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Estate Planning

Monday, January 9, 2017

Making Decisions About End of Life Medical Treatment

While advances in medicine allow people to live longer, questions are often raised about life-sustaining treatment terminally ill patients may or may not want to receive. Those who fail to formally declare these wishes in writing to family members and medical professionals run the risk of having the courts make these decisions.

For this reason, it is essential to put in place advance medical directives to ensure that an individual's preferences for end of life medical care are respected. There are two documents designed for these purposes, a Do Not Resuscitate Order (DNR) and a Physician Order for Life Sustaining Treatment (POLST).

What is a DNR?

A Do Not Resuscitate Oder alerts doctors, nurses and emergency personnel that cardiopulmonary resuscitation (CPR) should not be used to keep a person alive in case of a medical emergency. A DNR is frequently used along with other advance medical directives by those who are critically ill and prefer not to receive life sustaining treatment.

What is a Physician Order for Life Sustaining Treatment (POLST)?

A Physician Order for Life Sustaining Treatment is similar to a DNR,  however a POLST is prepared by a patient's doctor after discussing end of life treatment options. This is not a legal document prepared by an attorney, but rather a binding doctor's order that is kept with a patient's medical records. A POLST declares a patient's preference for receiving certain life sustaining treatments, as well as treatment options the patient does not want to receive or to be continued.

Examples of these treatments include, but are not limited to, artificial nutrition and hydration, intubation and antibiotic use. These decisions should be made when there is no medical crisis that can affect an individual's decision making, after various treatment options have been discussed with his or her doctor. In short, a POLST ensures that a patient will receive appropriate treatments, but not be subjected to life sustaining measures the patient does not want.

By having these advance medical directives in place, a person can have peace of mind knowing that he or she will receive end of life treatment according to his or her wishes, and loved ones will not be forced to go to court to obtain the right make these decisions.

 


Monday, December 26, 2016

Top Five Estate Planning Mistakes

In spite of the vast amount of financial information that is currently available in the media and via the internet, many people either do not understand estate planning or underestimate its importance. Here's a look at the top five estate planning mistakes that need to be avoided.

1. Not Having an Estate Plan

The most common mistake is not having an estate plan, particularly not creating a will - as many as 64 percent of Americans don't have a will. This basic estate planning tool establishes how an individual's assets will be distributed upon death, and who will receive them. A will is especially important for parents with minor children in that it allows a guardian to be named to care for them if both parents were to die unexpectedly. Without a will, the courts will make decisions according to the state's probate laws, which may not agree with a person's wishes.

2. Failing to Update a Will

For those who have a will in place, a common mistake is to tuck it away in a drawer and be done with it. Creating a will is not a "once and done" matter as it needs to updated periodically, however. There are changes that occur during a person's lifetime, such as buying a home, getting married, having children, getting divorced - and remarried, that need to be accurately reflected in an updated will. Depending on the circumstances, a will should be reviewed every two years.

3. Not Planning for Disability

While no one likes to think about becoming ill or getting injured, an unexpected long-term disability can have devastating consequences on an individual's financial and personal affairs. It is essential to create a durable power of attorney to designate an individual to manage your finances if you are unable to do so. In addition, a power of attorney for healthcare  - or healthcare proxy, allows you to name a trusted relative or friend to make decisions about the type of care you prefer to receive when you cannot speak for yourself.

4. Naming Incapable Heirs

People often take for granted that their loved ones are capable of managing an inheritance. There are cases, however, when a beneficiary may not understand financial matters or be irresponsible with money. In these situations, a will can appoint an professional to supervise these assets, or in the alternative a "spendthrift trust" can be put in place.

5. Choosing the Wrong Executor

Many individuals designate a close relative or trusted friend to act as executor, but fail to consider whether he or she has the capacity and integrity to take on this role. By choosing the wrong executor, your will could be contested, leading to unnecessary delays, costs and lingering acrimony among surviving family members.

The Takeaway

In the end, estate planning is really about getting your affairs in order. By engaging the services of an experienced trusts and estates attorney, you can avoid these common mistakes, protect your assets and provide for your loved ones.

 


Monday, December 19, 2016

Common Types of Will Contests

The most basic estate planning tool is a will which establishes how an individual's property will be distributed and names beneficiaries to receive those assets. Unfortunately, there are circumstances when disputes arise among surviving family members that can lead to a will contest. This is a court proceeding in which the validity of the will is challenged.

