A Cautionary Tale of Fill-in-the-Blank Wills: Not So E-Z After All

Posted April 9, 2014 in Estate Planning by Jennifer Mispagel.

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April 9, 2014
A Cautionary Tale of Fill-in-the-Blank Wills: Not So E-Z After All
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Online platforms like Legal Zoom and Rocket Lawyer, as well as form wills marketed by companies like E-Z Legal Forms, are gaining popularity in the estate planning world. However, a recent Florida decision* serves as a fresh reminder that using one of these one-size-fits all approaches to estate planning could land your family in court despite your wishes.**

In a recent case, a Florida woman created a will through E-Z Legal Forms, leaving all of her property to her sister and finally to her brother if her sister predeceased her. The sister died first, so the brother claimed the entire estate. That would have been the result that fit with the deceased woman’s wishes. However, because the document was made without attorney oversight, the document lacked a residuary clause (important in Florida) and opened the door to disagreement over the interpretation of the will. Two of the woman’s nieces sued for a share of the estate.

The nieces, who were born to another brother who had already passed away and who were not mentioned in the will, walked away with a portion of the estate because they argued that they should receive part of any property that the deceased earned after signing the original will.  The Florida Supreme Court agreed, determining that all property earned after the will was signed must go through probate and be distributed based upon the State’s intestacy laws. (Intestacy laws govern who will receive property when a person dies without a will). Because she had a will, this was clearly not what the deceased woman intended, and one Justice shared a word of caution:

“I therefore take this opportunity to highlight a cautionary tale of the potential dangers of utilizing pre-printed forms and drafting a will without legal assistance. As this case illustrates, that decision can ultimately result in the frustration of the testator’s intent, in addition to the payment of extensive attorney’s fees—the precise results the testator sought to avoid in the first place.”

The court also acknowledged that people want to avoid dealing with lawyers and spending additional money, but sometimes making an investment in legal counsel will help the party and their family avoid even greater legal feels and turmoil in the future.

Creating a will doesn’t always have to be complicated. Nevertheless, it is best to create yours with the aid of an experienced estate planning attorney if you wish to avoid probate and future disputes over your estate. If you need estate planning advice, call Lonich & Patton to schedule a free half-hour consultation. Our attorneys are passionate about estate planning and have decades of experience handling complex estate planning matters, including wills and living trusts. If you need a will or would like to review the will you currently have, contact the experienced estate planning attorneys at Lonich & Patton for further information.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

 

*FlascBlog: The Florida Supreme Court Blog reports on the opinion (PDF).

**To see the original article that inspired this post: http://www.abajournal.com/news/article/e-z_legal_form_proved_to_be_complicated_in_litigation_over_wills_missing_re/?utm_source=maestro&utm_medium=email&utm_campaign=weekly_email

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Trust Administration: The Basics

Posted April 3, 2014 in Estate Planning by Michael Lonich.

Trust administration is the process used to ensure that a trustee complies with California law and is carrying out the mandates of the trust as written. For example, a common task in trust administration is ensuring that the title to assets held in the trust is properly transferred. Trust administration also includes the process by which a trust creator’s (also known as the “trustor” or “settlor”) estate is distributed following his or her death. Following the creator’s death, the successor trustee(s) takes over management of the trust. The trustee must take multiple steps to properly administer the trust assets.

After the death of the trustor, the trustee of any trust has a number of fiduciary duties with regard to the trust and its assets. Here are some important examples:

  • Locate the deceased’s important documents, including the will, trusts, tax papers, and funeral directives.
  • If deceased was living alone, change locks and secure the house.
  • Check on insurance for the property and any cars the deceased owned to be certain the assets within the trust are protected.
  • Arrange to have certified copies of the deceased’s death certificate from the city or county where the death occurred.
  • Take an inventory of all assets and the value of those assets, because the value will affect the new tax basis of the items going forward. The value of all these items at death may need to be considered when evaluating federal state tax liability (if any).
  • Make a list of any household items that will be distributed to beneficiaries, and consider photographing the items to help with organization.
  • Take an inventory of bank accounts and the like. It may help to streamline the accounts and consolidate them into one place so that it is easier to keep a record of all trust activity, including bills paid and deposits made.
  • As trustee, you are responsible for paying any remaining debts or bills. If these are not paid you, and not the estate, may be personally liable.
  • You may need to obtain a Tax ID number for the trust if the trust will generate more than a few hundred dollars between the date of decedent’s death and when all of the assets are distributed. This step can be complicated and you may want to refer to an attorney or a tax professional for advice.
  • Make sure that all tax returns are filed in a timely fashion.
  • File any claims for life insurance, IRA’s or other assets that require claims. Also be sure to liquidate any assets that need liquidating, but get advice before you act because there may be serious tax consequences.
  • Accounting is required of trustees by law. Keep a record of all assets in existence at death and show all additions to the trust, subtract all expenses, and be prepared to show current assets within the trust. Place the assets into a non-interest bearing account to make sure the value does not change after the final accounting is complete.
  • Distribute the trust assets. Have a lawyer or other professional create a receipt and release form for each beneficiary, memorializing that each person received their inheritance and that the trustee is released from further liability.

