Many families purchase vacation homes that they and other generations in their family can all enjoy together. However, vacation homes can also lead to some serious family feuds when it comes to estate planning. One of the biggest mistakes in estate planning when a vacation home is involved is to leave the question of ownership, sharing, and other issues without a detailed succession plan. If a plan cannot be agreed upon with you and your loved ones, you may want to consider selling the home before any fights begin.
Selling the Vacation Home
Sometimes selling the vacation home makes more sense than leaving it to loved ones. Your children or grandchildren may not be able to afford the taxes, upkeep, maintenance, and travel to the home. In addition, the recovering real estate market means that your family could make some money selling the home that could be added to their inheritance. The money from the sale of the vacation home could also go to your long-term care or that of your spouse.
Succession Plan for the Home
If you decide to keep the vacation home, it is crucial that you draft a succession plan for your family. The plan should outline how your family members will split the expenses, repairs, taxes, and insurance on the home. Accounts can be created that family members pool their money into to cover the basic costs of the vacation home.
Household chores should also be discussed in the vacation home succession plan. Oftentimes, cleaning and caring for the home can cause tension among family members, so create a plan that gets everyone involved. You can create a rotating schedule to take care of chores around the house, or you can hire a cleaning service to take care of it for you. If one family member decides to serve as the primary caretaker for the home, consider leaving them a small bonus in the estate for all of their hard work. Conversely, if a family member cannot pay for their share of the expenses, they can take on more of the caretaking responsibilities for the home.
Transferring the Vacation Home
Another common issue is determining how to transfer the vacation home from one generation to the next as well as what tax implications the transfer can have on the family. Many families set up a limited liability company (LLC) or family limited partnership to facilitate the transfer. The business entity would be the technical owner of the property, and not your family members individually. Your family members would then be issued "shares" of the property through the limited company.
There are a few benefits to transferring the property through the creation of an LLC or family partnership. For one, the agreement can include all issues surrounding the vacation home like the payment of expenses, scheduling, and other guidelines for the home. In addition, there can be no forced sale of the home if one family member wants out of the agreement, and it can create buyout terms for that situation.
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Many families purchase vacation homes that they and other generations in their family can all enjoy together. However, vacation homes can also lead to some serious family feuds when it comes to estate planning. One of the biggest mistakes in estate planning when a vacation home is involved is to leave the question of ownership, sharing, and other issues without a detailed succession plan. If a plan cannot be agreed upon with you and your loved ones, you may want to consider selling the home before any fights begin.
When a couple is getting married the last thing that they are typically worried about is estate planning. However, once the honeymoon is over you should sit down with your new spouse and update your individual estate plans to reflect the new status of your marriage. The following tips are a good place to start when combining two individual estate plans into one.
Visit the HR Department
Nowadays, your employer typically handles your retirement accounts and life insurance forms. Once you have been married, you should visit your HR department to update the beneficiary forms for these documents to include your new spouse. Beneficiary accounts are different from other assets in an estate, so if the beneficiary is left as someone different the value of the account will go to them and not the spouse.
Update Life Insurance
After you are married, it is a good time to review the status of your life insurance needs. Some employment-based life insurance has a fairly low cap, so it may be necessary to look at other options for increasing the amount of your life insurance policy. If you are considering having children, you should factor that into your consideration now, when the premiums for life insurance are low.
Draft a Will
Even though you may not have accumulated that much wealth by the time you get married, you should still execute a basic will that leaves what assets that you do have to your spouse. Dying without a will, or intestate, leaves the estate in the hands of the state courts to distribute and not all states give the entire estate automatically to the spouse.
In addition, if a prenuptial agreement was signed prior to the marriage, the terms of that agreement should also be addressed in the will. Your estate plan should reflect the prenuptial agreement to ensure that it is carried out in the way that it was intended.
Create Durable Powers of Attorney Forms
Despite the fact that you are married, in the unfortunate case that you become in capacitated and cannot make decisions for yourself your spouse does not automatically get to make your decisions for you. In order to ensure that your spouse has the right to make legal, financial, and medical decisions on your behalf you should both execute durable power of attorney and advance directive forms. You should formally name your spouse as your decision maker in this event and name an alternate in the event where an accident incapacitates you both.
Discuss Home Ownership Documents
If you and your spouse bought a home prior to getting married, you need to sit down after the wedding and discuss the terms of home ownership. If only one person was named on the deed it may make sense to put the house in both names. Changing the ownership of the home to a joint tenancy or tenancy by the entirety (depending on where you live) can ensure that the home avoids the probate process.
A Florida Court of Appeals sorted through a complicated question of bank accounts and estates in a case at the end of last year. This case illustrates the complexities of banking law and administering estates in addition to the importance of reviewing the state law regarding estate administration before creating an estate plan.
Facts of the Case
In the case of Brown v. Brown, Elizabeth Brown died in 2007, leaving behind six adult children. She had an estate plan in place that distributed several specific bequests and left the remainder to be distributed equally amongst her children. She named one of her children as the executor of the estate, and he filed this lawsuit against one of his siblings, Joseph.
Ms. Banks had multiple bank accounts that were either joint accounts or payable-on-death (POD) accounts naming Joseph as the survivor or beneficiary. The lawsuit sought to declare that the funds in those accounts were part of the estate and should be split equally amongst the children and not pass directly to Joseph in their entirety.
Ruling of the Trial Court
The trial court in Florida held an evidentiary hearing on the matter and appointed a magistrate for the issue. The magistrate found that all of the funds from all of the accounts, joint and POD alike, should be deposited into one account for the estate and distributed equally to the children. He did so after hearing evidence that Ms. Banks' intent was for all of her children to share equally in the funds after her death.
