even if the other joint tenants had nothing to do with the legal issue. Transferring assets to a Revocable Trust, however, avoids those problems. Owning assets in a Revocable Trust allows the owner to maintain the use of the assets during life and prevents the creditors of another individual from getting to those assets while the trustor is alive. The Revocable Trust also allows the trustor to include safeguards for the beneficiary that will continue after the death of that trustor.

Another tempting way for clients to avoid probate without creating a Revocable Trust involves holding title to real estate with a child or other beneficiary. This causes a myriad of issues. In addition to creating vulnerability to the creditors of both owners like that of joint tenancy ownership, adding a beneficiary to the deed raises issues of gifting. If the beneficiary failed to contribute to the purchase price of the property, then adding the beneficiary to the deed constitutes a gift if the beneficiary’s interest exceeds the annual per donee exclusion amount, currently $16,000. Further, if the original owner wants to refinance, lenders will require the beneficiary’s approval and signature on those documents. Finally, if the original owner desires to sell the real estate, every other owner listed on the deed needs to approve the sale.

As this article demonstrates, while it’s tempting to use shortcuts such as titling assets as joint tenants with rights of survivorship, or adding a beneficiary on a deed, that generally causes more problems than it solves when it comes to Estate Planning. A true Estate Plan entails creating a Revocable Trust, pour-over Will, Property Power of Attorney, Health Care Power of Attorney, Living Will, and Health Insurance Portability and Accountability Act Authorization, but that’s just the beginning. YOUY MUST FUND THE TRUST! An unfunded Trust means nothing!! A comprehensive Estate Plan involves regular meetings to ensure the plan remains current both with the grantor’s goals and the ever-evolving estate tax laws. 

These days, in a rough economy, we hear a lot about adult children in their late 20s or early 30s moving back in with their parents because of unemployment or underemployment. However, what happens when older parents opt to move back in with their financially stable children?

A weakened economy altered the family dynamic in the early part of the century. At that time, we were used to a mom, dad, 2.5 children, a dog and a cat. But today, families take all shapes, and many times, that means moving Mom or Dad in with you. There could be benefits such as round-the-clock childcare, added income from chipping in for rent or household expenses, and helping prevent loneliness. However, for those thinking about moving back in with their adult children, there’s plenty to consider.

Before moving in, it is important to discuss the big things and commit to them in writing. If it seems silly or troublesome to ask a family member to sign a binding agreement, then type up your understanding of the arrangement and send it via email to time stamp it with your signature. This will offer evidence of the agreement, should any conflicts ever arise. Conflict often arises when other children wonder about the arrangement and the impact it may have on their inheritance.

When planning your arrangement, be sure to carefully consider homecare needs such as chores and repairs, social arrangements, and transportation. Otherwise, parents may learn quickly that they cannot adapt to their child’s busy schedule.

Additionally, if the parent will be taking care of a grandchild, and will be receiving payments for this task, it is important for the families to follow any applicable labor and tax laws.

If at all feasible, families may wish to try to build a separate living space for their live-in parent. This ensures that there are no conflicts with television programming, microwaving, showering and other minor items that may cause major stress over time. If building an add-on is impractical, then a parent should at least have some private space, as the parent likely had his or her own private space for years and may feel stifled without privacy.

While there may be some challenges associated with bringing a parent into their adult child’s home, it may be well worth it in the end. Adult children offer a great safety net for aging parents, and such an arrangement allows the adult children to return the favor of years of childcare, support, and unconditional love.