How Do I Avoid Unintentionally Disinheriting a Family Member?

Estate Planning / Beneficiary Designations, Disability, Guardianship, Life Insurance, Pension, POD (Payable on Death), Special Needs Trust, Supplemental Trust, TOD (Transfer on Death)

When an account owner dies, their assets go directly to beneficiaries named on the account. This bypasses and overrides the will or trust. Therefore, you should use care in coordinating your overall estate plan. You don’t want the wrong person ending up with the financial benefits.

The News-Enterprise recent article, “Don’t accidentally leave your estate to the wrong person,” tells the story of the widower who remarried after the death of his first wife. Because he didn’t change his IRA beneficiary form, at his death, his second wife was left out. She received no money from the IRA, and the retirement money went to his first wife, the named beneficiary.

Many types of accounts have beneficiary forms, like U.S. savings bonds, bank accounts, certificates of deposit that can be made payable on death, investment accounts that are set-up as transfer on death, life insurance, annuities and retirement accounts.

Remember that beneficiary designations don’t carry over, when you roll your 401(k) to a new plan or IRA.

You can name as your beneficiaries individuals, trusts, charities, organizations, your estate, or no one at all. You can name groups, like “all my living grandchildren who survive me.” However, be certain that the beneficiary form lets you to pass assets “per stirpes,” meaning, equally among the branches of your family. For example, say you’re leaving your life insurance to your four children. One predeceases you. Without the “per stirpes” clause, the remaining three remaining children would divide the death proceeds. With the “per stirpes” clause, the deceased child’s share would pass to the late child’s children (your grandchildren).

Don’t leave assets to minors outright, because it creates the process of having a court appointed guardian care for the assets, until the age of 18 in most states. Instead, you might create trusts for the minor heirs, have the trust as the beneficiary of the assets, and then have the trust pay the money to heirs over time, after they have reached legal age or another milestone.

You should also not name disabled individuals as beneficiaries, because it can cause them to lose their government benefits. Instead, ask your attorney about creating a special needs or supplemental needs trust. This preserves their ability to continue to receive the government benefits.

Reference: The News-Enterprise (November 30, 2019) “Don’t accidentally leave your estate to the wrong person”

How Do I Disinherit a Family Member?

Estate Planning, Probate / Estate Planning Lawyer, Intestacy, Joint Tenancy, No-Contest Clause, Probate Attorney, St. Petersburg Estate Planning Attorney, TOD (Transfer on Death), Will Contest

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.

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.
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.
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.
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”

What is a Transfer on Death (TOD) Account?

Estate Planning, Financial Planning, Inheritance, Probate, Tax Planning, Wills / 401(k), Estate Planning Lawyer, Financial Planning, Inheritance, Pension, Probate Court, St. Petersburg Estate Planning Attorney, Tax Planning, TOD (Transfer on Death), Wills

Transfer on Death accounts allow for assets to avoid probate and be transferred directly to a beneficiary after the death of the account holder.

Most married couples share a bank account from which either spouse can write checks and add or withdraw funds without approval from the other. When one spouse dies, the other owns the account. The deceased spouse’s will can’t change that.

This account is wholly owned by both spouses while they’re both alive. As a result, a creditor of one spouse could make a claim against the entire account, without any approval or say from the other spouse. Either spouse could also withdraw all the money in the account and not tell the other. This basic joint account offers a right of survivorship, but joint account holders can designate who gets the funds, after the second person dies.

Kiplinger’s recent article, “How Transfer-on-Death Accounts Can Fit Into Your Estate Planning,” explains that the answer is transfer on death (TOD) accounts (also known as Totten trusts, in-trust-for accounts, and payable-on-death accounts).

In some states, this type of account can allow a TOD beneficiary to receive an auto, house, or even investment accounts. However, retirement accounts, like IRAs, Roth IRAs, and employer plans, aren’t eligible. They’re controlled by federal laws that have specific rules for designated beneficiaries.

After a decedent’s death, taking control of the account is a simple process. What is typically required, is to provide the death certificate and a picture ID to the account custodian. Because TOD accounts are still part of the decedent’s estate (although not the probate estate that the will establishes), they may be subject to income, estate, and/or inheritance tax. TOD accounts are also not out of reach for the decedent’s creditors or other relatives.

