Author Archives: Robert Mondo

Estate planning is not only about having a plan in place to deal with what happens at your death, it is also about having a plan in place to deal with what happens if you become mentally incapacitated.  In this issue you will learn:  

• What happens without an incapacity plan.
• The essential documents for managing finances during incapacity.
• The essential documents for making health care decisions during incapacity.
• How to choose the right person for managing finances and making health care decisions during incapacity.
• The importance of keeping your incapacity plan up to date.

If you have any questions about incapacity planning or whether you need to make updates to your incapacity documents, please call our office now.
 
Court-Supervised Guardianship or Conservatorship:  How to Lose Time, Money, and Control During Incapacity Mental incapacity caused by an accident, injury, or illness means you will be incapable of making informed decisions about your finances and well-being.  Without a comprehensive incapacity plan in place, a judge can appoint someone to take control of your assets and make all personal and medical decisions for you through a court-supervised guardianship or conservatorship.  You and your loved ones could lose valuable time, money, and control until you either regain capacity or die. 
 
Planning Tip:  You may believe you are protected if you become mentally incapacitated because you hold your assets in joint names with your spouse, a child, or another family member.  While a joint account holder may be able to access your bank account to pay bills or access your brokerage account to manage investments, a joint owner of real estate will not be able to mortgage or sell the property without the consent of all other owners.  Aside from this, adding names to your accounts or real estate titles may be deemed a gift for gift tax purposes.  In addition, if a joint owner is sued, your property could be seized as part of a judgment entered against them.  Only a comprehensive incapacity plan will protect you and your assets from a court-supervised guardianship or conservatorship and the misdeeds of your joint owners.
 
The Essential Documents for Financial Management During Incapacity
There are two essential legal documents for managing finances that must be in place prior to becoming incapacitated:
 
1.      Financial Power of Attorney.  This legal document gives your agent the authority to pay bills, make financial decisions, manage investments, file tax returns, mortgage and sell real estate, and address other financial matters that are described in the document.   Financial Powers of Attorney come in two forms:  “Durable” and “Springing.”  A Durable Power of Attorney goes into effect as soon as it is signed, while a Springing Power of Attorney only goes into effect after you have been determined to be mentally incapacitated.
 
2.      Revocable Living Trust.  This legal document has three parties to it:  The person who creates the trust (the “Trustmaker” or “Grantor” or “Settlor” – they all mean the same thing); the person who manages the assets transferred into the trust (the “Trustee”); and the person who benefits from the assets transferred into the trust (the “Beneficiary”).  In the typical revocable living trust situation you will be the Trustmaker, the Trustee, and the Beneficiary of your own trust.  However, if you become incapacitated, then your Successor Trustee will step in and manage the trust assets for your benefit.
 
Planning Tip:  To be part of an effective incapacity plan, your Revocable Living Trust should contain provisions to determine your mental status through a private process (i.e., a disability panel, an attending physician, the opinion of two physicians, or some other method) instead of a public court process.  In addition, the trust agreement should contain specific instructions about how to take care of you if you are declared mentally incapacitated.  
 
The Three Must-Have Documents for Health Care Decision-Making
There are three essential legal documents for making health care decisions that must be in place prior to becoming incapacitated:
 
1.      Medical Power of Attorney.  This legal document, also called an Advance Directive or Medical or Health Care Proxy, gives your agent the authority to make health care decisions for you if you cannot do so because you have become incapacitated.
 
2.      Living Will.  This legal document gives your agent the authority to make life-sustaining or life-ending decisions if you become incapacitated.
 
3.      HIPAA Authorization.  Federal and state laws dictate who can receive medical information without the written consent of the patient.  This legal document gives your doctor or other health care provider the authority to disclose your medical information to the agent selected by you.
 
