Kent Larsson writes about the proper use of wills, advance directives, trusts, and other estate planning tools, and how how they play a vital role in you receiving proper medical care and helping you to preserve and pass on your assets to your loved ones.
Estate planning instruments, including trusts, can be used to avoid the probate process.
If some information you have seen or heard has led you to believe a will does not have to go through probate, you are just plain wrong, according to TC Palm in "Common misconceptions about wills and trusts."
Sometimes, misconceptions begin with TV shows or movies that are just that – TV shows and movies. They don’t have to present the law as it actually is.
Another way to come up with a misconception, is that in some states, if an estate is small enough, then it does not have to go through probate. Usually, these are very small estates with very few assets. It certainly isn’t the norm.
Someone with good intentions probably had a relative or friend who passed away with few assets and as a consequence, the will did not have to go through probate.
However, most wills do have to go through probate. They need to be submitted to the court and approved.
The probate court then oversees the administration of the estate as conducted by the executor or personal representative.
If you want your estate to avoid probate, what you need is not a will.
Instead you need to use other estate planning instruments, such as trusts.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and also conforms to the laws on wills and trusts in your state of residence.
Reference: TC Palm (Oct. 5, 2017) "Common misconceptions about wills and trusts."
Sometimes the little things can start the big fights.
Estate plans are often designed to fairly distribute assets and avoid family fights. However, sometimes the little items of personal property can create the big problems, according to CNBC in "7 Ways that cheap Tweety Bird figurine can screw up your estate."
Potential problems include:
• Items that do not have great monetary value can still have great sentimental value to family members. If two people want the same item, it can be difficult to resolve that dispute.
• Do not tell anyone verbally they can have a piece of personal property without putting that in writing in your estate plan. If other people want the same item, the person you want to have it will have no way of proving that you said they could have it.
• Do not just let your family divide all your assets between themselves when you pass away. It is most likely that they will fight over who gets what.
• Even if you have given someone access to a safety deposit box and told them they can have the contents, after you pass away, you still need to make that official in your estate plan.
• Make sure that any unusual items have been planned for, such as digital media accounts and frequent flyer rewards.
• Items regulated by the government can be complicated. You should plan accordingly.
• Your executor will need to have the authority to change the locks on your door. You would be surprised how often people simply walk in and help themselves to items that they want.
Reference: CNBC (Oct. 10, 2017) "7 Ways that cheap Tweety Bird figurine can screw up your estate."
Because of the history of trusts being quite large in the U.S., people think they are restricted to those with large amounts of money.
Trusts are not just beneficial to the super wealthy. They can be a good tool for everyone, according to the Times Herald-Record in "Trusts are no longer just for the wealthy."
There are all kinds of trusts available today. They can be created for many different purposes.
Trusts can be used to make inheritances in blended families less contentious. They can also be used to hold inheritances for minor children. Trusts can be as simple as being nothing more than a convenient way to avoid the potentially costly and time-consuming probate process.
Since trusts are so versatile, almost anyone can benefit from a trust.
An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and may involve a trust as a valuable tool.
Reference: Times Herald-Record (Sep. 28, 2017) "Trusts are no longer just for the wealthy."
Trump administration and GOP moving toward tax reform, including eliminating estate tax.
There are many tax reform possibilities as President Trump and Congress look to the future. However, a complete repeal of the estate tax is included in the framework tax reform, according to Forbes in "Trump GOP Tax Reform Framework Calls For Estate Tax Repeal."
Despite including a repeal of the estate tax, the framework is silent on the gift tax. This tax normally goes hand in hand with the estate tax.
If the ideas in the framework were eventually to become law, that would mean pre-death transfers could still be taxed, while post-death transfers to the exact same people would not be.
Of course, releasing a framework for reform is not the same as passing legislation.
This Congress is not known for moving quickly, so tax reform is most likely still a long way off.
Reference: Forbes (Sep. 27, 2017) "Trump GOP Tax Reform Framework Calls For Estate Tax Repeal."
Jury has awarded money for damages. However, it appears likely the amount won’t hold up to court scrutiny.
JPMorgan has been ordered to pay plaintiffs $5 million in actual damages and $4 billion in punitive damages for a suit involving the handling of a complex estate that didn’t have an estate plan, according to Bloomberg in "JPMorgan Ordered to Pay More Than $4 Billion to Widow and Family."
The case began when Max Hopper, an American Airlines executive credited with creating an innovative reservation system, passed away and left an estate valued at $19 million.
Unfortunately, he did not have an estate plan.
JPMorgan was chosen to administer his complex estate. However, Hopper's widow and her stepchildren, angry at the way the bank was handling the estate, accused it of delaying distributions for its own benefit and sued.
A jury recently came down with the verdict that included $4 billion in punitive damages.
It is very likely courts will greatly reduce this punitive damage award, since the Supreme Court has previously ruled that punitive damages must be proportional to actual damages.
Nevertheless, this case highlights an important point.
Estate administrators can be held liable, if they do not faithfully carry out their duties.
The jury in this case believed that the bank was guilty of fraud, breach of fiduciary duty and breaking a fee agreement.
JPMorgan is a sophisticated entity that should have known better.