Account custodians (such as financial institutions) are often cautious, because they may face liability if they pay to the wrong person or don’t offer an opportunity for the government, creditors, or the probate court to claim account funds. Some states allow the beneficiary to take over that responsibility, by signing an affidavit. The bank will then release the funds, and the liability shifts to the beneficiary.

If you’re a TOD account owner, you should update your account beneficiaries and make certain that you coordinate your last will and testament and TOD agreements, according to your intentions. If you fail to do so, you could unintentionally add more beneficiaries to your will and not update your TOD account. This would accidentally disinherit those beneficiaries from full shares in the estate, creating probate issues.

TOD joint account owners should also consider that the surviving co-owner has full authority to change the account beneficiaries. This means that individuals whom the decedent owner may have intended to benefit from the TOD account (and who were purposefully left out of the Last Will) could be excluded.

If the decedent’s will doesn’t rely on TOD account planning, and the account lacks a beneficiary, state law will govern the distribution of the estate, including that TOD account. In many states, intestacy laws provide for spouses and distant relatives and exclude any other unrelated parties. This means that the TOD account owner’s desire to give the account funds to specific beneficiaries or their descendants would be thwarted.

Ask an experienced estate planning attorney, if a TOD account is suitable to your needs and make sure that it coordinates with your overall estate plan.

Reference: Kiplinger (March 18, 2019) “How Transfer-on-Death Accounts Can Fit Into Your Estate Planning”

Common Mistakes with Beneficiary Designations

401(k), Asset Protection, Estate Planning, Life Insurance, Protecting Children, Special Needs, Trusts, Wills / 401(k), Beneficiary Designations, Conservatorship, IRA, Life Insurance, Pension, POD (Payable on Death), Special Needs, St. Petersburg Estate Planning Attorney, TOD (Transfer on Death), Wills

Questions about beneficiary designations are among the most common we hear from new clients in our law practice. This is a topic that should be among those discussed by an estate planning attorney during your first meeting.

Many people don’t understand that their will doesn’t control who inherits all of their assets when they pass away. Some of a person’s assets pass by beneficiary designation. That’s accomplished by completing a form with the company that holds the asset and naming who will inherit the asset, upon your death.

Estate Planning Attorney — Assets with a beneficiary designation will not be distributed according to your will.

Kiplinger’s recent article, “Beneficiary Designations: 5 Critical Mistakes to Avoid,” explains that assets including life insurance, annuities and retirement accounts (think 401(k)s, IRAs, 403bs and similar accounts) all pass by beneficiary designation. Many financial companies also let you name beneficiaries on non-retirement accounts, known as TOD (transfer on death) or POD (pay on death) accounts.

Naming a beneficiary can be a good way to make certain your family will get assets directly. However, these beneficiary designations can also cause a host of problems. Make sure that your beneficiary designations are properly completed and given to the financial company, because mistakes can be costly. The article looks at five critical mistakes to avoid when dealing with your beneficiary designations:

Failing to name a beneficiary. Many people never name a beneficiary for their retirement accounts. If you don’t name a beneficiary for retirement accounts, the financial company has it owns rules about where the assets will go after you die. For retirement benefits, if you’re married, your spouse will most likely get the assets. If you’re single, the retirement account will likely be paid to your estate, which has negative tax ramifications and may need to be handled through the costly and time-consuming probate courts. When an estate is the beneficiary of a retirement account, the assets must be paid out of the retirement account within five years of death. This means an acceleration of the deferred income tax—which must be paid earlier, than would have otherwise been necessary.
Failing to consider special circumstances. Not every person should receive an asset directly. These are people like minors, those with specials needs, or people who can’t manage assets or who have creditor issues. Minor children aren’t legally competent, so they can’t claim the assets. A court-appointed conservator will claim and manage the money, until the minor turns 18. Those with special needs who get assets directly, will lose government benefits because once they receive the inheritance directly, they’ll own too many assets to qualify. People with financial issues or creditor problems can lose the asset through mismanagement or debts. Ask your estate planning attorney about creating a trust to be named as the beneficiary.
Designating the wrong beneficiary. Sometimes a person will complete beneficiary designation forms incorrectly. For example, there can be multiple people in a family with similar names, and the beneficiary designation form may not be specific. People also change their names in marriage or divorce. Assets owners can also assume a person’s legal name that can later be incorrect. These mistakes can result in delays in payouts, and in a worst-case scenario of two people with similar names, can mean litigation.
Failing to update your beneficiaries. Since there are life changes (like marriage and divorce for example), make sure your beneficiary designations are updated on a regular basis.
Failing to review beneficiary designations with your estate planning attorney. Beneficiary designations are part of your overall financial and estate plan. Speak with your estate planning attorney to determine the best approach for your specific situation.