Planning Tip:  Your loved ones may be denied access to medical information during a crisis situation and end up in court fighting over what medical treatment you should, or should not, receive (like Terri Schiavo’s husband and parents did, for 15 years).  Without these three documents, a judge may also appoint a Guardian or Conservator of the Person to oversee your health care, thereby adding further expense and hassle to your court-supervised guardianship or conservatorship. You should have these three documents examined and updated frequently to ensure they accurately reflect their wishes.
 
How to Choose the Right Agents for Your Incapacity Plan
There are two very important decisions you must make when putting together your incapacity plan:

1. Who will be in charge of managing your finances during incapacity; and
2. Who will be in charge of making your medical decisions during incapacity.

Factors you should consider when deciding who to name as your financial agent and health care agent include:  

• Where does the agent live?  With modern technology, the distance between you and your agent should not matter.  Nonetheless, someone who lives close by may be a better choice than someone who lives in another state or country.
• How busy is the agent?  If your agent has a demanding job or travels frequently for work, then they may not have time to take care of your finances and medical needs.
• Does the agent have expertise in managing finances or the health care field?  An agent with work experience in finances or medicine may be a better choice than an agent without it.

Planning Tip:  Choosing the wrong person to serve as financial or health care agent will result in an ineffective incapacity plan.  You can pick different people to fill each role, that is, one person in charge of health care decisions and someone else in charge of financial matters. In order to create an effective plan, you need to carefully consider who to choose as your agent and then discuss your decision with that person to confirm that they will in fact be willing and able to serve. 
 
Is Your Incapacity Plan Up to Date?
As time passes by and your life changes, your incapacity plan will become stale and outdated.  It is important for you to have your incapacity plan reviewed every few years or after a major life event (such as a divorce or a death) to insure that the plan will work the way you intend it to work if it is ever needed.
 
Please contact my office to discuss your questions about incapacity planning and to schedule your plan review.

Estate planning enables someone with Power of Attorney to take over financial management for someone who can’t do the job anymore. Post-death, the executor handles this job for the estate. In real life, managing someone else’s finances is incredibly complicated.

My parents, currently ages 88 and 89, split their time between residences in Florida and New Mexico. They summer in New Mexico, where they can be close to their two eldest children, one of whom is me, the only daughter. I’m also the executor for their estate and trust.

The trials of aging are apparent this summer. So many doctor appointments: the primary care physician; the cardiologists (both “plumbers” and “electricians”); the dentist; the endocrinologist; wound care and eye specialists.

Dad has been diabetic for decades. The feeling in his feet is fading with neuropathy, and saddest of all, he is losing his vision to macular degeneration. He can barely sign checks, and he can’t see well enough to handle the financial accounting in his Quicken program. Thankfully, both he and Mom are mentally sharp.

I’ve become Dad’s executive assistant, reading the credit card and bank statements, paying bills by check and online, replying to emails, and trying to reconcile his complex web of record keeping. It’s a frustrating challenge.

I’ve used the Quicken program to track my own finances for many years. I’ve kept it pretty simple, even with four different checking accounts. I’ll admit there’s a lot I don’t know or use in this program.

Dad has multiple bank accounts to be reconciled against bank and credit card statements as well as the entries in checking account registers. Expenses must be assigned to various rental properties, as well as categories such as medical, groceries, two households, etc. He wants everything to balance perfectly. In our last session, we were off by more than $600.

He has a system, but I don’t understand it yet. At least he has been tracking his finances and there’s a way for me to eventually step in to effectively handle them. In this way, his fading eyesight has been a blessing for me as the future executor of the estate.

I feel for those people faced with handling finances for parents who aren’t as organized. How will they know the income, the outgo and the financial obligations? It’s something for estate planning attorneys to consider as they work with their clients to prepare for the future.

Probably the biggest inspiration for estate planning by parents is their children.  Developing an estate plan that will protect your children in the event of your untimely death or incapacity, however, is more complicated than just choosing a guardian.

