No Spouse + No Children = No Estate Plan Necessary?

Every time someone finds out I am an Estate Planning Attorney, the very next question is “Is your estate plan completed?” When I answer, “Why, yes it is. I have a complete estate plan that suits my current needs and situation”, they look at me like I have lost my mind. “But, you’re not old, or married, or have kids, why do you have an estate plan now?”

EVERYBODY NEEDS AN ESTATE PLAN REGARDLESS OF AGE, MARTIAL STATUS, OR CHILDREN.

When you are married and/or have children, it is easy to assume how you estate will be distributed upon your passing. Normally, spouses leave everything to one another, the surviving spouse will be the sole guardian of any children, and any medical or financial authority will be given to the other spouse.

When you are unmarried and have no children, there is no easy assumption as to who the individual would grant medical or financial authority, nor as to where the estate will be distributed. Sure, you could assume parents and siblings would be the most likely candidates, but even that is far less of a given than a spouse or children.

This next statement holds true for any individual: If you do not specifically state who you intend to grant certain medical or financial authority in the case of incapacity, and you do not specify who should receive your estate, then how are your wishes to be followed? No one will even know them.

Picture this scenario: Minnie Millennial (MM) comes into my office to discuss estate planning. She is unmarried, no children, two dogs and a bird, owns a home, has one bank account, a car, and her closest family is six states away. Her father has passed, she has no contact with her mother, and only has a relationship with one of her four siblings.

If MM were to pass with no will or trust in place, she would be subject to her state’s intestacy laws. Most state’s intestacy laws would follow MM’s genealogical line and distribute her estate to those qualifying family members. Meaning, the mother and siblings with whom she has no contact, could receive a share from her estate.

In conjunction, the court would have to appoint a Personal Representative/Executor to oversee the estate. The named agent would most likely be a family member. Would MM really want her mother to be her personal representative? What about one of her estranged siblings?

What if MM wanted to leave money to a charity? What if MM had a partner who was living in her house? What If… What If … What If…

I can ramble on for a good while about all of the “What ifs” scenarios. Each ending will come to the same conclusion. No documents means the court has to essentially guess about MM’s wishes.

The idea that estate planning is for those who are married, have children, have a mortgage, who are wealthy, etc. etc., is just an excuse for individuals to continue procrastinating developing an estate plan.

Everybody needs, at minimum, a basic estate plan. Millennials especially. Do not let excuses dictate your actions. Do not put those you love in a predicament to have to battle with each other, and the court, for the ability to make decisions for you, or to deal with your estate.

 

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Basic FYIs regarding a Special Needs Trust

The firm I work for frequently hosts what we call “Workshops”. They are seminars on various estate planning topics. Before each workshop we always ask the attendees, “What did you come here to learn more about?” The newest question asked at the last three or four workshops revolves around Special Needs Trusts.

So, what exactly is a Special Needs Trust (SNT)?

A Special Needs Trust is an estate planning tool that allows a parent, guardian, caregiver, or family member, to set aside funds and assets to be used for the care of a disabled person. These trusts are generally created so that the disabled person’s governmental benefits such as SSI or Medicaid are protected.

A lot of the time, having a Special Needs Trust established means the disabled person will still qualify for their government benefits, while having funds available to pay for things above basic care, like dental or eye care. It also could insure there is money in place to help pay for care if governmental benefits are cut back or extra services are needed.

Like other trusts, there are certain important details to be considered:

  1. What type of financial support would the disabled person need if I was no longer living?
  2. Where would the disabled person live if I was no longer living?
  3. Who would tend to the needs of disable child if I was no longer living?
  4. How can I protect the disabled person’s governmental benefits?
  5. Who would be in charge of the trust?
  6. What type of Special Needs Trust is best for the disabled person (ex. First party, third party, testamentary, etc.)
  7. What assets are going to pass to the disable person?

The list can go on and on.

A parent of a disabled child should meet with an experience estate planning attorney to assist with developing their estate plan. An experienced attorney will be able to evaluate your current plan, the goals for any share of your estate for the disabled child, best type of special needs trust, and other important factors.

