Recently in Estate Planning Category

Why Consider a Special Needs Trust?

July 28, 2015,

Supplemental Needs Trusts (also called Special Needs Trusts) have become fairly popular in recent years. These trusts are designed to protect a disabled person's assets in order to ensure the greatest amount of funds available for care and support. In 1993, Congress passed legislation in 42 U.S.C. § 1396 et seq. that specifically allows a disabled person to exempt assets from public aid determinations. You can click here to read more about how the government treats these unique trusts. One look at the complex federal regulations that control these trusts should be reason enough to consult an experienced elder law attorney to find out if it is right for your situation.

How much money can a disabled person keep and still be eligible for public aid?

In general, for a person to qualify for Medicaid, he or she must be impoverished. This means having less than $2000 in personal assets. Previously, there were fairly strict provisions that made it difficult for a disabled person to keep assets and still qualify for Medicaid funding of long-term care. Nursing home and rehabilitation costs can be exceedingly expensive, and people are often concerned that a disabled family member could quickly spend all of their assets on care and support before qualifying for government assistance.

How does a Supplemental Needs Trust help protect assets?

While there are many complex laws that govern this area, as a general rule, the law allows 2 types of these trusts: "Self-settled" and "Third-party."

1. Self-settled Supplemental Needs Trusts

A self-settled trust is one that is funded with the disabled person's own assets. This is common where the disabled person perhaps receives a settlement in a lawsuit or had a sizable net worth prior to becoming disabled. In these cases, Medicaid may have certain limitations on how the funds are used, and generally upon the death of the disabled person, his or her estate will have to "pay back" Medicaid for any public aid paid on his or her behalf. Therefore, if years of care are provided, there may not be much left to distribute to heirs. The goal of these trusts is not to preserve an inheritance so much as it is to provide for the well being of the disabled person for life.

2. Third-party Supplemental Needs Trusts

A third-party trust is one that is funded with somebody else's assets. This is common where a family member leaves an inheritance to the trust or places personal assets in the trust for the disabled person. There are many creative ways for an elder law attorney to arrange this. The greatest difference between this and a self-settled trust is that these are not readily available to the disabled person. Indeed, someone else is the primary beneficiary and acts as trustee, thereby giving someone else control over the use of the funds. Some parents of disabled adult children choose to establish these trusts and name another child to act as trustee. This way, following their death, they can be confident that their other children will have the necessary assets to take care of their disabled sibling, while permitting the disabled sibling to receive public benefits.

Despite these clever estate planning tools, there are many exceptions and limitations on the use of trust funds that require an attorney's careful review. Naturally, no plan is 100 percent foolproof; all trusts come with their own unique pros and cons depending on your own circumstances.

Joint Accounts are no Substitute for Quality Estate Planning - Part 2

July 24, 2015,

How does joint tenancy avoid probate?

Let's use a simple example: the family home. When an aging widow places her home in joint tenancy with an adult daughter, they both immediately are entitled to possession and ownership. Each has the same rights. If the property is rented, each is entitled to the entire rent equally. Therefore, the law generally considers the widow's action as a gift to her daughter. Likewise, upon the widow's death, the house is immediately the sole possession of the daughter and not part of the probate estate. In other words, it passes outside of probate.

So what is wrong with joint tenancy?

Well, the example above sounds terrific if you are the daughter. However, what if there are four other adult children. Often, rather than executing a carefully planned will or trust, an elderly person will be advised to simple put the house in joint tenancy and instruct the joint tenant to sell it and split the money with her siblings. As one can likely detect, there is a huge potential for abuse here. What if the daughter gets greedy and does not want to share? There is no probate court to make her do what her mother asked. And even if siblings brought her to court in a lawsuit, unless the mother was incompetent at the time she set up joint tenancy, the court will honor her wishes and allow the daughter to keep it all. There are, in fact, many tragic examples of joint accounts gone wrong.

Similarly, people often do the same thing with bank accounts, placing large sums of money in jointly owned CDs, brokerage accounts, and bank accounts. Upon death, the balance belongs solely to the joint tenant, and it can be very difficult to pursue legal actions to distribute the money to other heirs, because just as with the home, the funds passed only to that person. Moreover, because that joint tenant immediately has an undivided 100% interest in the money, he or she can simply go to the bank and remove all the money, even while the widow is still living. So, in the above example, if the widow put all her money in a joint account with her daughter, that daughter could go to the bank and remove all of it the next day and claim it was a gift. If the widow wants it back, she will almost certainly have to sue her daughter and convince a court that she did not intend a gift to one daughter to the exclusion of the other children. This can be an uphill battle, and the litigation is very costly. Even worse, it tears families apart and pits siblings against each other in ways that can be far worse than simply probating a will.

