Trust

Should I Use a DIY Will?

Sure, many of us would prefer to fill in the blanks on our computer at home, than have to talk to anyone about our questions. However, it’s better to get professional advice instead of using an online DIY will.

DIY Will
DIY estate planning packages often cause more trouble than they’re worth.

MarketWatch’s recent article, “Online wills may save you money, but they can lay these estate-planning traps,” says that if you prepare your taxes yourself and you make a mistake, you may need to meet with the IRS. However, you may never know the results of your work when it comes to a DIY will. Who will be the ones to find out if you made any mistakes, and need to pay the price? Your family.

You can find many DIY options for completing your own estate plan. With the ease and availability of these programs, along with lower prices, one would think more people would have an up-to-date estate plan. According to the AARP article, Haven’t Done a Will Yet?, only 4 in 10 American adults have a will or living trust.

The four basic estate planning documents are a will, a trust, power of attorney for financial matters and an advance health care directive. If you try to produce any or all of them through a DIY site, expect to be offered a fill-in-the-blank approach. However, each state has its own probate code and the program you use may have different names for the documents. They also may not address state-specific questions.

Some DIY sites have all these documents, but you must buy their higher-end packages to access them. Others offer what they call a “limited attorney consultation” in the form of a drop-down menu of questions with pre-written responses, not an actual conversation with an attorney.

The range of DIY services also has a range of prices. Some claim it’s $69 for just a will, and others charge hundreds of dollars for what may be described as a “complete plan.” Some sites have more information than others about their options, so you must dig through the website to be certain you’re getting a legally binding will or other estate planning document. It is important to read the fine print with care.

Most of these websites presume you already know what you want, but most people have no idea what they want or need. When you get into the complexities of family dynamics and trust language specific to your state and situation, these DIY estate planning packages can cause more challenges than working with a qualified estate planning attorney.

Remember: you don’t know what you don’t know. You may not know the case law and legislation that have evolved into your state’s probate code.

Play it safe and use an attorney who specializes in estate planning. Your family will be grateful that you did.

Reference: MarketWatch (May 3, 2019) “Online wills may save you money, but they can lay these estate-planning traps”

What’s the Best Way to Pass the Family Vacation Home to the Next Generation?

The generous exclusion that allows wealthy individuals to gift up to $11.4 million and not get hit with federal estate taxes, came from the Tax Cut and Jobs Act of 2017. However, it’s not expected to last forever, according to the article “What to Know When Gifting the Family Vacation Home” from Barron’s Penta. Those who can, may want to take advantage of this window to be extra-magnanimous before the exemption sunsets to about $5 million (adjusted for inflation) in 2025.

At issue is that when someone transfers property, the recipients must account for it, according to the original price paid for the property. This is known as the basis. For example, shares of stock valued at $5 million today that were originally purchased for $1 million 10 years ago, would be subject to income taxes only on $4 million, if the recipient were to sell the stock.

Advice given to wealthy individuals is to make use of that higher estate tax exclusion while it’s still in place, and that may include property that they expect to gift to beneficiaries. The most likely asset would be the family vacation home, whether it’s a ski chalet or a beach house.

First, make sure your children want the property. There’s no sense going through all the processes, unless they plan on enjoying the vacation home. Next, figure out the best way to gift the home, while making the most of the high exclusion.

A nice point: you won’t have to give up the use or control of the house during this process. Experts advise not making an outright gift. This can lead to less control or the loss of a share to a child’s spouse, in the event of a marital split.

Another option: transfer the property into a trust. There are several kinds that would work for this purpose. Another is to consider a Limited Liability Corporation, which also serves to protect the family’s assets against any claims, if someone were to be injured on the property. The parents would transfer the property into the LLC and give children interests in the company.

A fairly common structure for vacation home ownership is called a Qualified Personal Residence Trust (QPRT). These are used by families who want to retain the right to continue using the home, usually for the rest of their lives. The property is transferred to the designated beneficiaries at death. If it is set up properly, a QPRT avoids any income or estate taxes.

A trust also lets an individual or a couple be very specific in how the property will be used, who can use it and any rules about how they want the home maintained. Making sure that a beloved family vacation home is well-cared for and not rented out for college parties, for instance, can provide a lot of comfort for a couple who have poured their hearts into creating a lovely vacation home.

Speak with an experienced estate planning attorney to learn how you can take advantage of the current federal estate tax exemption to pass your family’s vacation home on to the next generation.

Reference: Barron’s Penta (March 31, 2019) “What to Know When Gifting the Family Vacation Home”

What is the Best Way to Leave an Inheritance to a Grandchild?