DIY estate planning is never a good idea, but especially when dealing with a disable child.

For example, a disabled person receiving certain governmental benefits are required to meet a specific income level. If you DIY estate plan and leave a pay on death account to your disabled child, upon receiving that inheritance, they could be dropped from the governmental program because they no longer meet the income requirements.

Similarly, a common estate planning blunder many parents make is leaving their disabled child out of their estate plan altogether. They do this under the belief that by not including the disabled child, they are protecting the governmental benefits, and their other children will use their shares to continue to assist the disabled person. This is extremely flawed logic. Once a person receives an inheritance, it is theirs to dispose of however they please.

A Special Needs Trust alleviates all kinds of issues that could come up down the road. It grants the parents peace of mind to know that when they are no longer able to care for their child, there is a plan in place to care for them.

Each case is different. Each Special Needs Trust developed with be different. If you are the parent, guardian, caregiver, or relative of a disabled person, talk to an estate planning attorney today about a Special Needs Trust.

Benefits of Separate Share Trusts

In the past month and a half I have noticed an increase in prospective clients wanting to know more about protecting assets for a child/beneficiary who has one or combination of the following issues: financial, medical, addiction, or spousal.

When developing an estate plan, it is paramount you understand how distributions work and what that means for your potential beneficiaries.

For example, a married couple has two children. One child is capable of managing their assets, has a job, no financial issues, and supports their family. The other child, however, is an alcoholic or an addict, cannot keep a steady job, and is in financial trouble. The first child would have no issues receiving a sum of money from an estate, whereas, the second child would have some major issues.

For instance, if the second child was an alcoholic and received a sum of $10,000.00, how long would it take the second child to drink up the entire inheritance? Would they survive having that much money to spend on their addiction?

Or what if the second child had a judgment against them or owed creditors money? The inheritance would be gone as soon as they received it in order to settle the debts.

Is that really what the clients would want for their estate? For it to be spent enabling their child’s addiction or to be used completely to pay for creditors? For most, the answer is no. The intention is for any inheritance to be used for the benefit of the child, not to settle debts or feed an addiction.

One prospective client made the comment, “I never expected to have to worry about my adult child inheriting my estate.”

One sure fire way to guarantee an inheritance is used for the benefit of the child/beneficiary is through a separate share trust. A separate share trust can be included in any revocable living trust plan or be drafted into your will.

If the separate share trusts are included in a revocable trust, they come into being after the grantor(s) have passed. Instead of the trust being distributed outright to the named beneficiaries, any designated share would be moved to the specified separate share trust and managed for the beneficiary.

Similarly, a separate trust included in a will comes into existence after the estate and will have been probated. Instead of an heir receiving a distribution, the separate share trusts are created and managed for the beneficiary.

Separate share trusts mean the assets are never transferred into the name of the beneficiary. By the assets remaining in trust, creditors cannot reach the assets to settle the beneficiaries debts. If the beneficiary were to go through a divorce, the inheritance would not be a part of the marital estate. If the beneficiary was struggling with addiction, the separate trust could specify the amount the beneficiary was allowed to receive per month, specify the beneficiary could use any amount necessary for  rehabilitation, specify upon proof of sobriety for a certain period of time would allow an increase in the distribution, etc.

The beauty of a separate share trust is they can be tailored to the specific issues and needs of the beneficiary. Whereas, if the beneficiary were to receive an outright distribution, there is no control over how the inheritance is used.

This is the number one reason why it is important to update your estate plan and talk to an experience estate planning attorney. Life happens. People’s situations change as years go by and it is vital that you make sure your estate plan is equipped to handle the circumstances of your children/beneficiaries.

Separate share trusts are an extremely useful tool to have in your estate planning toolbox. Talk to an estate planning attorney today to learn more about separate share trusts and whether or not they are right for you and your estate.

 

 

 

Technology and the Elderly

An interesting article was brought to my attention by my boss this morning, one he thought would be a good one to read and post on my blog. He was right. I attempted to reblog the article directly to the blog, but the links were not working on the article to allow such a thing.