There are sensible alternatives to joint tenancy

A far more sensible approach than joint tenancy or joint bank accounts is to meet with an experienced estate-planning attorney, and after considering all the pros and cons, lay out a workable plan that protects children, reduces taxes, and preserves assets. This may include a combination of wills, trusts, detailed powers of attorney, and yes, even joint tenancy. There are also "payable on death" or "transfer on death" accounts, which allow the owner to retain sole possession during life and pass to someone else only upon death. Likewise, some states permit "convenience accounts," which are joint accounts designed solely for the owner's use and convenience, yet they allow someone else to have access. Further, simple powers of attorney can be a great tool as well. They create a fiduciary relationship that legally requires the agent to handle the assets properly but does not give the agent all the money.

While there can be good reasons for setting up joint accounts, they rarely make for a good alternative to comprehensive analysis of an estate planning attorney and a sound, well-informed estate plan.

Joint Accounts are no Substitute for Quality Estate Planning - Part 1

July 22, 2015,

Estate planning attorneys are frequently asked a troubling question: what's the quickest, cheapest, and easiest way to just avoid probate altogether? Of course, you can never expect an attorney to provide a blanket response to that question. It is similar to asking your doctor, "What's the quickest, easiest, and cheapest way to avoid heart disease?" The answer in both cases will undoubtedly depend on many things. For the doctor to give an informed response, he or she would need to perform blood tests, get some idea of your history, lifestyle choices, eating habits, family history, and so forth.

The same is somewhat true of offering a comprehensive estate plan. It is, after all, designed to protect you and your family later. So, your attorney will likely need to know your net worth, what real estate you own, your relationship with your children, siblings, and other relatives, your goals, career, income, and your level of health. These are just a few of the issues that go into deciding how to properly establish your estate plan. This warrants discussion, because people continue to find themselves engulfed in painful litigation against their own family, often despite good intentions.

Every year many Americans are fooled into choosing quick fixes to "avoid probate." In many ways, a complete misunderstanding of the probate process has perpetuated this mentality. In fact, web-based "self-help" legal services are often the worst culprit. But if handled properly by an experienced attorney, probate can be a powerful and straightforward process for settling a decedent's affairs. Some sadly choose to simply open joint bank accounts with an adult child or close friend and then place all of their money in those accounts with simple instructions regarding how they want the money spent upon death. Many people also do the same thing with their homes, automobiles, and other types of property, thereby completely avoiding probate. But this is not a wise strategy.

Types of property ownership

There are several ways a person can hold title to property in America. First, they can own property individually, meaning it is solely in their name. They have 100% of the ownership interest, and upon death the property will pass to their estate to go through the probate process.

Second, one can also share ownership with other people as "tenants in common," which means each person holds a one-half divided interest. So, people who own property this way can, depending on the nature of the property, generally sell their own interest without affecting the other owner's rights. However, neither owner can simply take the whole asset and claim it absent the other owner's permission.

Third, one can share ownership with someone as "joint tenants," meaning that each person has an undivided 100% interest. This means either person holds a complete interest in the whole asset. Married people can hold property as tenants by the entirety, which closely resembles joint tenancy.

Later this week we will discuss joint tenancy--the benefits, pitfalls, and alternatives.

How NOT to Avoid Estate Taxes: The Scholarship that wasn't a Scholarship

July 20, 2015,

Julius Schaller was a Hungarian-American immigrant was a wealthy grocery store owner who had acquired substantial assets that exceeded the threshold for paying estate taxes. In order to avoid the tax burden, he established a special scholarship foundation for Hungarian immigrants who pursue performing arts. He named it the Educational Assistance Foundation for Descendants of Hungarian Immigrants in the Performing Arts. Estate planning attorneys often create such organizations for wealthy individuals. However, it must be a legitimate nonprofit organization.

The foundation was established as a nonprofit organization and granted tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. But there was a catch. The foundation was a rouse. It hardly advertised the scholarship, and during the first two years of operation, the scholarships were only awarded to his heirs - specifically a nephew, niece, and another member of the family. This is a problem.

The IRS does not take kindly to those who set up fake organizations under the guise of providing a legitimate scholarship or philanthropic service to the public. As such, the IRS revoked the foundation's nonprofit status, and litigation ensued.

Why did Schaller set up the Foundation?