While trust administration is generally handled outside the court system, breach of any of the trustee’s fiduciary duties can result in a court action being brought by a beneficiary. For this reason, it is important that a trustee seek out the help of a qualified trust attorney for guidance as needed.

The attorneys at Lonich & Patton  are experienced in the area of trust administration and can advise the trustee regarding their duties and responsibilities while guiding them through the trust administration process. In addition, our attorneys have experience assisting beneficiaries who believe the trustee is not acting properly. We invite you to contact our office to schedule a free consultation, with no obligation, to discuss your trust administration needs.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

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Estate Tax Portability: A Valuable Asset You May Not Know You Had

Posted March 27, 2014 in Estate Planning, Probate by Michael Lonich.

Have you heard about the “portability provision?” Believe it or not, your estate (or your spouse’s estate, if you were to pass first) could benefit tremendously if the executor of your estate elects this provision. In short, the portability election allows the transfer of any unused estate tax exclusion amount of the first spouse to die (commonly referred to as the “deceased spouse’s unused exemption” or “DSUE”) to the surviving spouse, who can then utilize the remaining amount to benefit his or her gift or estate tax purposes. Essentially, this provision operates as a safety net for couples with joint assets exceeding the exemption amount for the estate of the first spouse to die because the surviving spouse can reduce his or her estate or gift tax liability. Depending on the size of the estate, electing this provision can mean saving a significant amount on estate taxes.

Although this portability provision technically expired after 2012, Congress passed the American Tax Relief Act of 2012 (“ATRA”), which made the “portability” of the applicable exclusion amount between spouses permanent. This favorable estate tax rule should be incorporated into estate plans because as previously mentioned, the potential impact of the portability provision can be quite substantial.

For example, suppose the following: A husband and wife each own $2 million individually and $3 million jointly with rights of survivorship, bringing their estate to a total of $7 million in assets. Suppose their wills instruct that all assets pass first to the surviving spouse and then to the couple’s children. If the husband dies in 2014, his $2 million in assets is covered by the unlimited marital deduction. His $5.34 million exemption remains unused (his DSUE). When the wife dies, her estate can use that leftover DSUE amount, in addition to the exemption for the year in which she dies, to shelter the remaining $7 million of assets from tax. ATRA has permanently set the top estate tax rate at 40 percent. As such, if the wife died later in 2014, $1.66 million in assets would have been subject to estate tax without the portability provision. Therefore, the family saves $664,000 in federal estate tax (40% of $1.66 million).

Not only is the portability provision an excellent tool to use for estate and gift planning considerations, the provision can also be used as a negotiation tool during marital agreement negotiations. The portability provision can be viewed as a highly valuable asset that attorneys and their clients should consider when drafting marital agreements. However, there are also certain limitations to be aware of. For example, the executor of a deceased spouse’s estate must elect portability for the provision to take effect, and the election must be made on an estate tax return filed within nine months of death.*

If you or your loved ones are in the planning stages of creating an estate plan, take the necessary steps to ensure that you and your family members are maximizing the benefits available to you by an experienced, knowledgeable estate planning attorney guide you through the process. Estate planning laws are constantly evolving and having a trusted estate planning attorney by your side can prove to be invaluable. The attorneys at Lonich & Patton have decades of experience handling complex estate planning matters, including wills and living trusts, and we are happy to offer you a free consultation.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

Sources: http://www.bizactions.com/n.cfm/page/e120/key/259853661G1005J3585631N0P0P2268T2/;http://www.forbes.com/sites/lewissaret/2014/02/25/estate-tax-portability-and-marital-agreements-a-new-consideration/

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Elder Abuse: Protect Your Loved Ones From Financial Exploitation

Posted March 24, 2014 in Estate Planning, Probate by Michael Lonich.

Financial exploitation of the elderly is a growing – and mostly silent – epidemic in our country. In fact, one study estimates the amount lost by exploited seniors to be nearly $5 billion every year. One prime example occurred in 2007, when renowned New York society queen and philanthropist Brooke Astor left behind a coveted estate of nearly $200 million dollars. Though her will appeared to be adequately in place, the three codicils that followed turned out to be anything but.

Under Astor’s will, her only son, Marshall, stood to take tens of millions of dollars – with the condition that remaining funds after his death be given to charity. Marshall, however, had other plans, and the country watched as the truth behind Ms. Astor’s will began to unravel: Marshall, along with his lawyer, had convinced the elderly Astor – while she was suffering from dementia – to sign a series of codicils allowing him to leave much of her fortune to whomever he wanted. Rumor has it that Marshall wanted to share his mother’s fortune with his much-younger wife – whom Astor reportedly detested.