The magistrate also relied on Florida law, where Section 655.79 states that "a deposit account in the names of two or more persons shall be presumed to have been intended by such persons to provide that, upon the death of any one of them, all rights, title, interest, and claim in, to, and in respect of such deposit account . . . vest in the surviving person or persons." However, the same section also provides that The presumption created in this section may be overcome only by proof of fraud or undue influence or clear and convincing proof of a contrary intent."
The magistrate found that the executor of the estate had proven by clear and convincing evidence that there was intent by Ms. Banks to distribute all of the money to her children and not have it pass to just one. The trial court agreed and upheld the decision of the magistrate. Joseph Banks then appealed.
Reversal on Appeal
The appellate court disagreed with the findings of the magistrate and ruling of the trial court. It stated that the section of law referenced in the trial court's findings only applied to the joint bank accounts in Ms. Banks' estate. POD accounts differ from joint bank accounts and are governed by different law. In a POD account, the creator of the account names a beneficiary for the account funds to pass to upon the creator's death.
Differing from a joint account, Section 655.82 of the law states that for a POD account "on the death of the sole party, or the last survivor of two or more parties, sums on deposit belong to the surviving beneficiary or beneficiaries." There is nothing in the law regarding POD accounts that allows for a rebuttable presumption like it does for joint accounts. As a result, the joint accounts were distributed amongst the children equally, but the POD accounts remained solely with Joseph as part of his inheritance.
Known and beloved as "Mr. Cub," Ernie Banks began his career in baseball earning only seven dollars per day in the Negro Leagues, before coming to the Chicago Cubs and becoming one of the team's all-time favorite players. After baseball, Ernie Banks continued a career in business and philanthropy, Mr. Banks earned the Congressional Medal of Honor in 2013. He passed away on January 23, 2015 from a heart condition, but the death certificate also listed dementia as a "significant condition contributing" to his death. This statement has become incredibly important because his caretaker is now claiming to be his sole heir.
Ernie Banks' Estate Plan
Three months before he passed away, Mr. Banks signed a new will and estate planning documents that included a power of attorney, healthcare directive, will, and trust. The new estate plan gave control of his entire estate to his caretaker and talent agent, Regina Rice. The will and trust also excluded his family members and named her as the sole beneficiary. In fact, the new documents expressly stated that nothing should go to his estranged wife or three children from a prior marriage. The new plan gives Ms. Rice all assets from Mr. Banks' estate, and it also allows her to profit off of his name, image, and likeness.
Banks' Family Contesting Estate
The Banks children have already stated that they plan to contest the new estate plan. They claim that Ms. Rice used Mr. Banks' dementia as a way to manipulate him into signing the new will. They also claim that in the months leading up to his death, Ms. Rice refused to let them speak to their father over the phone. Ms. Rice has refuted the allegations and has stated that "the record and those closest to Ernie will dispel any iota of concern regarding my relationship with Ernie and his trust in me to [carry] out his wishes."
Illinois Undue Influence Law
A new law was passed on January 1, 2015 in Illinois that makes it easier for families to challenge wills that favor a caregiver. However, it does not apply in this case because Mr. Banks signed his new documents a couple of months before the new law went into effect. That being said, the burden of proof to prove that there was no undue influence with Mr. Banks will lie with Ms. Rice.
The concept of undue influence means that a person was of sound mind and free from pressure or manipulation of another person when the estate planning documents were signed. The fact that Mr. Banks had dementia and completed the changes to his estate only three months before he died is questionable. And because Ms. Rice was in a position of trust over Mr. Banks at the time of the changes, as caregiver and talent agent, the law will automatically assume that she did use some level of undue influence when the documents were signed.
Many affluent families are increasingly building or buying legacy properties - multi-million dollar properties or compounds that are designed to be shared with family now and for generations to come. This trend comes with the rising interest in multi-generational living and vacationing as well as to be a place where family from around the country or world can gather to be together. However, estate planning with complex family dynamics, lifestyle issues, or logistical problems can often mar what is meant to be a place for family.
What make legacy homes different from just a large house are the resort-style amenities being built on the property. Many legacy homes have multiple master bedrooms or mini apartments, sport courts (volleyball, basketball, tennis, croquet), and swimming pools. In-home theaters or teen zones for digital gaming are also commonplace in a legacy home. Lakefront or seaside properties often come with their own dock, boathouse, or beach. Meanwhile, legacy homes in the countryside routinely come with shooting ranges, hunting areas, or equestrian facilities.
Architects focus on building common areas and open floor plans that create a feeling of togetherness that also have separate areas for activities like cooking, watching television, or playing. In addition, practical concerns like multiple car garages, extra-large kitchens, and large eating areas are also a must. These homes are meant to be more than just a place for vacations and are meant to be the backdrop for weddings, birthdays, graduations, holidays, and other family celebrations.
Estate Planning for a Legacy Home
To protect such a large investment like a legacy home, estate planning is vital. The "four P's" of estate planning are often emphasized by attorneys for such an asset: protection, privacy, probate avoidance, and planning.
Protection includes comprehensive insurance coverage for the home that can cover any potential damage, liability coverage, and an ownership structure that will protect the home from being seized by outside creditors.
In order to ensure privacy, discuss with your estate planning attorney about placing the title of the estate with a legal entity like a trust or limited liability company. It should have a name that is not linked to the family.