Back when Schaller set up the foundation, an estate could only have up to $1 million before the estate tax kicked in. In his case, he had about $2.5 million in excess of the $1 million limit. So, he placed $2,595,847 in his foundation, thereby entirely avoiding a single dollar in estate taxes. Today, a person may exempt up to $5.4 million from estate taxes. This makes it far less appealing for many Americans to try schemes this today.

What made the scholarship illegitimate?

There were two basic reasons why a federal court held that the foundation was not eligible for tax exemption. First, it was "organized and operated exclusively for the benefit of Julius Schaller's will." See the full-text of the decision here. Second, the organization misstated key facts in its application for tax-exempt status.

The law is clear that to qualify for tax-exempt status, it must be organized for the exclusive purpose of benefiting a "public interest" rather than a "private interest." This means you cannot establish a tax-exempt organization that benefits only your own family members. In fact, the federal court went a step further and said that none of the nonprofit organization's funds could be paid to family and heirs of the person who created the nonprofit organization.

Additionally, Schaller's application for 501(c)(3) status included a statement that there would be a 3-person committee made up of education professionals who would decide who received scholarships. In truth, during the first two years of operation, no such committee was formed, and only two people were involved in the decisions. Thus, the IRS viewed this as a "material misrepresentation" of the operation of the foundation. The federal court agreed, thereby retroactively revoking Schaller's foundation and assessing hefty taxes on his estate.

This should serve as an enduring lesson that including philanthropic bequests in an estate plan can be an excellent way to reduce tax consequences; however, it must be legitimate and solely for the benefit of the public, not family and heirs.

FINRA Issues New Alert for Estate Planning

July 17, 2015,

The Financial Industry Regulatory Authority (FINRA) issued a new alert regarding the transfer of brokerage accounts upon death. This report has important information for people who are considering using brokerage accounts as part of their estate plans. The alert informs current brokerage account holders, family members, and their other beneficiaries about the processes involved when the account holder passes away.

What is FINRA?

FINRA is the largest independent regulator in the world for all securities that do business in the United States. The organization's main purpose is to provide investor protection and ensure market integrity through effective and efficient regulation. Some of FINRA's responsibilities include registering and educating industry participants, examining security firms, writing and enforcing rules, and educating public participants in the market. FINRA also offers dispute resolution for security firms and participants in the securities market.

Contents of the Alert

Entitled "Plan for Transition: What You Should Know about the Transfer of Brokerage Account Assets on Death," the alert informs the holders of non-retirement brokerage accounts about the steps necessary to conduct a smooth transition of assets from one generation to the next. The senior vice president of FINRA said that "FINRA's new Securities Helpline for Seniors brought the importance of this issue to our attention, and we hope investors who read this alert will be better prepared to take action."

FINRA's alert provides tips and information for making the brokerage asset transfer as efficient as possible and free of issues for the account holder's heirs. The report also asks potential brokerage account holders to consider whether a Transfer on Death Plan (TOD) is the right estate planning tool for them. A TOD account works by allowing an account holder to manage their assets during their lifetime, and upon their death the assets in the account automatically pass to named beneficiaries.

Tips for Transition

The "Plan for Transition" provides a number of tips for account holders and beneficiaries regarding the transfer process of brokerage account assets. This information applies to the account holders, their family members responsible for collecting information, and possible beneficiaries to the account. These informational points in the report include the following:

· Have a conversation with family members and be as open as possible about the brokerage account holdings.
· Keep track of account statements and trade confirmations. This can help beneficiaries locate the information and notify the firm about the death.
· Work with the brokerage firm to discuss assets, last wishes, and important aspects of the asset transfer process.
· Take the time to carefully consider your beneficiaries and check to see that all of the proper forms are filled out to transfer the account assets upon death. You can always ask the firm to send you the current list of beneficiaries for the account and make any necessary changes.

Estate Planning for Singles

July 15, 2015,

Most of the estate planning tips and tricks revolve around plans for couples; however, a single person's estate plan is just as important. In many circumstances, the way that a single person structures their estate plan and who is named differs from an estate plan of a couple. Just as with couples, if a single person fails to properly plan there can be dire consequences for an estate.

Dying Without a Will

If a single person dies without a will, then they are considered intestate. All of the assets in their estate go into probate, and the court will disperse the assets according to state law. Because there is no spouse, typically the court will split the estate between any children, parents, and siblings. If there are no close living relatives, then all of the assets in the estate are forfeit to the state. This worst case scenario highlights the importance of titling various assets, beneficiary designations, and how an estate plan can help a single person.