You also need to consider:

1. Who your kids should live with and if that person(s) is financially, physically and mentally able to care for your children. 
2. You should also consider how your children feel about the person(s) you choose as their guardian.
3. If the person(s) you choose to raise your children is the same person(s) you would choose to manage their money or should you select a financial advisor as well?
4. Discussing your selection with your other family members and, most importantly, with the guardian(s).
5. If your children have any special needs that may dissuade your chosen guardian(s) from taking care of them.
6. Naming alternate guardians in case something happens to your first choice and they are unable to fulfill their duties.
7. Ensuring you have the proper financial instruments in place to provide for your children’s physical and educational needs.

It began with the best intentions. 

Ann Aldrich, a resident of Keystone Heights, Fla., wanted to protect her assets in the event of her death so she went online and created her will using the “E-Z Legal Form”. 

As she filled in the blanks on the form, in the section labeled “Bequests,” she wrote that her sister, Mary, was to inherit all of the “possessions listed.” This included Aldrich’s home and all of its contents, a rollover IRA, a life insurance policy, her Chevy Tracker and all of the accounts she held at a particular bank.

In addition, in her own handwriting she specified that if her sister Mary died before she did, “I leave all [items] listed to James Michael Aldrich,” her brother.

As fate would have it, Mary died first, and she left Aldrich a piece of land and $122,000 in cash.

Aldrich then duly added a page entitled “Just a Note” to her E-Z Form will where she reiterated that “all my worldly possessions pass to my brother James.” She signed this handwritten addendum. Acting as a witness, James’ daughter, Sheila, also signed it. Five and a half years later- in October 2009- Aldrich died.

That’s when things got expensive.

Two other nieces- daughters of a different (deceased) brother- claimed the addendum to Aldrich’s will was invalid and that her will did not cover the property she inherited from Mary. They wanted a piece of it. Naturally, James disagreed.

The case started out in the local Circuit Court, got appealed to the District Court and went all the way to the state Supreme Court.

In the end, the nieces won on a technicality. The assets Aldrich inherited from Mary had to be distributed according to Florida law covering “intestate” property, or property not covered by a will.

In essence, at every level the justices hearing the case agreed that Aldrich fully intended for her brother to inherit everything she owned at the time of her death, but their hands were tied for the following reasons:

• When she wrote her will, Aldrich listed in great detail the real estate and accounts that she wanted her sister to inherit. She specifically said that if Mary pre-deceased her these items would pass to James.
• The E-Z Form will said nothing about any other property she might have acquired after the will was written. This is known as the “residuary estate.”
• Aldrich undoubtedly intended that the distribution of her residuary estate- primarily the property she inherited from Mary- was covered by the “note” she attached to her will. However, Florida law requires two witnesses; hers had only one.

A codicil is an amendment to a will, which is usually done when you have some change to make and don’t want to re-write the whole thing.  However, even if the changes are written in your own handwriting, you still need to comply with what are called the “will formalities.” These are the conditions each state requires for a will–or changes to one–to be considered valid. The standard in Florida is two witnesses.

Every state has its own quirky rules.  In Illinois, we do not allow holographic wills (handwritten).  We are also required to have several other formalities for a will to be valid.

The problem is, you don’t know what you don’t know. If you’ve got a form titled “Last Will and Testament” you assume that if you fill in all the blanks, you’re covered. It gives you a false sense of security.

In fact, using any kind of one-size-fits-all legal document is risky. And yet, these forms are advertised on television and all over the internet. While some providers purport to “customize” your will based upon your state’s laws and perhaps even have the document reviewed by a “real” lawyer, it probably isn’t advisable unless you’ve only got a few simple possessions and a relatively small estate (e.g. you just graduated from college, are living in an apartment and maybe own a car). 

Let’s face it, there are just some issues in life that are best handled in a face-to-face conversation with a qualified professional. 

In the words of Florida Supreme Court Justice Pariente, the outcome of Aldrich’s will illustrates “the potential dangers of utilizing pre-printed forms and drafting a will without legal assistance. [This] decision can ultimately result in the frustration of the testator’s (the person leaving this world) intent, in addition to the payment of extensive attorney’s fees- the precise results the testator sought to avoid in the first place.”