In order to have standing to bring a will contest, a party must have a legitimate interest in the estate. Although the law in this regard varies from state to state, the proceeding can be brought by heirs, beneficiaries, and others who stand to inherit. While these disputes are often the result of changes to the distribution plan from a prior will, some common types of will contests are as follows.

Lack of testamentary capacity

The testator, that is the person making the will, must have the mental capacity and be of sound mind at the time the will is executed , modified or revoked. Further, being of sound mind means that the testator knows what property he or she owns and understands the effect of executing the will. Although these are considered to be low standards, claims that the deceased lacked the mental capacity when the will was executed are common.

Undue influence

If the deceased was coerced into executing the will, it may be considered invalid. In order to ensure that the testator is not subjected to undue influence, the will should be prepared by an attorney. Moreover, heirs and beneficiaries should not take part in meetings and discussions between the testator and his or her attorney.

Will improperly executed

There are certain formalities that must be followed in order for a will to be considered validly executed. While some states require a notarized signature, others insist on a certain number of witnesses being present when the will is executed. If these formalities are not strictly followed, the will may be found to be improperly executed.

Fraud

A will can also be considered invalid if a person is intentionally deceived when preparing and executing the document.

The Takeaway

If a will is successfully contested, it can be declared invalid by the court. This means that the assets will be distributed either according to the terms of a prior will or if no such will exists, the state's intestacy rules. Ultimately, engaging the services of an experienced estate planning an attorney can minimize the risk of a will contest.


Monday, December 12, 2016

Responsibilities and Obligations of the Executor/ Administrator

When a person dies with a will in place, an executor is named as the responsible individual for winding down the decedent's affairs. In situations in which a will has not been prepared, the probate court will appoint an administrator. Whether you have been named  as an executor or administrator, the role comes with certain responsibilities including taking charge of the decedent's assets, notifying beneficiaries and creditors, paying the estate's debts and distributing the property to the beneficiaries.

In some cases, an executor may also be a beneficiary of the will, however he or she must act fairly and in accordance with the provisions of the will. An executor is specifically responsible for:

  • Finding a copy of the will and filing it with the appropriate state court

  • Informing third parties, such as banks and other account holders, of the person’s death

  • Locating assets and identifying debts

  • Providing the court with an inventory of these assets and debts

  • Maintaining any assets until they are disposed of

  • Disposing of assets either through distribution or sale

  • Satisfying any debts

  • Appearing in court on behalf of the estate

Depending on the size of the estate and the way in which the decedent's assets were titled, the will may need to be probated. If the estate must go through s probate proceeding, the executor must file with the court to probate the will and be appointed as the estate's legal representative.

By doing so, the executor can then pay all of the decedent's outstanding debts and distribute the property to the beneficiaries according to the terms of the will. The executor is also is also responsible for filing all federal and state tax returns for the deceased person as well as estate taxes, if any. Lastly, an executor may be entitled to compensation for the time he or she served the estate. If the court names an administrator, this individual will have similar responsibilities.

In the end, being name an executor or appointed as an administrator ultimately means supporting the overall goal of distributing the estate assets according to wishes of the deceased or state law. In either case, an experienced probate or estate planning attorney can help you carry out these duties.


Monday, November 21, 2016

Testamentary Substitutes

In states that have “elective share statutes,” a surviving spouse is legally entitled to a certain percentage of the deceased's estate, even if that spouse has attempted to disinherit or to provide a lesser bequest, or gift, under the will.  In “separate property” states, an elective share statute is likely to be in effect.  If the estate in question is valued at $50,000 or less, the elective share is likely to be the actual amount of the net estate.  

“Testamentary substitutes” are removed from particular assets that would otherwise pass to the surviving spouse.  Assets passing by will or through intestacy could cause a reduction in the elective share amount as well.  Totten trusts, such as Payable-On-Death Bank Accounts (PODs), Retirement or joint bank accounts, gifts causa mortis ("gifts made by the decedent in contemplation of death,”) U.S. savings bonds, jointly held property, and gifts or transfers that were made approximately one year prior to death, are some examples of testamentary substitutes. 