One of the most important things is to try and avoid probate on the estate when the original owner passes away. By properly placing the legacy home in a trust or other estate planning tool, the home can avoid the lengthy, public, and expensive process of probate. It can also help to mitigate any estate taxes.
Finally, the owner of the legacy home needs to establish a clear succession plan for the estate that details who owns the property, how it should be managed, maintained, and eventually passed on to future generations. When this isn't implemented correctly, legacy homes that have been in the family for generations can be sold because of family disputes over who owns the home, how it should be maintained, or how it will be passed on to future generations of the family.
James Brown's life was full of life, music, and manic energy. It was also full of broken marriages, estranged children, tax liens, and legal problems related to drugs, guns, and domestic violence. However, James Brown's estate was meant to be a mea culpa for his transgressions in life and to help others after his death. Yet, almost eight years after his passing the charity that was supposed to receive a significant portion of James Brown's estate has not seen a dime, his family is entangled in lawsuits, and even the state has attempted to intervene.
James Brown signed his most recent will in 2000, and he explained on audio tape that he wanted a portion of his estate set aside for the use of a scholarship fund to benefit black and white children in his home state of Georgia as well as South Carolina. In addition, the will provided $2 million in scholarships for his seven grandchildren and divided his other personal property worth another $2 million between the six children that he recognized. Any heir who challenged the estate would be disinherited.
That statement, however, did nothing to keep multiple children, grandchildren, and purported common law wife from suing the estate to overturn the will. The lawsuits also sought to remove the three people appointed as executors to the estate: James Brown's accountant, personal lawyer, and a former judge. Several children claimed that because of rampant drug use, James Brown had been influenced by his named executors due to his diminished mental capacity.
Then in 2008, the South Carolina attorney general stepped in and claimed that James Brown's charitable goals had been endangered by the court challenges of his family. In a settlement, the attorney general redirected one quarter of the estate to the children and grandchildren, one quarter to his supposed common law wife Tommie Rae Hynie, and the remaining half to the charity. The executors of the estate were also replaced.
Last year, the South Carolina Supreme Court rejected the attorney general's settlement, calling it "an unprecedented misdirection" of the attorney general's authority that inevitably led to "the total dismemberment of Brown's carefully crafted estate plan and its resurrection in a form that grossly distorts his intent." In addition, the court found that there was no evidence of James Brown being unduly influenced or that the 2000 will was anything except his true intent.
State of Affairs Today
As of today, nothing is settled in James Brown's estate. The estate remains embroiled in multiple lawsuits, two of his three executors have been replaced, and a lower court has yet to follow some of the state Supreme Court's ruling. In addition, millions of dollars have been paid out of the estate to his creditors, but no money has been released to the scholarship fund, school children, or other intended beneficiaries. Saddest of all, James Brown's body remains in a temporary resting place and not the memorial that was planned for him at his home.
The battle over James Brown's estate was the basis for a recent documentary and major motion film. A biopic on his life, "Get On Up," was released in August and considered an Oscar contender, and the documentary "Mr. Dynamite: The Rise of James Brown" was shown on HBO in October.
In addition, his music continues to make money for the estate. Each year it has generated millions of dollars in royalties through its use in commercials or as samplings in other music hits. Even his trademark noises, grunts, and squeals that he would make during his performances are available for purchase as ringtones.
This year saw a number of tragic celebrity deaths, and some were complicated further with estate planning issues. Using these stories can be a good way to transition into discussing issues of estate planning with your own family. A look back on the celebrity deaths and estate battles of the rich and famous shows just how many things can go wrong when an estate is not properly planned.
Although Patrick Swayze died over five years ago, reports are coming out now that members of his family believe that his will was forged only a couple of months before his death while Mr. Swayze was hospitalized. His entire estate was left to his widow, and nothing was left to his mother or siblings. Because of the length of time that the estate has been closed, chances are that the estate documents will remain valid despite allegations of forgery.
The lesson learned: estates are administered according to state rules and regulations where the person died. Anyone who feels wronged by the terms of an estate must act quickly before the statute of limitations on the will runs out.
Mick Jagger's girlfriend and fashion designer L'Wren Scott committed suicide earlier this year, and Mr. Jagger was so distraught that he postponed part of The Rolling Stones' world tour. The delay caused a multi-million dollar insurance claim that led to further legal proceedings between Mr. Jagger and insurance companies. The dispute was settled quickly after the insurance companies requested personal information regarding Ms. Scott's death from her family members, medical records, and social media accounts.
The lesson learned is that insurance disputes regarding a deceased loved one are not uncommon, especially when there is a dispute about who should be the rightful beneficiary to part of the estate. Good estate planning can help avoid these types of issues between family members or from becoming public.
The late author's estate is currently embroiled in a fight over eight million dollars because Mr. Clancy was never clear about who should be responsible for the taxes resulting from his $82 million estate. The dispute is whether his wife's share of a trust should pay for half of the IRS bill or if his children from a prior marriage should be forced to pay it all.
The lesson learned from his estate is that it is important to be clear and unambiguous in the drafting of a will and other estate planning documents. This is especially important in families with subsequent marriages, children from multiple families, or if the bonds of family are strained in any way.
Musician Lou Reed only relied on a will to distribute the entirety of his $30 million estate. Because the contents of a will are public record through the probate court system, newspapers and other media outlets could publish the details of Mr. Reed's assets, income, and distributions.
The lesson learned from Mr. Reed is that probate is public, time consuming, and expensive. The use of other estate planning tools instead of or in conjunction with a will can help keep a family's affairs private and out of probate.