Fast forward to 2009 after 6 months of trial and many millions of dollars later, Marshall (then 85-years-old) and his attorney were convicted of 14 counts out of 16 for financially exploiting Astor. But after 8 weeks in jail, Marshall was out – the parole board found his age, ailing health, and hundreds of support letters from some of New York’s most influential people compelling and released him. With these turn of events, Marshall’s financial exploitation of his mother (to the tune of tens of millions of dollars) essentially went unpunished.

The highly-publicized financial exploitation of Ms. Astor is only one of the millions of cases of financial elder abuse that goes on quietly behind closed doors each year. When a family member manipulates a person with dementia, it is undue influence. California Civil Code § 1575 explains that undue influence comprises of:

  • The use, by one in whom a confidence is reposed by another, or who holds a real or apparent authority over him, of such confidence or authority for the purpose of obtaining an unfair advantage over him;
  • The taking of an unfair advantage of another’s weakness of mind; or
  • The taking of a grossly oppressive and unfair advantage of another’s necessities or distress.

Financial abuse of an elder or dependent adult can occur through various ways – undue influence is only one of them.* Sadly, many greedy individuals will find their elderly family members to be easy targets for financial gain, particularly when the elderly individual’s mind is stricken with a degenerative disease like Alzheimer’s or dementia. The undercover coercion and undue influence to change an estate plan can be hard to notice because these manipulative acts are generally covert and completed with no witnesses around. Even if the coercion is discovered in time, proving it in court can often be an uphill battle.

If you or your loved ones are in the planning stages of creating an estate plan, take the necessary steps to ensure that you and your family members are protected by having an experienced, knowledgeable estate planning attorney guide you through the process. If you suspect undue influence, consult an experienced estate planning attorney for an objective assessment to ensure the decedent’s assets are distributed as they intended. Estate planning laws are constantly evolving and having a trusted estate planning attorney by your side can prove to be invaluable. The attorneys at Lonich & Patton have decades of experience handling complex estate planning matters, including wills and living trusts, and we are happy to offer you a free consultation.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

* California Welfare and Institutions Code §15610.30(a).

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The Disclaimer: An Arrow in the Savvy Planner’s Quiver

Posted March 21, 2014 in Estate Planning by Michael Lonich.

We won’t all be lucky enough to inherit a large sum of money upon the death of a loved one. But, if you do, you may want to consider disclaiming that inheritance under special circumstances.  When you disclaim an inheritance, you are refusing to accept it.

Some of you reading this are probably thinking, “You’ve got to be crazy if you think I am ever going to flat out refuse any money that I have coming to me.” Nevertheless, for others who already own plenty of property or are looking to reduce gift or estate or gift taxes, disclaiming an inherited gift could be in the best interests of you and your family.

Let’s say you already have a healthy estate of several million dollars when your father dies, leaving $400,000 to be split evenly between you and your sister. You know that your sister, a single mother, could really use the money and you would like to help her out. In this situation, disclaiming could be beneficial for in two ways.

First, by disclaiming your half of the gift, the entire $400,000 can be transferred directly to your sister. This kind gesture ensures that the person who really needs the property can have it with little difficulty or complications, since a disclaimant never truly owns the property. Furthermore, disclaiming a large gift could help minimize the size of your estate for the benefit of your family at the time of your death. Estates beyond a certain size have to pay steep estate taxes* before your money can go to your beneficiaries. By disclaiming gifts you don’t need, your family can avoid those taxes and enjoy more your hard-earned wealth.

Second, by disclaiming your half of the gift, you will not have to pay gift taxes on any amount you want to give to your sister. In 2014, the IRS limits the amount of cash that can be given tax-free to a particular individual. In this situation, if you were to accept the $200,000 and then try to give it to your sister as a cash gift, any amount over $14,000 given to your sister in a given year would count towards your lifetime gift limit.** Any amount of cash gifts which exceed that limit—$5.34million in a lifetime—will be subject to a gift tax of up to 40 percent. Ouch. To keep things simple and tax-free, disclaiming the inheritance is your best bet.

Deciding whether or not to disclaim is a big decision that can have serious benefits or consequences. In order to make the decision that is best for you and your family, speak with an experienced estate planning attorney before you act. If you need estate planning advice, call Lonich & Patton to schedule a free half-hour consultation. Our attorneys are passionate about estate planning and have decades of experience handling complex estate planning matters, including wills and living trusts. If you are interested in developing an estate plan or reviewing your current estate plan, contact the experienced estate planning attorneys at Lonich & Patton for further information.

Please remember that each individual situation is unique and results discussed in this post are not a guarantee of future results.  While this post may detail general legal issues, it is not legal advice.  Use of this site does not create an attorney-client relationship.

*To learn more about estate taxes, click here: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estate-Tax

**This is known as the “annual gift exclusion.” For those who are interested in learning more about the exclusion, click here:  http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Gift-Tax

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