If a gift was made about one year prior to death, yet involves medical or educational expenses, then the gift may not qualify as a true testamentary substitute.  With regard to PODs, the spouse, offspring, or grandchildren will be named as beneficiaries.  The funds of a POD are only distributed upon the decedent’s death.   Testamentary Trusts are listed in the will until the designated property passes to the trust upon the testator’s death.  

Generally, a gift causa mortis is only active upon the decedent’s expected death and is typically revocable.  Moreover, certain elements must exist to create a valid gift causa mortis.  These include an intent to create “an immediate transfer of ownership,” valid delivery, acceptance of the gift by the donee, and the donor’s “anticipation of imminent death.”  There are also certain circumstances by which gifts causa mortis are not valid.  For example, if the donee passes away before the donor, it is unlikely that a property interest was transferred.  Gifts causa mortis are also taxed as if the testator had listed the gifts in his or her will. 

In such cases, testamentary substitutes are generally put back into the net estate total to determine the elective share amount that the surviving spouse will collect.  The aforementioned may vary if property is held jointly, as joint tenants or otherwise, because the spouse may have a right of survivorship in the property.  Estate planning attorneys are aware of all the ins and outs of testamentary substitutes and how they may affect the distribution of your assets.  It is useful, if not essential, to consult with a knowledgeable attorney when making arrangements regarding testamentary substitutes.


Monday, October 17, 2016

Disinheritance

Inheritance laws involve legal rights to property after a death and such laws differ from state-to-state.   Heirs usually consist of close family members and exclude estranged relatives.  Depending on the wording of a will, an individual can be intentionally, or even unintentionally, disinherited.

In most cases, spouses may not be legally disinherited.  Certain contracts, however, allow for a legitimate disinheritance, such as prenuptial agreements or postnuptial agreements.  These contracts are typically valid methods of disinheritance because the presumed-to-be inheriting spouse has agreed to the arrangement by signing the document.  

If there is no prenuptial arrangement, then the state’s elective share statute or “equitable distribution” laws protect the surviving spouse.  Pursuant to the elective share statute, he or she may collect a certain percentage of the estate. 

In states that follow “community property” or “common law” rules, however, the outcome may be different.   An attorney should be consulted for clarification of the differences in the law.  Divorces affect spousal inheritance rights.  Post-divorce, it is prudent to consult an attorney to draft a fresh will, in order to prevent confusion and unintentional dissemination of assets.

If the will is unambiguous, it is usually possible for a child to be disinherited.   It should be noted, however, that it is highly likely that close relatives will challenge or contest a will in which they have been disinherited.  Fighting such a lawsuit may put a great financial strain on the estate's assets.  Depending on how time-consuming and expensive it is to defend the will, less money may be available for distribution to the intended beneficiaries. 

There are ways to protect estate assets from such problems, for example through trusts.  It is essential for an individual to receive the counsel of a licensed lawyer in order to effectively protect his or her estate as inexpensively as possible.


Monday, September 12, 2016

Preventing Will Contests

So, you have a will, but is it valid?  A will can be contested for a multitude of reasons after it is presented to a probate court.  It is in your best interest to have an attorney draft the will to prevent any ambiguity in the provisions of the document that others could dispute later. 

A will may be targeted on grounds of fraud, mental incapacity, validity, duress, or undue influence.  These objections can draw out the probate process and make it very time consuming and expensive.  More importantly, an attorney can help ensure that your property is put into the right hands, rather than distributed to unfamiliar people or organizations that you did not intend to provide for. 

At the time you executed the will, you must have been mentally competent, or of “sound mind.”  A court will inquire as to whether you had full awareness of what you were doing.   There will also be an inquiry into your understanding and knowledge of the assets in your name.  If, at the moment you executed the will, you were pressured or influenced by another individual to sign the document, it may be invalidated. 

If the document was signed under duress or undue influence, the provisions are likely to be against your intentions or requests.  Moreover, if you are trying to nullify a will on your own behalf, you are likely to need an attorney because it is very difficult and complicated to demonstrate the existence of duress, fraud, or undue influence.   If drafting a new will, counsel can ensure that your document abides by all of the validity requirements, so the will’s provisions can successfully carry out your intentions after your death.