“You’re dead, so you don’t realize the mess you left behind.”

Bob

Whether or not we plan to do so, each of us will face death eventually. However, by planning we can make our passing easier and better in many ways for those we leave behind. The first article in the series demonstrated how you could gain privacy from the public by planning and using a trust rather than going through the public probate process. The second article in the series focused on how you can make the transition better through the manner in which you leave your assets to your loved ones. The third article in the series focused on the importance of communicating your plans to your family to avoid problems after your death. This final article in the series looks at the thorny issue of disinheriting a child.

Under the laws of most, if not all states, if you die intestate (i.e., without a will), some or all of your property would go to your children who survive you. If you leave a will, but forget to mention a child, in most states the omitted child would receive the same share as if you had died intestate. But you can decide to leave nothing to a child.

However, especially if the disinheritance is a surprise, your child could have hurt feelings and could challenge your estate plan by claiming you did not have the mental capacity to make the plan or by claiming you were under undue influence from someone else.

There are a couple of ways to lessen the risk of a challenge. As discussed in a prior article in this series, discussing your plan with your family will go a long way to reduce the risk of a challenge. Another way is to include a “no contest clause” in your plan. Such a clause provides that if the person challenges your plan, they get nothing.

Of course, in order for the no contest clause to have any deterrent effect, you would need to leave that person something so they would stand to lose something by contesting the plan.

For example, Betty has $3 million and has three children, Sue, John, and Alice. For good reasons, Betty decides to leave her assets to Sue and Alice and wants to leave John nothing. If she were to do that, John would be able challenge the plan. While he may not win, he could cause a great deal of turmoil. If instead, Betty were to leave John $100,000 and inserted a no contest clause, John would have to think twice before contesting. If John were to contest and not succeed, he would receive nothing. However, if he just walked away, he’d receive $100,000. Thus, in that scenario, Sue and Alice would each receive $1,450,000 and John would receive $100,000. Family harmony could be preserved to the extent possible. The family could be spared the financial and emotional drain of a protracted dispute.

There are countries in which you cannot disinherit your children. With rare exceptions (such as in Louisiana), you can disinherit your children in the United States. However, you should proceed with caution. It’s best to let your family know of your plans and the reasoning behind them. Even if they may not agree with your decision, they would be more likely to know the plans are your idea and respect them. Consider inserting a no contest clause in your plan as a deterrent to a contest of your plan. Finally, a no contest clause really has no deterrent effect unless there is a significant, although diminished, bequest to the person you’d be disinheriting.

Estate planning attorneys often strive to obtain valuation discounts. We set up Family Limited Partnerships and carefully supervise their administration, at least in a perfect world. We advise clients to fractionalize their real estate to obtain a fractional interest discount. 

But, discounts may not make sense for many clients. Remember, discounts must be taken consistently. In other words, if you are taking a discount for estate tax purposes, the same discounts will apply for income tax purposes. The problem is the client will want a low valuation for estate tax purposes and a high valuation for income tax purposes in setting the basis of the property. 

Let’s look at an example:

John has assets of $4 million, consisting entirely of Blackacre. The property is currently held in his sole name and no valuation discount may be taken. If John fractionalizes the ownership to tenancy-in-common and gifts a portion to his children (or an irrevocable trust) it may qualify for a discount of 10%-20%. So, the valuation could be reduced to $3.5 million, let’s say. 

Getting that reduction in valuation may make sense if we are looking at a 55% estate tax rate and a $1 million applicable exclusion. However, if the applicable exclusion is $5 million, fractionalizing the real estate could unnecessarily reduce the basis for the heirs without any estate tax benefit. 

Assuming an estate tax will be due, it would be necessary to weigh the state and federal estate taxes to be saved at death against the present value (at date of death) of the future state and federal capital gains taxes which would be owed by the heirs. Of course, this is a complex calculation which requires knowledge of the heir’s state of residence and the timing of the heir’s sale of the property. 