Beneficiary designations are designed to make certain that you have the final say over who will get your assets when you die. Take the time to carefully and correctly choose your beneficiaries and periodically review those choices and make the necessary updates to stay in control of your money.

Reference: Kiplinger (April 5, 2019) “Beneficiary Designations: 5 Critical Mistakes to Avoid”

How Do I Leave My Home to My Family?

Asset Protection, Estate Planning, Executor, Inheritance, Personal Representative, Trust, Wills / Asset Protection, Estate Planning Lawyer, Executor, Inheritance, Joint Tenancy, Revocable Living Trust, St. Petersburg, TOD (Transfer on Death), Wills

Figuring out what will happen to your assets after you pass away, is an unpleasant but necessary task. This ensures that your assets are distributed to the people you want. The publication, the day, recently published a story, “Planning to leave your home to your heirs,” that reminds us that it’s best to begin your estate planning, as soon as possible.

Death can unexpectedly impact young or middle-aged families, and your family may not be sufficiently prepared, if you don’t have a will. Estate planning can make certain that your wishes are clearly stated and executed.

Real estate is frequently given to an adult child, grandchild, or is divided among several heirs. Once you know who will receive the property, discuss your plans with these people to keep them apprised of your plans and avoid any unpleasant surprises.

If you include your home in the will, you can stipulate precisely who should benefit from it. You can also say if you want the home to stay in the family or be sold.

Dividing the interest in a property evenly among beneficiaries might seem fair, but it can also create some unexpected complications. If one beneficiary wants to move into the home and another wants to sell it and split the proceeds, things could get dicey. Discuss this issue with your beneficiaries to resolve this potential conflict in advance. One beneficiary could buy out the other beneficiaries’ shares in the property to take sole possession of it. However, you may need a life insurance policy to be sure that the cash is there for a buyout.

A will is also used to delegate responsibilities to certain heirs. You select an executor to oversee the disposition of your estate after your death.

An outstanding mortgage balance can cause some trouble, when passing on a property. Any debts you have at the time of your death, need to be paid before your estate can be settled. If you were still making mortgage payments, be sure your beneficiaries have a plan to avoid a default. Beneficiaries, a surviving spouse, the executor of estate, or any other party can continue to make payments to your bank to avoid a foreclosure process. There are several ways that your beneficiaries can resolve a mortgage, after they take possession of the home. In addition to just selling the property, they can refinance the loan or pay off the mortgage with any assets they have or receive from your estate. That way, they would own the home free and clear.

Review your will regularly to keep it up to date. Make a change if a beneficiary dies, if your own circumstances change, or if your relationship with an heir goes bad.

You can also transfer your home to a living trust. This lets you use and benefit from the asset while living and then transfer it to beneficiaries upon death. This will avoid the probate process and save heirs time and money. The trust document identifies beneficiaries and determines how the estate will be distributed after death. It can also name a trustee to oversee this process and avoid conflict among beneficiaries.

One downside of a living trust is that any outstanding debts must be taken care of before the home and any other assets in the trust can be transferred to beneficiaries.

If a beneficiary is comfortable with assuming some responsibility for owning your home, you can also update the deed to include them. This can be especially helpful, if your spouse isn’t currently on the deed. This will make transfer of the home easier. If the deed says: “transfer on death,” you own the home outright until your death, then it passes to any beneficiaries you name in the deed. When the deed includes the words “joint tenant with right of survivorship,” ownership of the home automatically transfers to any other co-owners on the deed, when you pass away.