For example, the will creator or “testator,” is usually required to sign the document before several witnesses who are over the age of eighteen, during a certain period of time.  A will or a certain bequest to a person could be deemed void if the beneficiary was also a witness.   In your state, you may be able to execute a “self-proving affidavit,” which may do away with some of the requirements in order to establish a valid will.  The testator should also designate a person to execute the document.  Consult your attorney to ensure that your will comports with your state’s particular laws and is sustainable against any future contests.  

 


Monday, August 15, 2016

The Revocable Living Trust

There are many benefits to a revocable living trust that are not available in a will.  An individual can choose to have one or both, and an attorney can best clarify the advantages of each.  If the person engaged in planning his or her estate wants to retain the ability to change or rescind the document, the living trust is probably the best option since it is revocable. 

The document is called a “living” trust because it is applicable throughout one's lifetime.  Another individual or entity, such as a bank, can be appointed as trustee to manage and protect assets and to distribute assets to beneficiaries upon one's death. 

A living trust will also protect assets if and when a person becomes sick or disabled.  The designated trustee will hold “legal title” of the assets in the trust.  If an individual wants to maintain full control over his or her property, he or she may also choose to remain the holder of the title as trustee. 

It should be noted, however, that the revocable power that comes with the trust may involve taxation. Usually, a trust is considered a part of the decedent’s estate, and therefore, an estate tax applies.  One cannot escape liability via a trust because the assets are still subject to debts upon death.  On the upside, the trust may not need to go through probate, which could save months of time and attorneys' fees. 

The revocable living trust is contrary to the irrevocable living trust, in that the latter cannot be rescinded or altered during one's lifetime.  It does, however, avoid the tax consequences of a revocable trust.  An attorney can explain the intricacies of other protections an irrevocable living trust provides. 

Anyone who wants to keep certain information or assets private, will likely want to create a living trust.  A trust is not normally made public, whereas a will is put into the public record once it passes through probate.   Consulting with an attorney can help determine the best methods to ensure protection of assets in individual cases.   


Wednesday, June 15, 2016

What are the powers and responsibilities of an executor?

An executor is responsible for the administration of an estate. The executor’s signature carries the same weight of the person whose estate is being administered. He or she must pay the deceased’s debts and then distribute the remaining assets of the estate. If any of the assets of the estate earn money, an executor must manage those assets responsibly. The process of doing so can be intimidating for an individual who has never done so before.

After a person passes away, the executor must locate the will and file it with the local probate office. Copies of the death certificate should be obtained and sent to banks, creditors, and relevant government agencies like social security. He or she should set up a new bank account in the name of the estate. All income received for the deceased, such as remaining paychecks, rents from investment properties, and the collection of outstanding loans receivable, should go into this separate bank account. Bills that need to be paid, like mortgage payments or tax bills, can be paid from this account. Assets should be maintained for the benefit of the estate’s heirs. An executor is under no obligation to contribute to an estate’s assets to pay the estate’s expenses.

An inventory of assets should be compiled and maintained by the executor at all times. An accounting of the estate’s assets, debts, income, and expenses should also be available upon request. If probate is not necessary to distribute the assets of an estate, the executor can elect not to enter probate. Assets may need to be sold in order to be distributed to the heirs. Only the executor can transfer title on behalf of an estate. If an estate becomes insolvent, the executor must declare bankruptcy on behalf of the estate. After debts are paid and assets are distributed, an executor must dispose of any property remaining. He or she may be required to hire an attorney and appear in court on behalf of the estate if the will is challenged. For all of this trouble, an executor is permitted to take a fee from the estate’s assets. However, because the executor of an estate is usually a close family member, it is not uncommon for the executor to waive this fee. If any of these responsibilities are overwhelming for an executor, he or she may elect not to accept the position, or, if he or she has already accepted, may resign at any time.


Monday, May 30, 2016

Year End Gifts

If you’re like most people, you want to make sure you and your loved ones pay the least amount of tax possible. Many use year-end gift giving as a way to transfer wealth to younger generations and also reduce the overall potential estate tax that will be due upon their death. Below are some steps you can take to make gifts to your heirs without triggering any gift tax liability. Some of these techniques may also reduce your own income tax liability.

A combination of estate and gift tax exemptions can be used to significantly reduce the overall tax liability of your estate. Upon your death, federal estate tax may be owed. A portion of your estate is exempt from the tax. That exemption amount is set by Congress and can change from year to year. 