The article, entitled “Tech can help the elderly .. if they use it.” was written by Kate Harloe. If you click here, you can go directly to the article and read it for yourself. Which I highly recommended, as it is a very good article.

The basic gist of the article is how “age tech” , meaning apps and technology for the elderly, is a growing market and how helpful these technologies are for those in the caregiver role.

For example, Harloe writes, “More than 34 million American adults provide unpaid care to someone 50 or older, according to a survey conducted last year by the National Alliance for Caregiving. And the US Census Bureau says the number of people who need care will only grow: By 2060, the 65 and older age group will more than double, to 98 million people (from 46 million in 2014)

The increasing number of people who will need care mean that caregivers, especially unpaid caregivers, are always looking for way to better assist them in caring for their loved one.

As Harloe discusses the positives with “age tech” she also discusses the negatives. First, she mentions how many caregivers:

“Find that incorporating technology into their routines isn’t so easy. A recent survey of roughly 2,100 respondents by Caring.com found that less than 15 percent of families incorporate these types of products.

Experts say part of the problem is that the young, mostly-male tech programmers making these devices don’t have a good enough understanding of the lives of unpaid caregivers, who tend to be older women. The result is that some products aren’t designed as thoughtfully as they should be for their potential users.”

Other drawbacks mentioned were the difficulty in troubleshooting these apps and devices, as well as, a caregiver having the time to find one, learn how to use it, and implement it in their caregiving routine.

Despite the negatives, there are those out there, according to Harloe, who are working to solve the issues with “age tech” so that the task of caregiving less burdensome.

She ended her article with “Technology makes a difference.” Which is true. Technology is one commodity that has the ability to be extremely helpful and make a difference in someone’s quality of life.

The boom of “age tech” is reassuring to me. Once those developing these “next big ideas” start developing them with an understanding of the life of a caregiver, they could usher in a new era of caregiving. And lets be honest, isn’t that what we should be striving for? To provide better caregiving services to those in need?

To read the original article click here.

 

 

An Unfunded Trust is a Useless Trust: The Michael Jackson Predicament

planning

A Revocable Living Trust (RLT) is a developed with the intent to avoid Probate. When the Grantor dies, the named trustees simply follow the trust instructions and distribute the trust assets accordingly. No judge or court hearing is needed. Unlike a will, a trust is completely private and the public never knows how the assets pass.

A trust is a great tool to have in anyone’s estate planning toolbox. However, one of the most common mistakes people make is never actually funding their trust.

Music legend Michael Jackson made this exact mistake.

Michael Jackson had a revocable living trust created in order to protect his massive estate for his three children and his mother. Reports state the trust was designed so that his children would inherit 50% of his estate and the other 50% would go to his mother. The trust detailed that the children would be receive specific amounts at ages 21, 30, 35, and 40.

Since his death, reports estimate Jackson’s estate is worth about $600 million dollars. Upon review of Jackson’s estate planning documents, it was discovered the trust was never funded.

So, what happens when a trust is not funded?

When a person creates a trust they also create what is called a “pour over will”. This type of will ensure that any asset not placed in the trust will end up in the trust and distributed according to the trust. Since a “pour over will” is a will, the asset must be probated before being placed in the trust.

In Jackson’s case, his entire estate was left out of his trust. Therefore, his entire estate has to go through the probate process before the trust can be funded. This caused several issues.

First and foremost, the estate is essentially “frozen” and cannot be distributed to Jackson’s named heirs. The children and his mother are living off an allowance that is managed by the estate executor’s and overseen by a judge.

Second, the estate being probated means the estate is now open to litigation. Jackson’s siblings are contesting the distributions of his estate to only his mother and his children, alleging fraud, at being omitted from the distribution plan.

Third, the trust would have protected Jackson’s estate from creditors. Since the estate has to be probated, creditors can now take advantage of the statutory period allowing them to make claims against the estate. Reports indicate the amount of creditors making claims against the estate could take several years to sort out and address.