In previous posts, we have discussed the use of trusts to pass down pieces of art and other collectibles to your heirs. However, special considerations come into play when estate planning involves the inheritance of guns. Regardless of whether it is an antique gun from the Revolutionary War, your grandparent's service gun from his time in war, or a current collection of guns for hunting or home protection, gifting firearms comes with a set of unique challenges. However, some estate planning attorneys are solving these issues through the use of a new planning tool, the "gun trust."
What is a Gun Trust?
A gun trust is typically set up as a revocable living trust. It is made specifically to transfer firearms, with the gun owner set up as the trustee. Gun trusts are most commonly used to transfer firearms that come with federal restrictions, such as guns with silencers. This is because the trust can cut down on some of the paperwork needed to possess, transfer, and own these types of guns. However, a growing number of people are now using gun trusts to pass down a deceased loved one's personal collection.
Benefits of a Gun Trust
One benefit of a gun trust is that the person named as executor or trustee can have a working knowledge of state and federal gun laws, safety and storage protocols, and how to best liquidate a collection. In addition, any successor trustee named to the gun trust can be well-versed in firearms before inheriting control of the trust.
Another benefit of a gun trust is that the owner of the collection can state with specificity how the collection should be handled. In one case, the owner made a list of collectors that he knew would properly value the collection and instructed family to only interact with them when liquidating the guns.
Having a gun trust can also ensure that the beneficiaries are legally allowed to own or access the firearms. The trustee or successor trustee can check that all beneficiaries clear the restrictions of the U.S. Gun Control Act or enact contingency plans in the case that a beneficiary can no longer legally possess the collection.
One final benefit of a gun trust is avoiding the probate system. When a firearm collection has to go through the probate court, it and the beneficiaries involved become part of the public record. For collectors with particularly impressive gun collections, privacy also gives an added layer of protection against thieves.
When Isn't a Gun Trust for You?
A gun trust does not always make sense for a client who wishes to pass down firearms. If your heirs are adept at firearms and know the laws surrounding them, a gun trust may not be for you. In addition, if the collection is not very valuable you do not have to worry as much about the guns going through probate and becoming part of the public record. Finally, if the guns do not come with federal restrictions, the benefits of a gun trust are also diminished.
One New York resident, now 65 years old and in retirement, has amassed a Las Vegas chip collection worth an estimated $500,000 over the course of two decades. However, he is childless, and no one in his extended family has expressed an interest in keeping the collection. He is also concerned that they will sell the collection for far less than its actual worth. Collectors can spend a lifetime accumulating things like baseball cards, comic books, casino chips, and art. However, too often these collectors do not think about what to do with these collections once they pass away.
The Need for Proper Planning
Many collectors hope that someone in their family or group of friends will enjoy their collection enough to keep it and maintain what they have done. Others think that another collector will pay a lot of money to their heirs for what they have amassed and assume that the heirs know what it is worth. Some hope that their collections will be donated to a museum in order to be displayed for posterity. However, none of these plans can be known for certain without proper estate planning.
If you do not state with certainty what you wish to have happen to your collection after you pass away, it could as easily end up in a yard sale as it could a museum. In addition, you and your heirs could miss out on valuable tax saving opportunities if you do not have an estate plan for these belongings.
Estate Planning Options for Collectors
There are a few estate planning options for collectors in regards to what they wish to have happen to their collections after they are gone. Each option comes with its own set of steps to ensure that your heirs follow through with your final wishes for your collection.
Passing on the Collection
If you wish to pass on your collection to your heirs, the most important thing to do is make sure that there is someone who wants to take it. You also need to make sure that your heir has the ability to maintain the collection and pay for any upkeep, including insurance and storage.
Other considerations for passing on a collection include how to compensate those heirs who do not receive the collection? If more than one heir expresses an interest in the collection, how do you split it up? If you split the collection, will it affect the value? Finally, if no one can afford the upkeep on the collection, are you willing to leave an endowment from your estate to maintain it?
Selling the Collection
If you wish to have your collection sold upon your death, the first thing that you should do is have it appraised, both as a whole and as any smaller lots you may think might happen in the selling process. Keep in mind that collectibles are taxed for capital gains at a rate of 28%, and the sale might be subject to other costs like commission and shipping.
Donating the Collection
A final option for collectors in estate planning is to donate their collections. Donation can be a complex and time consuming process. Some institutions only want part of a collection, and others want a donation of money in addition to the collection for maintenance and storage. However, donating to public organizations can also come with tax benefits for the current year and up to the next five years.
More and more grandparents are now using some of the money that they have tucked away using retirement and estate planning to help their grandchildren pay for college. According to a study done by Sallie Mae, 17% of families in the United States relied on relatives to help pay for college. This percentage is expected to increase as more grandparents use their estate plans to help benefit their families.
However, it is important that grandparents should be smart about how they help their grandchildren pay for school because it can have major tax consequences for them and their loved ones if the correct steps are not taken.
Understanding Estate Planning Gift Taxes
One of the biggest tax implications for grandparents and grandchildren are the federal gift tax rules. In 2014, the federal gift tax exclusion is $14,000. This means that each grandparent cannot gift more than that amount to a single person during the year without incurred taxes. At most, grandparents can gift one grandchild up to $28,000 without being taxed.
However, these is an exception to the gift tax rules if the grandparents are contributing the gift to a "529 plan." Up to five years of gifts, or $70,000 per grandparent, can be contributed at once if paid directly to a 529 plan for a total of up to $140,000.