Many taxpayers make annual gifts to loved ones during their lifetimes, to reduce the overall value of the estate so that it does not exceed the exemption amount in effect at the time of death. It is important to consider that gifts made during your lifetime are subject to a gift tax (equal to the estate tax). However, certain gifts or transfers are not subject to the gift tax, enabling you to make tax-free gifts that benefit your loved ones and reduce the overall taxable value of your estate upon your death.

The annual gift tax exclusion allows each individual to make annual gifts of up to $14,000 to each recipient. There is no limit to the number of recipients who may each receive up to $14,000 totally tax-free. Married couples may gift up to $28,000 to each recipient without triggering any tax liability. This annual exclusion expires on December 31 of each year, and larger gifts may be made by splitting it up into two payments. By making a payment in December and one the following January, you can take advantage of the gift tax exclusion for both years. Keeping annual gifts below $14,000 per recipient ensures that no gift tax return must be filed, and that there is no reduction in the estate tax exemption amount available upon your death.

Annual gifts may also be made in the form of contributions to a §529 College Savings Plan. These, too, are subject to the $14,000 annual gift tax exclusion. Additionally, such contributions may afford the giver with a state tax deduction.

Payment of a beneficiary’s medical expenses is also excluded from the gift tax. There is no limit to the amount of medical expense payments that may be excluded from tax. To qualify, the payment must be made directly to the health care provider and must be the type of expenses that would qualify for an income tax deduction.

If you have a large estate that may be subject to taxes upon your death, making annual gifts during your lifetime can be a simple way to reduce the size of your estate while avoiding negative tax consequences.


Monday, May 16, 2016

Overview of Life Estates

Establishing a Life Estate is a relatively simple process in which you transfer your property to your children, while retaining your right to use and live in the property. Life Estates are used to avoid probate, maximize tax benefits and protect the real property from potential long-term care expenses you may incur in your later years. Transferring property into a Life Estate avoids some of the disadvantages of making an outright gift of property to your heirs. However, it is not right for everyone and comes with its own set of advantages and disadvantages.

Life Estates establish two different categories of property owners: the Life Tenant Owner and the Remainder Owner. The Life Tenant Owner maintains the absolute and exclusive right to use the property during his or her lifetime. This can be a sole owner or joint Life Tenants. Life Tenant(s) maintain responsibility for property taxes, insurance and maintenance. Life Tenant(s) are also entitled to rent out the property and to receive all income generated by the property.

Remainder Owner(s) automatically take legal ownership of the property immediately upon the death of the last Life Tenant. Remainder Owners have no right to use the property or collect income generated by the property, and are not responsible for taxes, insurance or maintenance, as long as the Life Tenant is still alive.

Advantages

  • Life Estates are simple and inexpensive to establish; merely requiring that a new Deed be recorded.
  • Life Estates avoid probate; the property automatically transfers to your heirs upon the death of the last surviving Life Tenant.
  • Transferring title following your death is a simple, quick process.
  • Life Tenant’s right to use and occupy property is protected; a Remainder Owner’s problems (financial or otherwise) do not affect the Life Tenant’s absolute right to the property during your lifetime.
  • Favorable tax treatment upon the death of a Life Tenant; when property is titled this way, your heirs enjoy a stepped-up tax basis, as of the date of death, for capital gains purposes.
  • Property owned via a Life Estate is typically protected from Medicaid claims once 60 months have elapsed after the date of transfer into the Life Estate. After that five-year period, the property is protected against Medicaid liens to pay for end-of-life care.

Disadvantages

  • Medicaid; that 60-month waiting period referenced above also means that the Life Tenants are subject to a 60-month disqualification period for Medicaid purposes. This period begins on the date the property is transferred into the Life Estate.
  • Potential income tax consequences if the property is sold while the Life Tenant is still alive; Life Tenants do not receive the full income tax exemption normally available when a personal residence is sold. Remainder Owners receive no such exemption, so any capital gains tax would likely be due from the Remainder Owner’s proportionate share of proceeds from the sale.
  • In order to sell the property, all owners must agree and sign the Deed, including Life Tenants and Remainder Owners; Life Tenant’s lose the right of sole control over the property.
  • Transfer into a Life Estate is irrevocable; however if all Life Tenants and Remainder Owners agree, a change can be made but may be subject to negative tax or Medicaid consequences.

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