In sum, all of these impediments serve to prolong the probate process, which will cost the estate money. Once the process is over, and the creditors, courts, and attorneys are paid, then whatever remains will be placed in the trust.

Lesson of this story? FUND YOUR TRUST. A RLT is designed to avoid probate and all of the possible issues associated with the process. When you fail to fund your trust, you essentially invalidate the entire point of creating one.

An unfunded trust is a useless trust.

 

The After Born Child Problem: Phillip Seymour Hoffman & Heath Ledger Blunders

One common estate planning mistake that could have disastrous consequences is not updating your documents to include additional children. Continuing with the “celebrity blunders” theme, let’s examine two celebrity cases dealing with this mistake: Phillip Seymour Hoffman and Heath Ledger.

Phillip Seymour Hoffman

Hoffman died from a drug overdose in 2014, leaving behind three children with his common law wife. His estate was valued at about $35 million dollars. Thankfully, Hoffman left behind a valid will. The issue is the will was executed in 2004 when he only had one child, his son. The will was never updated to include his two young daughters.

Now, ideally, that should not matter because the will left everything to the three children’s mother, Hoffman’s common law wife. Which should have meant she would inherit and use the inheritance to take care of the couple’s three children, then pass it on after she dies.

In reality, it caused some major setbacks.

The first setback was the issue of the common law marriage. Since Hoffman and his spouse were only common law married, anything she inherited is subject to federal and estate tax laws. Common law spouses are not afforded the ability to leave an unlimited amount to their surviving spouse. Any inheritance will be taxed according the particular state’s estate tax laws and if the estate meets the federal limit, possibly federal estate taxes.

Meaning that out of the $35 million dollar estate, Hoffman’s estate would have to pay estate taxes of over $15 million dollars, according to an article written by FORBES.

Now, to avoid the estate tax issue, Hoffman’s wife could have disclaimed her share, and had the estate follow the contingency plan in Hoffman’s will. This is where the second setback comes into play.

If she disclaimed her portion of the estate, Hoffman’s will instructed the estate assets be placed in a trust for his son and it outlined at what age he could receive distributions from the trust. Since the will does not mention his daughter or reference any language like “to my son, and any other children born hereafter,” his son technically inherits it all.

Thankfully, most states address the “after born child” problem and have provisions in place to handle these situation so a child born after a will can inherit. The provisions do not mean the estate is automatically going to the split estate three ways, however. Each state’s provisions are different and usually require the appointment of a guardian ad litem for the excluded child or children to handle the estate process on their behalf.

The lesson here: (1) Know what your estate planning documents say and how they work in regard to estate taxes and how heirs inherit. (2) Ensure the documents have language in them that deal with the “what ifs” like “what if I have more children”, “what if my primary beneficiaries pre-decease me”, etc. (3) Updated your estate plan regularly. A good rule of thumb is at every big event (births, deaths, weddings, divorces, etc.) update your estate plan to reflect your wishes.

Heath Ledger

Heath Ledger passed in 2008 and his heirs were left in a similar situation as Hoffman’s. His will was outdated did not include his young daughter. Instead, the will left his approximately $20 million dollar estate to his parents and siblings.

Now, in this situation, the issue of if his daughter could petition to be included as an “after born child” would depend on where Ledger was deemed to be domiciled. A person’s estate is probated in the state they are a resident. Ledger was an Australia native with an Australian will, but died in his New York apartment. Thus, there could have been some debate as to which place had jurisdiction to probate his estate.

Thankfully, in this situation, Ledger’s family did not dispute or fight about the estate, but simply agreed to allow his daughter to inherit.

The lesson here: (1) Again, update your estate plan after big life events. (2) Do not rely on family members to be willing to equally share your estate if issues arise.

Having an estate plan is just the first step in ensuring your wishes after death are met. The second step is to be aware that as life goes on, your estate plan should be amended to reflect those changes.

Most estate planning attorneys are willing to review existing estate planning documents and discuss how the documents work in regards to your stated wishes. If you have an existing estate plan that could be out of date, talk to a licensed estate planning attorney and see if it is time to update your plan.