Estate Planning Essentials

Even having the basic, essential estate planning documents can drastically affect the outcome of your estate. This is even more important if you have a committed, non-married partner or have plans to distribute your assets that are not in accordance with state law. A basic estate plan can also help a single person in the case that you become incapacitated physically or mentally.

The most important estate planning tool is a will. This dictates what assets should go to what people or organizations after your death. You can also use a will to name guardians for minor children and assign an executor to the estate. If you do not have any close relatives, consider a close friend or attorney to be the executor of your estate.

Another important aspect of a single person's estate plan is a durable power of attorney. This document names someone to make all of your legal and financial decisions in case you become incapacitated and cannot make decisions on your own behalf. A married person usually names a spouse, but a single person needs to consider who they believe will make the most informed choices for them.

Finally, consider using accounts for your estate plan that name a beneficiary, and then put time into considering who you wish to inherit those accounts. Beneficiary designation accounts include retirement accounts, IRAs, 401(k)'s, life insurance, annuities, and more. However, you should review and update beneficiary accounts every few years to ensure that they are up to date.

Planning for Estate Taxes

Federal estate taxes do not apply to a single person's estate until it surpasses the exemption level, which for 2015 is $5.43 million. If you are single because you are widowed, the federal exclusion amount can also include the unused tax amount from your deceased spouse. However, you must also consider state estate taxes or inheritance taxes. These exemption levels can be much lower and the tax rate much higher than the federal level. It is important to check and see if your state's estate taxes will apply to you.

Causes of B.B. King Estate Battle

July 13, 2015,

Riley B. King, also known as famed blues musician B.B. King, passed away on May 14 and left behind a contentious estate battle between his children and manager. One of his daughters, Patty King, claimed in an interview that her father did well by his children and is now leading the charge against her father's business manager, LaVerne Toney, of 39 years. Five of his eleven surviving children have all made claims of serious wrongdoing against the manager.

Accusations against the Manager

Patty King and her half-sister, Karen Williams, are leading the case against Ms. Toney. Some claims include not allowing the children to see Mr. King, providing improper medical care, and possibly even poisoning the famous musician in his final days. Because of the claims of possible homicide, the coroner conducted an autopsy and is awaiting toxicology results before rendering a final opinion. However, these types of tests could take weeks to return a result.

Furthermore, the children of B.B. King claim that Ms. Toney looted their father's bank accounts for more than one million dollars and misled the children about Mr. King's finances. Ms. King and Ms. Williams believe that the total estate should be between five and ten million dollars; however, in a prior attempt to gain guardianship over the estate the daughters claimed that their father had tens of millions of dollars in assets.

Response to the Allegations

Ms. Toney claims that these allegations are false, without merit, and defamatory. She was named as Mr. King's executor for his estate based upon his last will. However, his children have filed a formal objection and challenge her position as executor. Ms. Toney's attorney has gone on the record claiming that the musician's children are simply after more money and that the estate is not worth nearly what the daughters believe it to be.

Contentious Estate Battles

This is not the first, nor will it be the last, contentious estate battle over the assets of someone of fame. Some of the most recent and notorious estate battles include fights over the assets of Michael Jackson, Robin Williams, Ernie Banks, Casey Kasem, Marlon Brando, and Ray Charles. All of these battles were finished only after long and costly court cases that threw details of their estate into the public eye and brought out the worst in family members. However, the battle over B.B. King's estate is fairly unique in the daughters' claims of murder by their father's business manager.

The battle over B.B. King's estate, and others, provide valuable lessons regarding the importance of avoiding contentious fights about an estate. Estate battles are common even among the common people, and fame is not a requisite for an ugly fight between heirs. One of the easiest ways to avoid contentious estate battles is to have a conversation with your heirs before you pass away explaining your estate planning decisions. Another option is to leave a letter or video explaining your choices. Finally, putting serious consideration into naming an executor to the estate can alleviate a lot of problems between heirs after you are gone.

Generation X in No Hurry to Retire

July 10, 2015,

Recent research shows that employees still working in Generation X do not have the overwhelming desire to retire. According to a new study released by Ameriprise Financial, an overwhelming 73% of people from Generation X plan on working in some capacity after they retire. However, interestingly enough the reason is not for financial purposes but for finding fulfillment.

Results of the Study

Called the "Retirement 2.0" study, the researchers at Ameriprise Financial found out some interesting qualities about the Generation X workforce. The vice president in charge of the research said that "they don't have an on-off switch in terms of leaving the work force and instead anticipate a gradual evolution into this new phase of life, which really sets this generation apart."