Reference: the day (February 15, 2019) “Planning to leave your home to your heirs”

Choose Executor, Agent and Trustees Carefully

Estate Planning, Executor, Probate, Trusts, Wills / Advance Medical Directive, Estate Planning Lawyer, Executor, Joint Bank Account, Long-Term Care Insurance, Personal Representative, Power of Attorney, Probate Court, Social Security, TOD (Transfer on Death), Trustee, Trusts, Wills

Is there a bomb ticking quietly in your estate plan?

Selecting the individuals who will make important decisions on your behalf, when you are incapacitated or have passed away, is not to be done lightly.

Is there a bomb ticking quietly in your estate plan? The chances are good that there is, says Forbes in “Defusing The Time Bombs In Your Estate Plan.” The only question is, how big will that explosion be? The “bombs” are the people, or the individual, who you name to act on your behalf.

Whether they act during your lifetime or after you pass away, these individuals frequently can make or break your estate plan. They can determine the fates of family relationships and financial security. However, most people don’t realize the potential consequences of their surrogates’ actions. As a result, they don’t give sufficient thought to whom they appoint to these important roles.

Let’s examine some of the major potential surrogates:

Agent: This is the person who acts for you under a power of attorneyor advance medical directive.

Trustee: If you create a trust, be sure to create some limits in the trust agreement. The trustee has the authority to make the final decisions about managing the investments, making distributions, paying taxes, and other aspects of managing the trust.

Executor: This person manages and distributes your estate, after you pass away. Also known as a personal representative, the executor is charged with carrying out the wishes expressed in your will and other estate planning documents.

Social Security representative payee: Social Security will appoint someone to manage the benefits of someone who is unable to do so; usually it’s a family member or friend. The beneficiary can contact Social Security and ask that a particular individual be appointed, and they will consider the request.

Long-term care insurance lapse designee: Most insurers now allow the insured to choose an individual who’ll get a notice, if the LTC premiums aren’t paid. You also can name an alternate payee who’ll receive and manage benefit payments, when you can’t.

Agent for funeral decisions: States have varying regulations about who can make funeral decisions, and some have laws recognizing the appointment of an agent.

Financial account designees: When opening a financial account, some people like to select the transfer on death (TOD) option, or they open joint accounts with a relative or friend. This allows someone else to manage the account, when he or she isn’t able and who will inherit it without going through probate.

Estate planning attorneys ask clients to make sure to tell their selected surrogates about their roles well in advance. If they don’t know they have been chosen and aren’t familiar with the estate or the decedent’s wishes, it makes a difficult situation even harder. Another issue occurs when the responsibilities and tasks of different surrogates overlap. When you make your decisions about who will act on your behalf, as yourself, honestly, do they have the qualifications and strong backbone to do what you’re asking them to do?

Review your choices with your estate planning attorney to make sure you’ve made these decisions wisely. You may also want to write a letter spelling out who you want to oversee what tasks.

Reference: Forbes (July 23, 2018) “Defusing The Time Bombs In Your Estate Plan”

Trust Declared Owner of Funds in POD Decision by Kentucky Appellate Court

Estate Planning, Trusts / Estate Planning, POD (Payable on Death), TOD (Transfer on Death), Trustee, Trusts

Known as a POD or a Totten trust, a Payable on Death account is a way to own accounts, usually in a bank, that is not subject to probate.

Kentucky law affirmed that money remaining in a POD account after one of the owners died, belongs to the survivor. That’s the whole point of a Payable On Death account.

Known as a POD or a Totten trust, a Payable on Death account is a way to own accounts, usually in a bank, that is not subject to probate and is considered to be an arrangement between a bank and a customer. When one of the owner(s) dies, the ownership of the account and the assets automatically transfers to the beneficiary or beneficiaries. As a result, they are the new owners. This is a fairly commonly used method of transferring assets at death.

Justia reported in the recent Kentucky case, “Coe v. Schick,”that the use of a Pay on Death (“POD”) beneficiary designation was at issue. It shows the dangers of using the POD beneficiary designation, without consulting with a qualified estate planning attorney.

The bank account and a Certificate of Deposit (CD) were purchased by William in the name of his Trust. However, the problem was that his granddaughter Jennie was a named as the POD beneficiary. William’s pour-over will and trust left all of his assets to his two children Bill and Bonnie. The bank named as trustee at William’s death negotiated the CD and moved its proceeds along with the checking account funds into a new, single trust account after his death.