Reference: Bloomberg (Sep. 26, 2017) "JPMorgan Ordered to Pay More Than $4 Billion to Widow and Family."
A special needs trust is restrictive and the third-party trustee sometimes needs to be replaced. It can be quite challenging for the beneficiary to replace the trustee.
If a special needs trustee is not up to the job or intentionally mishandles the trust, it can be difficult for the beneficiary to change the trustee, according to the Wills, Trusts & Estates Prof Blog in "Can the Beneficiary of a Special Needs Trust Change the Trustee?"
The advantage of a special needs trust is to allow a beneficiary to have access to income, while remaining eligible for government benefits.
However, in exchange for that benefit, the trusts are very restricted. They must be created in specific ways and the beneficiary's ability to control the assets in the trust is limited.
Technically, the beneficiary cannot distribute or manage the trust assets and a third-party trustee is needed.
A beneficiary of a special needs trust can petition a court to have the trustee removed and another appointed. However, this can be a difficult process and many people with special needs are not able to handle the complex legal issues of filing a petition with the court, let alone arguing for a trustee change.
This could potentially stick a beneficiary with a bad trustee and no recourse.
It is, therefore, important that special needs trusts be drafted with this problem in mind.
Reference: Wills, Trusts & Estates Prof Blog (Sep. 27, 2017) "Can the Beneficiary of a Special Needs Trust Change the Trustee?
Don’t assume that you can take care of the plan later.
Estate planning can run into two problems: not taking care of the initial planning and then not following up with adjusting for life changes, according to the Sunshine Daily Coast in "Fix your will before it's too late."
What is the problem with not taking care of the initial planning? You don’t have any plan at all. What is the problem with putting off making necessary changes to an estate plan? Once you have a plan, it is the one a court will follow, until you change it.
If you have stated in your will that someone should inherit your property and you change your mind for whatever reason, the change has no legal effect until you actually create a new will.
If something happens to you before you create that new will, then the person you do not want to inherit the property actually will.
It is never a good idea to procrastinate in any area of estate planning.
Don’t put it off. An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and then you should be sure to keep the plan up to date to include life changes.
Reference: Sunshine Coast Daily (Oct. 2, 2017) "Fix your will before it's too late."
Can you just show a will to the holder of the assets and take possession? No, you need to head to court.
There are numerous misperceptions about how a will works. Attorneys often deal with people upset that it requires approval from a court before it is official, according to The Times Herald in "Wills won't work without probate."
A will is only a bunch of words on paper that have no real legal authority, until the will is filed with a probate court.
The court must then agree to accept the will as representing the valid wishes of the deceased.
Once that is done, the probate court appoints a personal representative for the estate.
That personal representative is then charged with carrying out the directives in the will, under the supervision of the court.
This can result in a long and often expensive process.
It depends on the size of the estate, the ability of the personal representative and whether there are any challenges to the estate.
An estate planning attorney can advise you on an estate plan that fits your unique circumstances and a trust may be the route to go.
Reference: The Times Herald (Sep. 22, 2017) "Wills won't work without probate."
A slight increase could bring estate tax exemption for couples to $11 million.
Analysts are projecting the IRS will increase estate tax exemptions for 2018, as well as boost the annual gift tax exemption, according to Forbes in "Estate Tax Exemption To Top $11 Million Per Couple in 2018."
Analysts forecast an increased exemption for a single person to $5.6 million and approximately $11 million for married couples. The gift tax exemption is estimated at $15,000.
This should give wealthy people and their estate planning attorneys a little bit more flexibility, as they attempt to shrink estates to below the threshold.
While most people who might be affected by this exemption increase would prefer to see the estate tax repealed entirely, that is increasingly looking like it will not happen this year.
Congress has turned its attention to tax reform, but getting anything passed could be a long process and will likely continue into next year.
Repealing the estate tax is also controversial. If Democratic votes are needed to pass tax reform legislation, it might take the estate tax off the table.
An estate planning attorney can answer any questions you have on the estate tax and gift tax exemptions, as well as advise you on creating an estate plan that fits your unique circumstances.
Reference: Forbes (Sep. 15, 2017) "Estate Tax Exemption To Top $11 Million Per Couple in 2018."
McClatchy Trust case finally goes to court.
James B. McClatchy created a trust in an effort to prevent his media company from being absorbed by a larger company. His son, Carlos McClatchy, is now getting his day in court concerning the trust after years of preliminary work, according to the Sacramento Bee in "San Francisco trial weighs breach-of-trust claims by McClatchy family member."
Carlos McClatchy is claiming that the terms of the trust were violated in 2006, when McClatchy purchased media company Knight Ridder Inc. James McClatchy died in 2006.
Carlos McClatchy claims the purchase caused a decline in value in McClatchy's common stock and subsequently caused the company to stop paying dividends.
The trust points out that at the time of the purchase, James McClatchy was the sole income beneficiary of the trust and he supported the purchase.
It also claims that, at the time dividend payments were stopped, there was a financial crisis that was responsible for the stoppage.
It is not clear which party is in the right. The court will have to settle that.
What this illustrates is that trustees need to be careful with how they handle trust assets.
Reference: Sacramento Bee (Sep. 13, 2017) "San Francisco trial weighs breach-of-trust claims by McClatchy family member."