The study looked at over 1,500 Americans between the ages of 35 and fifty years old that have at least $100,000 in investable assets. The vast majority of participants, around ninety percent, stated that they intend on working in a different capacity after retirement such as part-time work.

Furthermore, over one-quarter of the participants, 27%, said that they could see themselves shifting into consulting work after retirement and nine percent told the researchers that they plan on working in a seasonal capacity. A total of 36% of Generation X workers said that they would prefer to work from their homes or in their own business.

Looking for Fulfillment

One of the most interesting aspects of the "Retirement 2.0" study is that the reasons behind Generation X people returning to work after retirement is not for financial gain. Rather, the driving force behind this decision is for mental and social interaction as well as a sense of fulfillment. Half of the participants stated that they want to work in a position that is less stressful, one-third said that they wanted a rewarding job, one-quarter want to do something socially meaningful, and almost twenty percent want a job that is more interesting.

Part of the shift is that Generation X workers started saving for retirement at a young age, with the average age being 26 years old. A total of 76% of participants in the study reported proactively planning for their retirement, with almost eighty percent saving in a 401(k) and seventy percent investing in an IRA or similar account. This is mainly because these investment vehicles are expected to be the primary source of retirement income, with Social Security and pensions serving only as supplementary income resources.

Confident in Retirement Goals

Over three-quarters of the participants, 77%, reported that they have saved enough to afford the lifestyle that they want in retirement. Furthermore, 64% are investing to make extra income during their retirement years. Only a single percent of participants had not given any thought to retirement, and about one-fifth had not started to significantly plan at this time. "They are setting aside money and investing now, while time is still on their side and they're entering their peak earning years."

SEC to Review Retirement Advice

July 8, 2015,

The Securities and Exchange Commission (SEC) released a statement last week announcing a multi-year targeted review of investment advisors and broker dealers' retirement planning sales practices. This review serves to fulfill the promise that the SEC made to protect retirement savers and protect them against predatory sales practices that could do more harm than good to workers that have been saving up for retirement for decades.

Purpose of the Review

Now more than ever, many people saving for retirement are dependent on their investments for retirement income. Because this industry is incredibly complex and ever-changing, it is important to have an advisor explain and manage your retirement accounts. However, the complexity of the industry also allows for some advisors to take advantage of the system and invest retirees' money for their own best interests, and not their clients'. This is where the SEC plans to step in.

The review will be performed by the SEC's Office of Compliance Inspections and Examinations Retirement-Targeted Industry Reviews and Examinations (ReTIRE) Initiative. The purpose of ReTIRE is to focus on high risk areas of investment advisors and broker dealers' sales, investment, and oversight processes. In particular, the ReTIRE initiative will be looking at areas where the retiree might be harmed by the risky practices.

The ReTIRE program will review whether advisors and dealers have a reasonable basis for recommending certain investments and strategies, whether they are disclosing any conflicts of interest, if proper supervision is taking place, and if they have the correct compliance controls. Marketing and disclosure of investment products are also targets of the review. In addition, SEC exams will focus on the activities of investment advisors, broker dealers, and branch office practices in order to instill these ideas with everyone entering the industry.

How the Review Works

Those selected from the SEC to take part in the ReTIRE initiative will be looking at advisor and dealer consistency when selecting each type of accounts, performing due diligence on investment options offered, the initial investment recommendations, and ongoing account management as priorities this year. In addition, plans are being made to review advisors and dealers' sales, account selection practices, fees charged for practices, services provided, and the expenses associated with these services to ensure that investors are not being overcharged.

For reviewing supervisory and compliance controls, the ReTIRE task force will review control procedures, oversight, and supervisory policies. Particular attention will be paid to branch offices and representatives that have other business activities outside of the office. Marketing and disclosure materials will also be reviewed to ensure that investors are not misled or deceived by the advisors.

In order to check all of these various aspects of advisors and broker dealers' business practices, the SEC plans on using data analytics, information from prior forms and exams, and examiner due diligence on all investment advisors identified in the ReTIRE probe. The SEC hopes that the ReTIRE initiative will encourage advisors and dealers to reflect upon their investment practices, policies, and procedures in order to improve them as needed.

Court Rules on Whether to Revoke Will

July 6, 2015,

The Supreme Court of South Dakota recently ruled on whether an estate should be probated intestate despite the existence of a copy of a will. This case is interesting because unlike most cases of lost wills, in this instance the spouse of the deceased wanted the copy revoked and the estate probated as if a will never existed, and relatives wanted the copy of will to stand on its own.

