Probate Attorney

What Should I Know about Beneficiary Designations?

A designated beneficiary is named on a life insurance policy or some type of investment account as the designated recipient of those assets, in the event of the account holder’s death. The beneficiary designation doesn’t replace a signed will but takes precedence over any instructions about these accounts in a will. If the decedent doesn’t have a will, the beneficiary may see a long delay in the probate court.

If you’ve done your estate planning, most likely you’ve spent a fair amount of time on the creation of your will. You’ve discussed the terms with an established estate planning attorney and reviewed the document before signing it.

FEDweek’s recent article entitled “Customizing Your Beneficiary Designations” points out, however, that with your IRA, you probably spent far less time planning for its ultimate disposition.

The bank, brokerage firm, or mutual fund company that acts as custodian undoubtedly has a standard beneficiary designation form. It is likely that you took only a moment or two to write in the name of your spouse or the names of your children.

A beneficiary designation on account, like an IRA, gives instructions on how your assets will be distributed upon your death.

If you have only a tiny sum in your IRA, a cursory treatment might make sense. Therefore, you could consider preparing the customized beneficiary designation form from the bank or company.

You can address various possibilities with this form, such as the scenario where your beneficiary predeceases you, or she becomes incompetent. Another circumstance to address, is if you and your beneficiary die in the same accident.

These situations aren’t fun to think about but they’re the issues usually covered in a will. Therefore, they should be addressed, if a sizeable IRA is at stake.

After this form has been drafted to your liking, deliver at least two copies to your custodian. Request that one be signed and dated by an official at the firm and returned to you. The other copy can be kept by the custodian.

Reference: FEDweek (Dec. 26, 2019) “Customizing Your Beneficiary Designations”

Fixing an Estate Plan Mistake

When an issue arises, you need to seek the assistance of a qualified and experienced estate planning attorney, who knows to fix the problems or find the strategy moving forward.

For example, an irrevocable trust can’t be revoked. However, in some circumstances it can be modified. The trust may have been drafted to allow its trustees and beneficiaries the authority to make certain changes in specific circumstances, like a change in the tax law.

Those kinds of changes usually require the signatures from all trustees and beneficiaries, explains The Wilmington Business Journal’s recent article entitled “Repairing Estate Planning Mistakes: There Are Ways To Clean Up A Mess.”

Another change to an irrevocable trust may be contemplated, if the trust’s purpose has become outdated or its administration is too expensive. An estate planning attorney can petition a judge to modify the trust in these circumstances when the trust’s purposes can’t be achieved without the requested change. Remember that trusts are complex, and you really need the advice of an experienced trust attorney.

Another option is to create the trust to allow for a “trust protector.” This is a third party who’s appointed by the trustees, the beneficiaries, or a judge. The trust protector can decide if the proposed change to the trust is warranted. However, this is only available if the original trust was written to specify the trust protector.

A term can also be added to the trust to provide “power of appointment” to trustees or beneficiaries. This makes it easier to change the trust for the benefit of current or future beneficiaries.

There’s also decanting. This is when the assets of an existing trust are “poured” into a new trust with different terms. This can include extending the trust’s life, changing trustees, fixing errors or ambiguities in the original language, and changing the legal jurisdiction. State trust laws vary, and some allow much more flexibility in how trusts are structured and administered.

The most drastic option is to end the trust. The assets would be distributed to the beneficiaries, and the trust would be dissolved. Approval must be obtained from all trustees and all beneficiaries. A frequent reason for “premature termination” is that a trust’s assets have diminished in value to the extent that administering it isn’t feasible or economical.

Again, be sure your estate plan is in good shape from the start. Anticipating problems with the help of your lawyer, instead of trying to solve issues later is the best plan.

Reference: Wilmington Business Journal (Jan. 3, 2020) “Repairing Estate Planning Mistakes: There Are Ways To Clean Up A Mess”

How Do I Incorporate My Business into My Estate Plan?

When people think about estate planning, many just think about their personal property and their children’s future. If you have a successful business, you may want to think about having it continue after you retire or pass away.

Forbes’ recent article entitled “Why Business Owners Should Think About Estate Planning Sooner Than Later” says that many business owners believe that estate planning and getting their affairs in order happens when they’re older. While that’s true for the most part, it’s only because that’s the stage of life when many people begin pondering their mortality and worrying about what will happen when they’re gone. The day-to-day concerns and running of a business is also more than enough to worry about, let alone adding one’s mortality to the worry list at the earlier stages in your life.