Establishing a 529 College Savings Plan
Estate planning experts usually recommend setting up a 529 college savings plan for grandparents that wish to help pay for their grandchildren's college. One of the main benefits is that the grandparents maintain control of the account and the funds within it. The grandchild is named as a beneficiary of the account, but the grandparents remain the account holders. This allows them to transfer assets out of their estate into the account for estate planning purposes.
If the grandparents own the 529 plan, the account is treated like a student asset and is assessed as such. In addition, FAFSA assessed student income at 50% from the 529 plan which can seriously reduce the amount of aid given. However, if the grandparents transfer the account into a parent's name before their grandchild applies for aid, all of these problems are avoided.
Disadvantages of Other Plans
A lot of grandparents assume that setting up a UGMA account for their grandchildren is the best course of action when helping pay for college, but the rules have changed drastically for these types of accounts over the years. The tax benefits that the accounts used to receive are now almost completely eliminated.
Additionally, the grandchild owns all assets in the account and can technically do what they wish with the funds, even if they were gifted for the purposes of paying for college. Because the grandchild owns the assets in the account, it can also dramatically impact the amount of financial aid that they receive through FAFSA and other government programs. This is because federal aid programs typically take into consideration twenty to 25% of the student's assets, which includes any money gifted through a UGMA account.
Estate planning is not many couples' idea of fun, but it is necessary to ensure that your loved ones are cared for after you are gone. An experienced estate planning attorney can handle drafting the proper documents and explaining the law behind estate planning; however, there are three important questions that you should address with your spouse or significant other regarding an estate plan.
How well does my spouse know my estate planning attorney?
If you are the one in charge of the estate planning process and the finances of the family, it is possible that your spouse has never met, or only met once, your estate planning attorney. Perhaps they met to briefly sign some papers, but the client/advisor relationship is not very strong.
If you are the first to pass away, your spouse would be relying on a person that they barely know during the most difficult time in their life. Since your estate planning attorney will know about every asset, final wish, and plan for the estate it is important that your spouse form a strong relationship with your estate planning attorney.
Does my significant other know where all of the accounts are located and how to access them?
The surviving spouse or significant other will need to access money immediately in order to pay for funeral expenses. Even if an insurance policy covers funeral expenses the reimbursement does not come until weeks or months later. Hospital bills and the daily expenditures of everyday life also need to be taken care of. Your spouse will not have time to search everywhere trying to figure out what accounts exist and how to access them.
You need to ensure that your significant other is aware of all financial accounts and how to access them after you pass away. It is helpful to make a list (or two) and leave them for your spouse that includes:
· Password lists for all online accounts and memberships
· Names of all accounts and memberships, online and offline, along with any necessary instructions
· Location of all estate planning documents
· Names, addresses, and phone numbers of all lawyers, financial planners, accountants, and others who helped create the estate plan
Are all of our estate planning documents and beneficiary designations up to date?
Life events such as births, deaths, marriages, divorces, and job changes can all necessitate an update to your estate plan. This applies to the will, estate planning documents, and any beneficiary designations. Be sure to check:
· Retirement plans (401K plans and IRAs)
· Life insurance
· Taxable investment accounts
...and other assets that require a beneficiary designation.
By talking with your spouse or significant other about these important aspects of your estate plan you can minimize the stress and confusion of the entire process. If your spouse has a good relationship with your estate planning attorney, is knowledgeable about your accounts, and has worked with you to update the estate plan and beneficiaries you can be assured that your loved ones will be properly cared after you are gone.
Legally, pets are considered personal property of their owners, but for many people their pets mean so much more than any piece of furniture or inanimate object. They can be a person's best friend, companion, and family. When a person begins the estate planning process the pets need to be addressed, as well.
For many people, the wellbeing of their pets is not a concern in the estate planning process, and unfortunately it can lead to the abandonment or euthanizing of the animal once the owner is gone. The only way to protect pets after the death of the owner is through legally binding estate planning documents. Allergies, conflicts with other pets, and exclusion of pets in rental agreements are the most common reasons why informal promises made by friends and family members to take care of a pet often fail.
The idea of legally enforceable documents that ensure a pet's wellbeing in estate planning is a relatively new concept. Mockery in the press is also another reason why people do not seriously consider providing for pets in an estate plan, even if the remainder of the funds is set to go to an animal charity or other worthy endeavor. The most well-known example of this was Leona Helmsley, who left millions for her dog, Trouble, in a pet trust. Sadly, she was ill-advised when creating the trust, and her wishes were never fulfilled.
Legal Documents for Pet Protection
There are two main documents to consider when planning for the future of your pet - a will and a pet trust. Each document has its advantages and disadvantages, so the best option is to discuss with an estate planning attorney what the best choice for your estate should be.
Will: A will is valid after death and serves to distribute property. However, there are many pitfalls to relying solely on a will for a pet's wellbeing. Instructions in a will are not enforceable, and disbursements cannot be made over time. In addition, the lag time between when a will is read and disbursement of property can also create issues. Changes to a will are also in a court's discretion, so if a judge does not think that the pet deserves a disbursement the document can be changed. Finally, in states without pet trusts any disbursement to a pet in a will is considered "honorary."
Pet Trust: A pet trust enlists a pet trustee who distributes funds for the pet's wellbeing and ensures that it is being properly cared for per the previous owner's instructions. This document has many advantages over a will. Pet trusts are valid during and after the owner's life and a trust can preempt problems in the estate. Control over the disbursement of funds is also better under a pet trust. Pet trusts also allow for an investment trustee or trust protector for the proper investment and disbursement of funds. Finally, a pet trust allows for provisions about incapacity, and it can instruct that the pet goes with the owner to a nursing home or other care facility.