Facts of the Case

In the case In re Estate of Deutsch, Delbert Deutsch died on August 23, 2012. After an exhaustive search, his wife Marcelina found a copy of his 2001 will but could not locate the original. Despite finding the copy, Mrs. Deutsch petitioned the probate court to rule that the estate was intestate and apply the state laws regarding inheritance of an intestate estate.

Delbert Deutsch's nephews, Hillary Shuster and Ronald Jaspers, filed a petition to formally probate the estate using the copy of the will that was found as well as for a determination of heirs. In the copied will, both nephews were to receive small parcels of real estate from their uncle. All three men farmed and helped each other since the nephews were young. The 2001 will granted them the farmland that was owned by Delbert around their homes.

Marcelina claimed that she did not know that any will existed, and under the 2001 will her son from another marriage would only receive Mrs. Deutsch's share of the estate if she predeceased him. In addition, some of the real estate left to her in the will was sold by Delbert in 2008.

At trial, the estate planning attorney was unavailable because he passed away in 2008, but his employees testified that they did not know if the lawyer gave his client the original will or kept it. A jury found that Delbert did not intend to revoke his will and that the copy of the will should be accepted into probate. Mrs. Deutsch appealed the decision up to the state Supreme Court.

Ruling of the Court

The South Dakota Supreme Court agreed with the ruling of the trial court that the copy of the will should be admitted into probate. Under state law, SDCL 29A-3-402 states that when a will is lost the presumption is that the will was revoked; however, this presumption can be overcome if at least one credible witness can state that the copy is a true copy of the original and that the original will was not meant to be revoked.

In this case, the jury found that Delbert's acts and declarations prior to his death overcame the presumption that this will was supposed to be revoked. He contemplated the gifts of real estate for many years, and his relationship with his nephews remained the same up until his death. Mr. Deutsch also left the will in a location where he knew it would be found, on top of his desk with other important papers. Therefore, the estate was admitted into probate with the copied will.

Casey Kasem's Daughter Fights for Guardianship Laws

July 1, 2015,

The daughter of the late iconic radio DJ, Casey Kasem, is fighting for new guardianship laws that would prevent future instances of elder abuse and neglect similar to what her father endured in his final days. Kerri Kasem has gone on record as saying that she feels like her father's death could have been prevented if she and her siblings were able to see their father and better monitor his care. Unfortunately, at the time that they needed it there was no law in place to help.

Case of Casey Kasem

When Casey Kasem's health deteriorated, his current wife and stepmother to his adult children decided to move him from the assisted living facility where he was being cared for to an undisclosed location. When his children finally got the court to compel her to release his location, he was found on an Indian reservation in poor health. He was suffering from bed sores, a urinary tract infection, and sepsis.

Sadly, Mr. Kasem died a short time later from his many medical issues. Even in death, he got no peace. His wife moved his body from the United States to Canada and eventually to Norway where he was buried without an autopsy ever being performed. Since then, the Kasem children have urged that elder abuse charges be filed against their stepmother for her mistreatment of Casey Kasem.

Previous Guardianship Laws

Until recently, not a single state had laws in place that would provide specific protection to family members of loved ones who were under court-ordered guardianship or conservatorship to make sure that they could remain in contact with their parent. In fact, the person named guardian or conservator was placed in charge of all visitation and contact between the incompetent parent and the children and could deny contact entirely. In 48 states, this is still the case.

This can be particularly at issue when the family is comprised of second or third marriages and children from multiple parents. The spouse is usually named as the decision maker for their ailing loved one, and if the children from a prior marriage do not get along with the current spouse, contact can be cut off completely. In the Kasems' case, it required Kerri Kasem to go to court and get named conservator in her stepmother's place in order to finally see her father.

New Guardianship Laws

Kerri Kasem created the Kasem Cares Foundation to promote the legislation of new guardianship laws that would prevent these issues from arising. The purpose of the new guardianship laws are to protect communication and visitation between an incompetent parent and their relatives. In April, Iowa became the first state to adopt such laws, and Texas legislated something similar last month. California, Nevada, Illinois, Pennsylvania, New York, and Michigan have also shown interest in passing similar laws.

In Iowa, the new guardianship laws implement rights to foster visitation and communication between relatives and incompetent individuals. In Texas, the law went one step further and now requires guardians to keep family members informed of important developments such as hospital admissions, change in residence, the death of the individual, and funeral arrangements.