Business continuity is a big concern for many entrepreneurs. This can be a touchy subject, both personally and professionally, so it’s better to have this addressed while you’re in charge rather than leaving the company’s future in the hands of others who are emotionally invested in you or in your work. One option is to create a living trust and will that outs parameters in place for a trustee to carry out. With these decisions in place, you’ll avoid a lot of stress and conflict for those you leave behind.

Let them be upset with you, rather than with each other. This will give them a higher probability of working things out amicably at your death. The smart move is to create a business succession plan that names a successor to be in charge of operating the business, if you should become incapacitated or when you pass away.

A power of attorney document will nominate an agent to act on your behalf, if you become incapacitated, but you should also ask your estate planning attorney about creating a trust to provide for the seamless transition of your business at your death to your successor trustees. The transfer of the company to your trust will avoid the hassle of probate and will ensure that your business assets are passed on to your chosen beneficiaries.

Estate planning may not be on tomorrow’s to do list for young entrepreneurs and business owners. Nonetheless, it’s vital to plan for all that life may bring.

Reference: Forbes (Dec. 30, 2019) “Why Business Owners Should Think About Estate Planning Sooner Than Later”

How Do I Disinherit a Family Member?

Kiplinger’s recent article, “Four Ways to Disinherit Family Members,” says that quite a few families don’t get along. However, when considering estate planning, the problem is that without a valid will leaving money to other individuals, family members are the “default” recipient of your estate. If you decide to leave any property using your will, your next-of-kin must still be given legal notice of your estate being probated (even if they’re being disinherited), and usually they’re only ones who can legitimately contest your will.

If you do have bad family relations and don’t want family members contesting your will, there are several legal tactics you can use.

  1. Leave property outside of your will. You’ll only need to probate property that’s not already effectively left to someone outside of probate. Therefore, when you name a beneficiary or co-owner on your accounts or real estate, that property won’t go through probate. Similarly, life insurance policies and retirement plans ask you to name a beneficiary, and investment and bank accounts usually let you name a “transfer on death” beneficiary. Finally, any property passing by living trusts also avoids probate.
  2. Add a ‘no-contest’ clause to your will. If you decide to disinherit your family or leave them less than they would be entitled to if you had no will, you can use a “no-contest” (aka “in terrorem”) clause. A no-contest clause states that if someone contests your will, they get nothing. However, people mess up by adding a no-contest clause, then they leave no property to the disinherited family member. Because the disowned family member is getting nothing anyway, he has nothing to lose by contesting the document. Thus, the clause serves no purpose. For a no-contest clause to be effective, leave a more-than-nominal bequest and let the potential contestant know that there’s a decent alternative to receiving nothing. Leaving them an amount acts as an incentive to not contest the will.
  3. Documenting the reasons for disinheriting. Use descriptive letters to supplement (and not supplant) your proper legal documents, and create formal, signed memorandums with notarized signatures to support but not replace those documents.
  4. Create other legal documents to disinherit your spouse. Pre-nuptial and post-nuptial agreements can address what happens, if you get divorced and when you die. You and your spouse may also “waive” estate rights in a separate document that doesn’t even deal with a potential divorce. The only downside with these agreements, is that they require both parties to agree. They also usually require separate legal counsel to make them most effective.

Work with a qualified estate panning attorney when you want to leave someone out of your will.

Reference: Kiplinger (November 13, 2019) “Four Ways to Disinherit Family Members”

Why Do Singles Need These Two Estate Planning Tools?

Morningstar’s article, “2 Estate-Planning Tools That Singles Should Consider” explains that a living will, or advance medical directive, is a legal document that details your wishes for life-sustaining treatment. It’s a document that you sign when you’re of sound mind and says you want to be removed from life supporting measures, if you become terminally ill and incapacitated.

Powers of Attorney for healthcare and finances are often overlooked as critical estate planning documents for singles.

If you’re on life support with no chance of getting better, you’d choose to have your family avoid the expense and stress of keeping you alive artificially.

Like a living will, a durable power of attorney for healthcare is a legal document that names an agent to make healthcare decisions for you, if you are unable to make them yourself.