Part two of this article will discuss the various issues that need to be contemplated concerning the wellbeing of your pet during the estate planning process.
Many people are uncomfortable with the process of estate planning. As a result, people are not always completely forthcoming with their estate planning attorney or do not think through all aspects of their plan. If you are just starting to draft your estate plan or are thinking of revising your current documents, here are some questions to consider that can make the process easier.
· What are your personal goals? Professional goals?
Establishing personal and professional goals can give an idea of how much you will need to live comfortably in your lifetime and how much will be left for your heirs. If you plan on retiring early or need more money for personal, financial, or health reasons an attorney can help you structure your estate plan accordingly. Establishing goals is also a good way to indicate to your heirs what they should expect to receive from your estate.
· What would you like to achieve with your wealth?
Knowing what you want to do with your money can also help with estate planning. Are you planning on investing in a post-retirement business, do you want to spend most of your wealth before you die, or do you want to set aside a significant amount for your heirs?
· What keeps you up at night about your money?
Knowing your concerns about your current estate can also help your attorney plan accordingly. If you are unsure about how to use money in retirement and have some left for your heirs they can help you structure a plan, and if you don't know the best way to leave money for your heirs an attorney can tell you what your options are.
· What do you want for your children? Parents? Other family members?
Everyone wants their loved ones to be happy, healthy, and taken care of. However, you need to think carefully about how exactly you want your estate to help. Do you want your loved ones receiving lump sums of money after you are gone, or would setting up a trust be more prudent? In the case of you passing before your parents do you want part of your estate to be put towards their senior care?
· Who have you considered for the role of executor of your estate? Why?
What you should be asking yourself when appointing an executor is who knows best about my estate wishes and has the ability to see them through? It could be a spouse, child, or family friend. You can also appoint someone outside of your close circle like an attorney in order to avoid any personal or familial conflicts that could arise.
· Who have you considered for the role of trustee of your various trusts? Why?
The trustee(s) to any accounts set up for your estate should be knowledgeable about your financial matters as well as your wishes for those assets. You can appoint someone who is close to your family and knows the intimate needs of the beneficiaries, or if you can appoint a neutral third party who will make decisions based on what is best for the trust.
· Who have you considered for the role of custodian for your children?
This person will be in charge of raising your children, and it should be someone who can effectively communicate with the executor and any trustees for your estate to ensure that your children are properly cared for in the estate plan.
· Do your family members get along? If not, why?
If your family does not get along, you need to discuss with your attorney how this may affect your estate plan. Beneficiary, executor, trustee, and other designations can be greatly affected if there is discord in your family. This may mean that you include a letter in your estate plan explaining your decisions, or it may mean restructuring your plan entirely to avoid any further strife.
Life is about far more than the accumulation of material wealth. Working hard and collecting valuables to enjoy and pass on to others at death is nothing to spurn. But there are many other things that are accumulated over a life and can be passed on at death: morals, lessons, memories, stories of hope, words of kindness, inspiration, and countless other values.
When thinking about life transitions and estate planning, it is important to consider those intangibles just as much as those items that have a monetary value. This is why, in addition to creating legal wills and trusts, we work with New York families on "ethical wills" to pass on all of those moral and spiritual items that solidify a legacy.
Advice for the Future -- Preventing a War
One common part of an ethical will is the sharing of advice to the next generation. The value of passing on advice should not be underestimated. An extreme example suggests that one of the greatest horrors in human history--World War II--may have been prevented if only a last will and testament was more widely disseminated.
A Daily Mail story last month discussed the will of the former President of Germany, Baron Paul von Hindenburg. Hindenburg led the nation until his death in 1934. He was widely respected in the country, particularly among the powerful political class.
Recently declassified information suggests that Hindenburg's last will and testament did far more than dispose of his property. The will also contained very specific advice to his country about the preservation of democracy and limiting the power of the up-and-coming populist leader at the time: Adolf Hitler. Recognizing Hitler's goal of taking complete control of the government, Hindenburg's will explained that the country need to maintain established principles, like an independent army and separation of powers. The document was intended specifically to prevent Hitler from fulfilling his ambition. One historian described the will as "a bomb timed to go off posthumously and blow Hitler off course."
Unfortunately, it did not work out as intended. That is because before the will was made public, Hitler found out about the contents. He immediately ordered the document seized, and the German people never learned of the lessons their statesman wanted to impart. Instead, a forged document was released to the public which wrongly asserted that Hindenburg had nothing but glowing praise for Hitler.
While this example is a bit different than the lessons that many New York seniors wish to impart, the underlying principle stands. Estate planning offers a chance to think wholistically about the meaning of life and how one would like to be remembered by the generations to follow.
Art Collector Disappointed Her Kids Don't want her Collection: Makes Backup Plan
A recent Wall Street Journal article discussed how estate plans protect art collections. The feature focused on a widowed woman with an art collection worth $250,000. The woman and her late husband traveled extensively and amassed the collectibles over a 50-year time frame. Now in her 80s, she wants to make future plans for the valuable collection.
Upon her death, she would like her cherished art to pass to her two daughters. However, she discussed her desires with her children and discovered that they do not want the Asian art collection. She reluctantly came to grips with the reality of her art moving beyond the family. The Asian art aficionado requested that, if possible, the art assortment stays together and be sold to one collector.
This story, and countless others, highlight the importance and necessity of pre-planning for the inevitable with a clear estate plan.