As you can see, in John’s case, if the applicable exclusion is at or above $4 million, his heirs would be better off if he does not fractionalize the real estate. If his estate is above the applicable exclusion amount, a calculation would have to be done to determine if discounting is beneficial. 

Obtaining a discount may be complex (such as an FLP) or simple (such as fractionalized tenant-in-common interests), but the decision is quite complex. 

Digital assets can be an important part of many people’s estates. Most people have some form of digital assets. Here are some examples of ordinary digital assets most people might have:

• Electronic-only bank accounts or brokerage accounts
• Passwords for access to credit card accounts
• Passwords for access to bank accounts and other financial accounts
• Log in information for Facebook or other social media
• Email accounts and passwords

For most people the most important digital asset might be their email account. By having access to that, someone could access other accounts which list that email address. They could use the “forgot password” feature on those accounts and have the new passwords sent to the email account to which they already have access. For most people, it’s wise to leave ways to access these accounts in a secure location. A simple way is by leaving these passwords in a safe deposit box. Another option is to use an electronic safe, such as that available through Docubank’s SAFE (http://www.docubank.com). That way, if you die or become incapacitated, your executor, trustee, or agent will have access to your digital assets, assuming your documents provide the appropriate language.

But, actors, artists, and others may wish to control their likeness or the electronic duplication of their works of art, etc. Serious consideration should be given to such assets. For example, a famous work of art may be worth a great deal, but the rights to the electronic dissemination and reproduction of the image may be worth even more. The rights to use a deceased celebrity’s image could be worth hundreds of thousands of dollars. Robin Williams died recently. His estate plan forbid the use of his image for 25 years.

Whether you are an everyman or a celebrity, you should consider how your estate will handle digital assets.

Bob

Death and taxes are life’s two certainties. While they are both inevitable, Tax Day in April comes around every year. We get much more practice preparing our taxes than planning funerals or organizing memorial services.

Tax Day has once again come and gone, and we know it will be back. Yet death and funerals happen infrequently, and they always seem to be a surprise. I suggest utilizing these five tips to reduce the stress of addressing both death and taxes:

1. Deal with it: Neither the Tax Man nor the Grim Reaper will wait when the appointed time comes. Avoid procrastination! Just as talking about sex won’t make you pregnant, talking about funerals won’t make you dead.
2. Plan ahead to save money: Smart taxpayers look at all the angles for taking advantage of deductions before the end of the year. Smart consumers pre-plan their funerals so they know the substantial costs involved and can figure out how to afford a meaningful “good goodbye.” 

3. Collect important information: Taxpayers who place all their W-2, 1098, 1099 and other tax forms in one place make it easier when it’s time to file. Similarly, have one place for the estate planning, advance directives, veteran discharge papers, personal information, and list of people to contact upon death. It makes it much easier having important information all in one place.
4. Keep good records: Knowing your income and expenses for the year simplifies accurate, complete tax preparation. Knowing a person’s birthplace, social security number, mother’s maiden name, family contacts, and other information can save family members much stress at a time of grief.
5. Make it meaningful: Charitable contributions made before the end of the year can help reduce taxes while helping the taxpayer’s favorite causes. Discussing preferences for an end-of-life celebration, before there’s any death or illness, gives family members helpful insights to create a meaningful ceremony when the time comes.

Take the sting out of death and taxes by taking these steps to organize your information and communicate your wishes.  Cal me with any questions,

Bob

No truer words were spoken than when Elvis sang, “I’ll have a blue Christmas without you.” When the holidays roll around, we especially miss those we love who have died.  From Thanksgiving into the New Year, a few changes to the family’s routines can soften the holiday blues over the death of a loved one.

Break Traditions

Go someplace new at holiday time and make new memories. One Christmas season, a woman at a holiday party spoke about her fifty-six-year-old son who died of a heart attack on Christmas Day the year before.

She and her daughter-in-law planned to go out of town and do something completely different for the holiday. They booked a winter get-away to the Grand Canyon. Other families may wish to go skiing or take a cruise in a warmer climate.