A durable power of attorney for healthcare can provide your instructions in circumstances in which you’re not necessarily terminally ill, but you are incapacitated.

When selecting an agent, find a person you trust enough to act on your behalf when you’re unable. Let this person know exactly how you feel about blood transfusions, organ transplants, disclosure of your medical information and other sensitive topics that may arise, if you’re incapacitated.

A power of attorney eliminates any confusion, especially if this person is someone other than your spouse. Your doctors will know exactly who the decision-maker is among your relatives and friends.

These two documents aren’t all that comprise a fully comprehensive estate plan. Singles should regularly make certain that the beneficiary designations on their checking and retirement accounts are up to date.

You should also consider your life insurance needs, especially if you have children and/or a mortgage.

It is also important to understand that a living will doesn’t address the issues of a will. A will ensures that your property is distributed after your death, in accordance with your wishes. Ask for help from an experienced estate planning attorney.

These two documents—a living will and a durable power of attorney—can help ensure that in a healthcare emergency, any medical and financial decisions made on your behalf are in accordance with what you really want. Speak with to an estate-planning attorney in your state to get definitive answers to your questions.

Reference: Morningstar (April 23, 2019) “2 Estate-Planning Tools That Singles Should Consider”

The Executor is Making a Mess of the Estate: What Now?

Estate litigation is never pleasant, but heirs have rights, and, in some situations, they have to fight back, when an executor is not acting in the best interest of the beneficiaries.

When siblings are able to work together to settle their parent’s estate, it may take a little time and there may be some negotiating.  However, the details are worked out. Sometimes the family bonds become even stronger. There are also ugly stories where families are fractured.

MP900400332This occurs when the executor acts with some (or a great deal of) self-interest, especially when it’s one of the siblings. That daughter may feel entitled to more than an equal share, because of the care she’s given the parent or because she resents her siblings’ successes, or any of a number of reasons.

What if the eldest sister gets her siblings to sign away their rights to everything? Perhaps some do, but when one sibling says no, this evil executor gets the will probated anyways. Subsequently, the lone hold-out finds out there was a testamentary trust created because she didn't sign away her rights, and—you guessed it—the eldest sister is the trustee. That’s dirty pool!

When the hold-out beneficiary requested an accounting of the trust, the evil executor/trustee refused. When an executor or trustee tries to keep the deceased parent’s estate and trust a secret, it’s not appropriate or acceptable, and she’s breaching her fiduciary duty.

nj.com’s recent article, “Your rights when family fights over a will,” explains that executors and trustees serve in a fiduciary capacity.  It means they have a legal obligation to act for another (the beneficiaries) in a fair, honest, and transparent manner. While executors and trustees have the legal authority to manage the affairs of an estate or trust, she’s accountable to the beneficiaries and must inform them of what she’s doing.

When a person dies, the executor must notify, in writing, all beneficiaries named in the will (and all heirs at law, like those entitled to inherit by intestacy) that a will has been probated. This must be done within a specific number of days of the will being probated. The executor must also provide a copy of the will upon request. After receiving the notice of probate, individuals may contest the will within a specific timeframe.

When the will is reviewed, beneficiaries can see that a testamentary trust was created. Once appointed, an executor must settle and distribute the estate as quickly and efficiently as possible. Both executors and trustees have a duty to collect and preserve assets, deal impartially with beneficiaries and act at all times with the best interests of the estate and trust in mindto be certain that the estate and trust are distributed, according to the decedent's wishes.

A fiduciary also has a duty to account to the beneficiaries.  Therefore, in the event a beneficiary has questions about how an estate or trust is being handled, he can request an accounting and copies of supporting documents. Likewise, a trustee is required to keep beneficiaries reasonably informed about the administration of the trust and information necessary for the beneficiaries to protect their interests. The trustee must promptly respond to the beneficiary's request for info on the administration of a trust. If a fiduciary willfully neglects or refuses to render an accounting or breaches her fiduciary duties, you can ask the court to remove her as the executor or trustee.

In this particular scenario, the older sister is legally bound to provide an accounting of the estate. If that shows that anything was done wrongfully, she may be personally liable for misconduct. She may even be liable to pay the legal fees incurred by other family members.