However, Jennie asserted her rights to the CD and the bank account in William’s probate proceeding. The estate disallowed her claim and ultimately made final settlement and distribution.

After more than eight years of litigation, the Court of Appeals heard the case.

The Court held that a trust can’t have a POD beneficiary designation because a trust can’t die. The Court of Appeals found that the CD was a joint account. State statute defines an "account" as "a contract of deposit of funds between a depositor and a financial institution, and includes a checking account, savings account, certificate of deposit, share account and other like arrangement." A "joint account" is also "an account payable on request to one (1) or more of two (2) or more parties whether or not mention is made of any right of survivorship[.]"

Because the CD was issued to the Trust orJennie alternatively, it was payable on request to either of them, the Court said. As a result, the CD satisfied the statutory definition of a joint account.The Court went on to explain that joint accounts payable in the alternative, like a CD, give the party who has possession the freedom to negotiate them, even to the detriment of the other party.

In this situation, the bank, as successor trustee, negotiated the CD and placed the funds in a separate account for the benefit of the Trust and its beneficiaries. The Court of Appeals found it proper for the trustee to dispose of the CD in this manner, even without Jennie's authorization or knowledge. The funds from the negotiation of the CD were the sole property of the trust and were to be distributed by the trust's terms.

This case is an example of what happens when assets in an estate are not properly aligned with the estate plan. The family could have been spared the $75,000 in legal fees, not to mention the acrimony within the family, by working with an experienced estate planning attorney to resolve all of these matters well in advance.

Reference:Justia(June 29, 2018) “Coe v. Schick”

The Most Common Estate Planning Mistakes

Estate Planning, Probate, Wills / Estate Planning, Estate Planning Lawyer, Inheritance, Joint Tenancy, POD (Payable on Death), Probate Court, TOD (Transfer on Death), Trust, Wills

After years of practicing estate planning law, attorneys are all too familiar with some of these mistakes, and can help you avoid them, if you are smart enough to get help from a professional.

After years of practicing estate planning law, attorneys are all too familiar with some of these mistakes, and can help you avoid them, if you are smart enough to get help from a professional.

Some people like to think they know everything, and that often applies to estate planning. The problem is, they don’t learn about the mistake—their heirs do! By working with an estate planning attorney, you can avoid making these mistakes and spare your family the stress and expense.

The Hockessin (DE) Community Newsreports in a recent article, “The dumbest estate planning moves,”that the misuse of joint ownershipis extremely frequent.

You probably know that settling an estate without a will,can be very time consuming and expensive. One way that people try to avoid probate, is with property owned jointly with rights of survivorship.

That’s because the joint owner becomes the exclusive owner of that property, when the other owner passes away. This is the case for a bank account or a family home.

Many seniors say their joint owner, usually a son or a daughter, will gladly share the account with their siblings after the parent passes. But will the joint owner then tell their siblings that’s how Mom wanted it?

More often than we’d like to believe, the result is that the other siblings may get a lot less than Mom wanted—or nothing at all. If the surviving owner does follow through with Mom’s instructions and does truly square up with his brothers and sister, there may be other tax consequences.

That’s because the process of squaring up may be considered a gift for tax purposes.

In real estate, there’s a chance the remaining owner will be burdened with a low-cost basis. As a result, she will be hit with capital gains taxes, when later selling the asset. Mom’s effort to simplify things may have actually caused a lifetime of family conflict.

Instead, avoid these troubles with a transfer on death account or the use of a revocable living trust.

A real estate attorney can handle the title change. However, before you start dealing with the deed, sit down with an estate planning attorney. He or she will be able to explain how this may impact your tax liability and the conflict it may spark within the family.

A better option is to create an estate plan, properly prepared with the help of an experienced estate planning attorney. This will guide the distribution of assets and prevent or at least mitigate the possibility of siblings battling over the estate.

Reference: Hockessin (DE) Community News (April 24, 2018)“The dumbest estate planning moves”

How Do I Avoid Unintentionally Disinheriting a Family Member?

How Do I Disinherit a Family Member?

What is a Transfer on Death (TOD) Account?

Common Mistakes with Beneficiary Designations

How Do I Leave My Home to My Family?

Trust Declared Owner of Funds in POD Decision by Kentucky Appellate Court

The Most Common Estate Planning Mistakes

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