Fiduciaries Cannot Transfer Real Property to Self

June 29, 2015,

The Supreme Court of North Dakota recently ruled on the issue of a fiduciary self-dealing when he was one of the heirs inheriting from an estate. The case highlights the importance of creating clear boundaries when delineating responsibilities of an estate as well as ensuring that all of the proper documents are processed in any type of real property or estate dealings.

Facts of the Case

In the case of Broten v. Broten, James Broten, Louise Broten, and Linda Shuler were all children of Olaf and Helen Broten. The parents owned around 480 acres of farmland, and in 1979 they executed a quitclaim deed that gave Olaf Broten sole ownership in the real estate. He then entered into a contract for deed with his son, James, agreeing to convey the farmland for $200,000 plus six percent interest paid through 2006. The contract was prepared by James' attorney but never recorded. At the same time, the parents executed a will that placed the farmland in trust, with the mother receiving income for life, and the principal to be distributed to the children equally upon her death.

After his father's death, James became the personal representative of the estate. He filed an informal probate of his father's estate and granted himself the farmland with his mother receiving a life estate. The deed was recorded, and James continued to pay for his mother's living expenses until her death in 2010. After her death, James' sisters were appointed as the personal representatives of her estate, and it was only then that the sisters learned of the contract and conveyance of the farmland to their brother.

The sisters sued their brother for breach of fiduciary duty in their father's estate, conversion, deceit, and breach of contract. At the trial level, the court found that James had violated his fiduciary duty and that the land transfer was void. They awarded the mother's estate $103,054 in damages for the use of her property following her death and $1,197,000 for the current value of the property. James then appealed the case up to the North Dakota Supreme Court.

Ruling of the Court

At the state Supreme Court level, the judges found that there was no reversible error in the district court's judgment of a breach of fiduciary duty and therefore upheld the lower court's decision. The court did not agree with James' arguments that he took exclusive possession of the property, made substantial improvements, and maintained the expectation of the property. The judges found that in North Dakota all contracts for real estate must be in writing, and an oral agreement for land may only be used in cases of partial performance.

Cases in North Dakota that allow for partial performance include paying the contract price, taking possession of the property, and making improvements. The Supreme Court found that James failed in all three because James' payments were made through the farm's bank account or for gratuitous tax purposes. In addition, he and his father jointly farmed the land, and there was no evidence that his father did not also make substantial improvements to the property. Therefore, the district court's ruling that there was a breach of fiduciary duty is upheld.

Court Approves Easy Probate Avoidance

June 26, 2015,

A California Court of Appeals recent ruling may provide a way to fund a revocable trust that could provide for easy probate avoidance. Although this case applies specifically to California law, it does also give a template for other states to apply a similar probate avoidance technique for the revocable trusts under their law. By using broad conveyance language in a trust instrument to avoid probate on the trust settlor's assets, this process can work even if trust funding process was not set up perfectly.

Facts of the Case

In the case of Ukkestad v. RBS Asset Finance, Inc., Larry Mabee executed a trust in December 2012 and died about two weeks later. He had appointed himself as trustee and also enacted a will that which contains a pour-over provision that gave the residue of the estate to the trustees of the trust. At the time of his death, Mr. Mabee owned two parcels of real estate that were titled in his own name.

The trust specifically stated that "all of his real and personal property" was to go into the trust. After his death, one of the successor trustees filed a petition in probate court for an order confirming that the two parcels of land, which were never explicitly added to the trust, were in fact assets of the revocable trust. The petition was opposed by RBS Asset Finance, a potential creditor to Mr. Mabee's estate. The company wanted the two parcels of land as part of the estate as guarantee of a prior transaction.

The probate court denied the petition of Mr. Mabee's trustee, and he appealed. RBS declined to oppose the appeal, but the Court of Appeals found that its exit did not moot the question at hand. Therefore, the court ruled on the issue on tax consequences and probate for future estates.

Ruling of the Court

The California Court of Appeals held that real estate can be made part of a revocable trust even if the trust was not executed perfectly so long as certain requirements are met. First, the owner of the real estate must also be the settlor of the trust and naming himself as trustee. Second, the transfer must meet the statute of frauds. In order to do so, the conveyance must be in writing and be identified with reasonable certainty.

The Court of Appeals also addressed whether the broad language of the conveyance in the trust document adequately described the real estate for the purposes of Mr. Mabee's revocable trust. Under California law, like other state law, extrinsic evidence may be used in determining whether the description of the real estate is adequate. The judges held that the description fulfills the reasonable certainty test if the evidence provides the means or key for identifying the real estate. In Mr. Mabee's case, his language in his trust document applied to all of his real estate, which would include the two parcels in question.