 

What Happens When You Fail to Plan?: The Steve McNair Situation

probate-cartoon

The underlying theme of the majority of my posts are why an estate plan is important for everyone, regardless of age. As I was pondering what topic I would write about next, I decided to go for a “celebrity” angle. So, I googled “celebrity estate planning fails” and found that quite a lot of celebs have made estate planning blunders that cost their estates and loved ones dearly.

Case and point: Steve McNair.

Steve McNair was a professional football player in the NFL. He played for Tennessee and the Ravens during his career and amassed a sizable estate. On July 4, 2009, at the age of 36 years old, he was shot and killed by his mistress.

To add to the tragedy of his murder, McNair had no estate planning documents. Not even a basic will. Therefore, every asset he owned at the time of his death, titled in his own name, had to be probated according to Tennessee’s intestacy laws.

According to reports, McNair’s estate was worth about $19 million. His wife had to hire a probate attorney to handle the probate process. She was named the executor of the estate.

The most notable issues surrounding the estate, according to reports are as follows:

First, his wife failed to list McNair’s two children from a prior relationship, and only listed herself and her two children with McNair has heirs. Illegitimacy does not negate a child’s claim to a share of an estate. The omission of the children meant they could contest the estate and fight to be included. Thus, dragging the probate process out longer than expected.

Second, McNair had purchased a home on a 45 acre tract of land for his mother. She lived in the home for several years with no problems, until McNair’s death. The house was only titled in McNair’s name, not his and his mother’s. Therefore, once McNair passed, the house became a part of the estate. McNair’s wife requested his mother pay rent in the amount of about $3,000.00 per month or move out. When his mother moved out, reports indicate his wife sued her for $50,000.00 worth of property she claimed his mother took from the home.

Third, McNair’s estate had several claims by creditors against it. Including, but not limited to an artist seeking payment for a family portrait, closing of his Nashville Restaurant, and expenses surrounding his farm in Mississippi. Legitimate debts against an estate have to be paid first before any distributions can be made to heirs.

These three are just a few of the issues surrounding the estate. All brought on because McNair died without any estate planning documents. If McNair had at least a basic will, the court would have known what his wishes were for his estate.

Now, a basic will would not have eliminated all of the issues, but it would have eliminated some of them. For example, if McNair intended to provide for his two children from a prior relationship, he could have included them in the will as being entitled to receive a percentage of the estate. Similarly, if he intended for his mother to keep the house she was living in, he could have specified that in his will.

Leaving behind a basic will would still mean the estate would have to be probated. Probate is a public forum, so any issue that did arise would still be public knowledge.

If McNair had created and funded a revocable living trust, however, there would be no probate process. Trusts are private documents that allow a decedent’s estate to pass outside of probate. Meaning, there would be no frozen estate assets in an account waiting for the court to okay the distribution plan. There also would probably not have been any issues at all because the beauty of trusts are they do not lend themselves too much litigation. Sure, someone could challenge a trust, but it is not has easy to do as with a will.

Bottom Line: Planning would have avoided years of heartache, headache, and family disputes.

Now, some of you are probably thinking “well that’s all well and good for a celebrity because they have a lot of money. I don’t have a lot of money, so it doesn’t apply to me.” Wrong.

Think about your estate. Think about the assets you own in just your name. What are they? A car? A House? A bank account?

Do you have a spouse? Do you have children? Do you take care of an elderly parent or support a family member? Do you have specific items you wish to pas to specific individuals? Are there specific people you wish to leave nothing?

I could go on and on with those types of questions. The point behind is, if you were to pass right now without a single document, do you know what is going to happen to your things?

I do. The state you are a resident in is going to choose who gets to administer your estate and dictate who gets what percentage of your estate. Regardless of your wishes and what your family member “knew” you wanted. Unless you expressly spell it out in a document, it is does not matter.

Sure, it might not play out on a grand of a scale as Steve McNair’s did. But, that does not guarantee it will go over smoothly.