Options for Art Collections
A New York Times piece focused on both the monetary and emotional worth attached to personal collections. Because of the later, many people avoid including their prized collections in any type of estate plan. This is a mistake.
A robust estate plan prevents confusion and often times costly estate taxes. An estate planning attorney can assist and plan for the proper disposition of your property, including art collections.
Here are some options for collectors and what to do with their treasured collections:
· Pass it on to family members - this seems to be a popular 'default' for most collectors. However, in some instances, it may be a good idea to discuss your desires with your family members, or those whom you wish to inherit your valuables. Not everyone has the same taste and may not want the collection.
· Sell it - as noted above, not all family members want to inherit collections. So, one option is to sell to a buyer with the same passion as the original collector.
· Donate it - some collectors opt to donate to a museum or their alma mater. This way, the collection can stay together, which is an important factor to many collectors.
An estate plan that clearly incorporates all your desires, including how and where you want your collection to be dispersed, is central to avert any future issues.
NY Estate Planning
It is important for everyone to make an estate plan. When valuables, such as special art collections, are involved, it is imperative to create a plan and entertain a 'fallback plan' as well. Discuss and make proper arrangements for the disposition of belongings with an experienced estate planning attorney.
Each day seemingly brings news of additional states that are joining New York in allowing same sex couples the right to marry. Although the new laws and court decisions represent a monumental victory for residents seeking to take advantage of the protections and benefits afforded by same-sex marriage, same-sex couples will still face several unique legal challenges. .
Though the US Constitution requires states to give full faith and credit to judicial decrees, a marriage license does not fall under this category. Rather, a marriage license is an administrative license issued by the state or county and historically has not been subject to full faith and credit. This means that other states do not have to recognize the legal status of a same-sex marriage that was entered into in New York.
The majority of states do not recognize same-sex marriage, and 36 states currently have "defense of marriage" statutes that expressly provide that the state's government will not recognize a same-sex marriage. This presents a problem for same-sex couples looking to travel out of state. If same-sex couples travel or move to another state or country, their marriage may not be recognized.
Power of Attorney
One consequence of a state's refusal to recognize a same-sex marriage entered into in New York is that same-sex couples may not be allowed to be involved in the decision-making process should something happen to one of their loved ones while traveling. For example, a recent article explains that a hospital in a state lacking public accommodation procedures based on sexual orientation may refuse to allow visitation rights to a same-sex partner. Furthermore, a same-sex spouse may be prohibited from making end-of-life decisions for their spouse or loved one. As a result, same-sex couples should consider taking certain precautions before traveling, such as executing health care and financial powers of attorney and carrying those with them while out of state. These documents will ensure that proper procedures are in place should an accident occur while in another state or abroad.
Another legal issue that arises for same-sex couples is whether a state will recognize a legal relationship between same-sex parents and their children. A New York Times article notes that a concern among same-sex couples is that without their adoption papers, their parental rights may be questioned while traveling. Another concern is that the nonbiological parent will lose rights if the couple divorces or the family moves to a different state.
Some states may not recognize a child's relationship to a same-sex couple. Therefore, it is important for same-sex couples to adopt their children in legal proceedings. If a same-sex couple does not have a biological relationship with their child, then their relationship would rest only on a marriage certificate, which may not be recognized in all states. Since states are required to give full faith and credit to an adoption certificate, as it is approved by a judge, a same-sex couple will have clear legal rights and a recognition of their relationship with their child while out of state.
Contact an New York Estate Planning Attorney
It is important to speak to an attorney that can help you make sure that you and your loved ones are have plans in place whatever the future holds. Contact our estate planning attorneys today to see how we can help.
There will soon be a new chief in town when it comes to monitoring the activities of New York charitable organizations. According to a report last week in the Wall Street Journal, James Sheehan was named the head of a state agency known as the Charities Bureau. This entity may not be a well-understood by most community members, but it plays a role in trust regulation and other activities which hit upon estate planning matters.
The New Chief
Mr. Sheehan is well known to many in the estate planning elder law community as the former New York Medicaid inspector general. The inspector general is charged with acting as a check on the system to watch out for misdeed and violations. It is that same commitment to enforcement and transparency in activities that Sheehan will take to the new office.
Speaking about his new role, Sheehan explained that he viewed himself as a "compliance officer." In other words, instead of acting aggressively to root out misdeeds, he hoped to help "organizations do the job that they are here to do."
Sheehan likely felt the need to point out the distinction in order to quell concerns about his reputation as an "aggressive enforcer." While working as the Medicaid inspector general, he acted vigilantly to ensure state funds were not misspent, leading to sharp disagreement with many in the healthcare industry who felt his actions were unfair and overly forceful.
Regulating Charities in NY
The Charities Bureau has a mixed charge, focusing on ensuring proper oversight of state non-profits, legal use of charitable trusts, and management of various public outreach programs. In fact, this years will mark the first where the Bureau makes use of expanded powers passed into law by the state legislature in December.
The New York Nonprofit Revitalization Act will take effect this summer. The Charities Bureau will be in charge of implementing this Act which, at its core, is intended to ease the somewhat complex regulatory stresses that many nonprofits face in the state. This will be in addition to the traditional duties of the government entity to guard against fraud and other violations.
Many New York residents include charitable donations and create charitable trusts as part of their estate planning. As changes take place at the Charities Bureau, it will be important to keep a close eye on the developments to determine if any of the alternations impact long-term planning options or strategies.