This can be a healthy response — to strike out in a new direction on a tradition-laden day when a loved one is no longer present. It recognizes the “new normal” all families face as they go through mourning, processing grief as time passes.

Include the Deceased

Acknowledging the deceased during the holidays is not morbid or unnatural. It’s okay to share memories. That loved one is probably on everyone’s mind already.

Set up a tabletop memorial to those who have died. In our family, we place large pictures in the dining room of our deceased loved ones. In this way, they are, in a sense, present as the whole family enjoys the holiday meal. This option acknowledges the person’s passing while continuing to observe annual family events.

You might light a candle next to photos of loved ones. You can also play music that invokes their memories, prepare favorite foods or special recipes they were known for making, or bring out old family films and take a trip down memory lane.

Talk About It

Before there is a death in the family, use holiday time together to discuss advance directives and preferences for final arrangements. Having a conversation to share this vital information reduces stress at a time of medical crisis, and it’s strangely liberating!

The nonprofit organization Engage With Grace offers five key questions they call The One Slide Project – so named because all five questions fit on one page. They suggest discussing these questions when the family is gathered for the Thanksgiving holiday:

• On a scale of 1 to 5, where do you fall on this continuum? (1 being “Let me die in my own bed, without any medical intervention,” 5 being “Don’t give up on me no matter what, try any proven and unproven intervention possible”)
• If there were a choice, would you prefer to die at home or in a hospital?
• Could a loved one correctly describe how you’d like to be treated in the case of a terminal illness?
• Is there someone you trust whom you’ve appointed to advocate on your behalf when the time is near?
• Have you completed any of the following: written a living will, appointed a healthcare power of attorney, or completed an advance directive?

If you have advance directives or a living will, does your family know where the papers are located? It’s important to inform the people who will speak for you if you can’t.

Download the One Slide questions from www.EngageWithGrace.com.

Change in our lives is inevitable. Family traditions during the holidays remind us of people and times gone by. If those reminders bring sadness, change the traditions to deal with the holiday blues.

October 30^th is annual Create a Great Funeral Day. This “holiday” right before Halloween provides an upbeat excuse to start a conversation on a topic most families hesitate to discuss.

The first Create a Great Funeral Day, started by attorney and mediator Stephanie West Allen, took place in 2000. She registered the day at Chase’s Calendar of Events in 1999.

A few years earlier, 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.

As a result of that experience, she wrote Creating Your Own Funeral or Memorial Service: A Workbook. She was among the pioneering authors to create helpful funeral planning resources for the general public.

Allen cautions families against holding what she calls a “facelift funeral.” A facelift funeral goes through the motions but does not address our emotional needs for mourning the loss.

This concept harkens back to Dr. Maxwell Maltz and his book, Psycho-Cybernetics, a best-seller first published in 1960. Dr. Maltz was a plastic surgeon. He noticed that many of the patients who came to him for a new face were actually seeking to change their personalities.

While patients had their exterior features changed, often they still had emotional issues that plastic surgery could not address. He found that self-image is the key to human personality and behavior.

Facelift funerals are not emotionally fulfilling for the participants. These events might have a “rent-a-minister” who didn’t know the deceased and says as much. He might only speak of that religion’s views of heaven, hell, the afterlife, or other theological musings.

The problem is, a rising number of families identify their religion as “none.” To address this issue, non-religious funeral celebrants are getting certified in the U.S. every year. These people make funerals and memorial services all about the decedent by interviewing the family and creating services with themes of the person’s passions and purpose.

Certified funeral celebrants can be found online through two organizations that train celebrants, the In-Sight Institute (www. InSightBooks.com) and the Celebrant Foundation & Institute (www.CelebrantInstitute.org).

Create a Great Funeral Day is an opportune time to talk about what each member of the family would want in their final fling. People can also learn about new avenues available to help families create meaningful, memorable “good goodbyes” to loved ones.