This can get messy, and it can be a tough time for everyone in the family. If it sounds all too familiar, you’ll want to speak with an attorney with experience in estate litigation.

Reference: nj.com (September 28, 2018) “Your rights when family fights over a will”

Is an Executor Responsible for Paying off a Decedent’s Debts?

Included in the list of executor’s duties, is managing the assets of the estate, including its debts.

Included in the list of executor’s duties, is managing the assets of the estate, including its debts.

Confused-DogDebts that have not been resolved before a person passes away, become the responsibility of the executor and the estate. How to handle this common issue is addressed in a recent article from nj.com,“What happens if executor doesn't pay off dead person's debt?”

An executor is the individual who is appointed under a will, to administer the estate of a person who has died. Unless there is a valid objection, the judge will appoint the person named in the will to be the executor. He or she must insure that the decedent’s desires written in the will are carried out. Some of the practical responsibilities are things like collecting and protecting the assets of the estate, obtaining contact information on all beneficiaries named in the will and any other potential heirs, collecting and arranging for payment of debts of the estate, approving or disapproving creditor's claims, making sure estate taxes are calculated, forms are filed and tax payments are made.

The executor is required to gather the assets of the estate and pay the deceased person's debts, before assets are distributed to the beneficiaries of the estate. This includes credit card debt. This can be made much easier by hiring an attorney for the estate (which the executor can select).

As an example, under New Jersey law, if the assets aren’t enough to pay all of the claims against the estate, payment must be made in the following order:

  1. Reasonable funeral expenses.
  2. Estate administration expenses.
  3. Reasonable services rendered to the deceased person by the state office of the public guardian for elderly adults.
  4. Debts and taxes with preference under federal or state law.
  5. Reasonable medical and hospital expenses of the deceased person's last illness, including compensation for those attending that person.
  6. Judgments entered against the deceased person.
  7. All other claims.

An estate planning attorney will know the time requirements for creditors making claims on the decedent’s debts for their state. Creditors are required to present claims to the executor under oath and in writing, within nine months of the day of death in New Jersey, for example. Check to be sure, as these timeframes vary. If claims aren’t presented within the time limits, the estate is not liable to the creditor. There are also timeframes for when the executor may dispute a claim, and how much time the creditor has once they have received notice of the dispute to take legal action.

If the debts of the estate are substantial, an estate planning attorney will be able to assist the executor. This can get complicated and may be less costly, if a professional is engaged.

Reference: nj.com (June 5, 2018)“What happens if executor doesn't pay off dead person's debt?”

What If I Don’t Want to Give My Spouse Everything in my Estate?

There is no legal requirement that spouses must leave all of their assets to each other when they die

This is question often goes unasked, but the harsh truth is, not everyone wants to leave their spouse with all of their worldly goods.

Irish-handsThere is no legal requirement that spouses must leave all of their assets to each other when they die, as discussed in a recent article from nj.com, “Do I have to leave any money to my spouse? Or can I give it all away?” However, there are laws in some states, including Florida, about what the surviving spouse is entitled to.

Depending on state law, the surviving spouse may be entitled to an "elective share" of the deceased spouse's estate, even if the surviving spouse is disinherited under the deceased spouse's will.  In Florida, the elective share is 50%.

The surviving spouse usually can’t claim an elective share, if the spouses were living separate and apart in different residences, or had stopped living together as a married couple, or had a valid prenuptial or post-nuptial agreement that waived the elective share. In Florida, the elective share is equal to one-half of the "augmented estate.”

The augmented estate is the deceased spouse's estate, less funeral and estate administration expenses and enforceable claims. Certain transfers of property for less than fair market value made by the deceased spouse are added back to this amount. The surviving spouse's assets are then deducted from the elective share.

A notice of elective share must be filed within six months of the appointment of an executor in the county where the appointment was made. That’s a pretty short time.

Because of the relatively short time in which to file the elective share notice, an experienced estate planning attorney should be engaged immediately after the deceased spouse's death, to see if the surviving spouse is entitled to an elective share.

In this situation, the responsibility is on the surviving spouse to file an elective share notice. In some states, like Florida, if the surviving spouse fails to file an elective share action within six months from the time of probate, they lose the right to that share.

Reference: nj.com(April 25, 2018)“Do I have to leave any money to my spouse? Or can I give it all away?”

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