Many New Yorkers invest a sizeable portion of theirs assets into IRAs--retirement accounts to fund their golden years after their work life is over. Of course, no one knows exactly what their future holds, and so it is common for IRAs to contain significant funds upon one's passing. Deciding who will receive those assets is a critical part of estate planning.
Unfortunately, as discussed in a recent Forbes article, sloppy planning on that front, which leaves designated beneficiaries in the dark, may ultimately cost those beneficiaries their inheritances.
Make Your Wishes Known
The financial lives of many New Yorkers are complicated. People have different bank accounts, work with various brokerage firms, and otherwise create a complex web of records for their diverse, scattered assets. It is hard enough for individuals to keep track of their own financial lives let alone that of a loved one after a passing.
But dealing with this problem following a sudden death without estate planning is more than just a paperwork nightmare--it can have very real financial consequences. For example, what happens if the designated beneficiary of an IRA does not know that they inherited the account?
Even a delay in knowledge about beneficiaries may be problematic. That is because non-spousal IRA beneficiaries are usually required to withdraw a minimum amount from the account each year. Failure to do so may result in a penalty, often 50% of the very amount that should have been withdrawn each year! This is not a small slap on the wrist. It is not necessarily uncommon for delays to drag on for years, with IRA beneficiaries having no idea that they are due money--the banks where these accounts are held are under no obligation to find the beneficiary.
On top of this, if the account holder eventually turned the funds over to the state as part of their abandoned property protocol, then an additional problems may arise--like income taxes. That is if the beneficiary ever finds out about the IRA at all.
All told, various nightmare scenarios can be worked out involving IRA beneficiaries who have no idea they are set to inherit, with subsequent complications resulting in the account assets being completely devoured by fees and taxes.
It is a bit cliche, but this situation is yet another reason to never let this planning go undone. Beneficiaries need to know what they are set to receive and the steps that must be taken to ensure their inheritance gets to them in full. Too many New Yorkers spend a lifetime acquiring assets and have the goal of leaving some to loved ones only to have that wish derailed by poor or non-existent estate planning.
Our attorneys frequently advise New Yorkers of the immense benefit of using trusts to conduct estate planning instead of relying solely on a Will. More and more residents are recognizing the value of trusts and incorporating them into their planning. However, Wills remain the most well-known and used tool to pass on assets upon death.
There are specific laws which dictate when a Will can be deemed valid by courts in probate. For this reason, it is always prudent to have an attorney draft your Will to ensure it will work as desired when the time comes.
However, even those who have an attorney draft a Will may make the later mistake of trying to modify the WIll on their own, without legal help. This is a significant problem and may result in the entire Will being thrown out. It is not uncommon for an individual's assets to be divided via intestacy rules instead of per their actual wishes in a Will because of modifications made ad hoc.
One common urge may be for a resident to simply take a Will prepared by an attorney and scratch a few names out, write in new names, or change the exact assets that each is to receive. But this is a mistake. Modifications or additions to a Will, often referred to as "codicils," still have to follow the same witnessing, capacity and signature requirements as a new Will. Therefore, making haphazard alternations as a time-saving measure will likely not be upheld.
In fact, considering that most Wills today are created and stored digitally, there is virtually no reason to engage in the complex use of codicils or slight modifications. Instead, most of the time it makes more sense to simply have an attorney help draft a new Will to ensure that all formalities are followed and fewer questions will be asked in probate when the WIll is brought forward.
At the end of the day the takeaway is clear: have the aid of an attorney every time you create a Will or want to update a Will. Holographic Wills--handwritten and unwitnessed documents--generally will not be upheld in New York Probate Court except in very limited situations (like for members of the armed services who are overseas). For this reason, without the counsel of an attorney you always risks having a home-made Will thrown out and rendered ineffective, adding an extra challenge to grieving families at the exact moment that they do not need it.
Many New York residents make charitable giving a part of their estate plan. Whether for estate tax benefits to pass on values and ethics to family members and many other reasons, residents commonly set aside certain assets to go to causes about which they are passionate.
However, according to a new report from a conservative "think tank" if any changes are made to federal rules about charitable tax deductions, then one can expect total giving in the country to decrease by billions each year. Before delving into the details it is critical to point out that the group releasing the study, the American Enterprise Institute (AEI), is known as a long-time opponent of all changes which would increase tax revenues. In addition, this AEI estimate is far higher than that found in similar studies by other groups.
The Charitable Giving Report
According to an article from Philanthropy.com discussing the new estimates, AEI researchers found that a limit to the value of charitable deductions--proposed by President Obama--may cause donors to give up to $9 billion less to charities each and every year. That large reduction in giving would have serious effects, the authors claim, on many non-profit organizations that rely exclusively on the gifts of donors for their yearly operations.
If the President's proposal passes, it is claimed that overall donations would fall by about 4.4 percent. The researchers used that figure against total giving nationwide to come up with the $9.4 billion amount that may be lost with changes to the tax law. The AEI report argues that the largest donors in particular would likely cut back on giving with the changes, because it is the "top 1 percent" of earners who are most likely to itemize their deductions and benefit from the charitable giving tax break.
All of this is being used to push back against the President's proposal to curb deductions that certain high earning individuals can take on these donations. Right now the upper limit is at 39.6 percent and the proposal calls for its shift down to a 28 percent limit. For his part, the President and his supporters argue that current law is unfair in that it provides more benefit to high earners to donate than it does to lower income donor. In addition, the additional revenue raised by the tax changes would be used to bolster programs supported by most non-profit organizations.
For help understanding how charitable giving can be incorporated into your estate plan, seek out the help of an experienced attorney today.