Back to the Basics - Moving after Retirement

June 24, 2015,

Retirees are acutely aware of the future, and they have usually spent between thirty and forty years saving up for it. While many dream of beach living and travel, current numbers show that most retirees opt instead to continue living in their home. Historically, the biggest move that a retired person makes is from their home to a nursing facility when they are unable to care for themselves anymore, but new trends are coming up in moving after retirement that people should be made aware of.

Trends in Retirement Moving

More seniors today are moving after retirement than in the past. In fact, the likelihood of moving has tripled between the age groups of 1968-1984 and 1996-2011. Interestingly, another trend being noticed by experts is that the average age at the time of the move is considerably lower than it was before. More young, wealthy retirees are choosing to sell their home and move into a retirement community. This is drastically different than past generations, where wealth meant that a person could remain living in their own home significantly longer.

Other research has shown that seniors who move are often happier after the move than retirees that do not. Those who moved because they chose to, and not because they had to, were also happier with their choice. However, overall the seniors that made the decision to try somewhere new were almost always happier than retirees who chose to stay in their homes until forced otherwise.

New Focus on Retirement Living

One of the main causes of this shift in moving after retirement comes from a new set of priorities in this latest retirement generation. In the past, retirees found that they were less satisfied with retirement until they were forced to move to a retirement facility because of physical and mental limitations. Now, these communities are luring retirees there at a younger age with the promise of an improvement in lifestyle earlier on.

Now, some retirement and assisted living communities are actively trying to sell a certain lifestyle to retirees interested in moving. "Developers are offering more square footage, innovation in floor plan layouts that are more attractive, brownstone apartments with a more urban look, access to technology, and they're bundling more health and wellness activities like swimming pools and fitness centers." In addition, some communities are offering more environmentally friendly homes or an array of living styles in the same community so that they can transition over time without leaving the area.

Where Seniors are Moving and Why

A study by the Pulte Group found that sixty percent of seniors do not wish to leave the state if they move after retirement. However, certain factors are able to influence retirees to move across state lines if the community and environment fit their needs. States in the southwest and southeast offer a better climate for most seniors. In addition, states like Florida, Nevada, and Texas are offering no income taxes to those that move. Other states have low property taxes, or do not require that retirees pay taxes on their Social Security.

Annuity Alternative for Estate Planning

June 22, 2015,

One common estate planning tool for people entering retirement is the use of an annuity for their retirement funds; however, recently a product has emerged on the scene. A retirement spending account has now become an alternative to an annuity by controlling the amount of distributions and simultaneously providing a degree of control over the retirement funds. It is a new way for people to continue to save in retirement while also controlling the amount that they spend.

What is a Retirement Spending Account?

The purpose of a retirement spending account is to combine the benefits of both an annuity and savings account while also minimizing the disadvantages of both. It seeks to resolve the issue of not outliving your retirement savings while not constricting a person's power over their own money like in an annuity. A retirement spending account is a fund that is managed by an asset management firm. The firm invests the retirement money, manages the account, and provides the retiree with a monthly distribution.

A retirement spending account can eliminate some of the guesswork involved in retirement spending. It also places these funds in the hands of professionals that can best manage your investment over a long period of time. It can provide some protection to retirees regarding their spending and saving for the future when there is no steady stream of income.

Benefits of Retirement Spending Accounts

There are many benefits to using a retirement spending account in an overall estate plan. Typically, a person can choose how much they wish to receive in distributions every year, and the average amount is between four and five percent of the total account value. The asset firm manages the investment so that the retiree does not outlive the money invested and adjusts the investments as necessary to fit their client's needs.

A retirement spending account also provides more flexibility than an annuity because the funds can be easily liquidated if the need arises, such as for a medical emergency or long-term care costs. In addition, other aspects of estate planning can be incorporated like naming beneficiaries to the account if the person passes away before exhausting the account's funds. That way, the funds pass directly to heirs instead of first passing through the probate process.

Potential Drawbacks to Retirement Spending Accounts

Similar to any other investment vehicle, there are inherent risks to a retirement spending account. While an asset firm will try to invest to avoid such pitfalls, drops in the market can affect the amount of your spending account. In addition, if a retiree opts to withdraw a larger amount every year, then they may outlive their savings. It is also important to note that the asset management firms will take a fee annually for the management of these accounts. Typically, these firms will charge up to one percent of the fund's value for its management, but depending on the value of the account the management fee can be less.