Leaving an inheritance to a grandchild requires careful handling, usually under the guidance of an estate planning attorney. Specially if your grandchild is under the age of 18.  The same is true for money awarded by a court, when a minor has received property for other reasons, like a settlement for a personal injury matter.

Use trusts when leaving an inheritance to your grandchild
Leaving an inheritance to your grandchild in a trust will protect the child and the inheritance.

According to the article “Gifts from Grandma, and other problems with children owning property” from the Cherokee-Tribune & Ledger News, if a child under age 18 receives money as an inheritance through a trust, or if the trust states that the asset will be “held in trust” until the child reaches age 18, then the trustee named in the will or trust is responsible for managing the money.

Until the child reaches a stated age (say, 25 or 30 years old), the trustee is to use the money only for the child’s benefit. The terms of the trust will detail what the trustee can or cannot do with the money. In any situation, the trustee may not benefit from the money in any way.

The child does not have free access to the money. Children may not legally hold assets in their own names. However, what happens if there is no will, and no trust?

A child could be entitled to receive property under the laws of intestacy, which defines what happens to a person’s assets, if there is no will. Another way a child might receive assets, would be from the proceeds of a life insurance policy, or another asset where the child has been named a beneficiary and the asset is not part of the probate estate. However, children may not legally own assets. What happens next?

The answer depends upon the value of the asset. State laws vary but generally speaking, if the assets are below a certain threshold, the child’s parents may receive and hold the funds in a custodial account. The custodian has a duty to manage the child’s money, but there isn’t any court oversight.

If the asset is valued at more than the state threshold, the probate court will exercise its oversight. If no trust has been set up, then an adult will need to become a conservator, a person responsible for managing a child’s property. This person needs to apply to the court to be named conservator, and while it is frequently the child’s parent, this is not always the case.

The conservator is required to report to the probate court on the child’s assets and how they are being used. If monies are used improperly, then the conservator will be liable for repayment. The same situation occurs, if the child receives money through a court settlement.

Making parents go through a conservatorship appointment and report to the probate court is a bit of a burden for most people. A properly created estate plan can avoid this issue and prepare a trust, if necessary, and name a trustee to be in charge of the asset.

Another point to consider: turning 18 and receiving a large amount of money is rarely a good thing for any young adult, no matter how mature they are. An estate planning attorney can discuss how the inheritance can be structured, so the assets are used for college expenses or other important expenses for a young person. The goal is to not distribute the funds all at once to a young person, who may not be prepared to manage a large inheritance.

For more information about leaving assets to children, download Mastry Law’s free book or estate planning reports.

To learn more about how to transfer assets to your grandchildren using a trust, schedule a complementary consultation with Mastry Law.

Reference: Cherokee-Tribune & Ledger News (March 1, 2019) “Gifts from Grandma, and other problems with children owning property”

Using Trusts to Maintain Control of Inheritances

Trusts, like estate plans, are not just for the wealthy. They are used to provide control in how assets of any size are passed to another person. Leaving an inheritance to a beneficiary in a trust, according to the article from Times Herald-Record titled “Leaving inheritances to trusts puts you in control,” can protect the inheritance and the asset from being mishandled.

For many parents, the inheritance equation is simple. They leave their estate to their children “per stirpes,” which in Latin translates to “by roots.” In other words, the assets are left to children according to the roots of the family tree. The assets go to the children, but if they predecease you, the assets go to their children. The assets remain in the family. If the child dies after the parent, they leave the inheritance to their spouse.

Some beneficiaries need more protection than others.

An alternative is to create inheritance trusts for children. They may spend the money as they wish, but any remaining assets goes to their children (your grandchildren) and not to the surviving spouse of your child. The grandchildren won’t gain access to the money, until you so provide. However, someone older, a trustee, may spend the money on them for their health, education and general welfare. The inheritance trust also protects the assets from any divorces, lawsuits or creditors.

This is also a good way for parents, who are concerned about the impact of their wealth on their children, to maintain some degree of control. One strategy is a graduated payment plan. A certain amount of money is given to the child at certain ages, often 20% when they reach 35, half of the remainder at age 40 and the balance at age 45. Until distributions are made to the heirs, a trustee may use the money for the person’s benefit at the trustee’s discretion.

The main concern is that money not be wasted by spendthrift heirs. In that situation, a spendthrift trust restricts payments to or for the beneficiary and may only be used at the trustee’s discretion. A lavish lifestyle won’t be funded by the trust.

If money is being left to a disabled individual who receives government benefits, like Medicaid or Supplemental Security Income (SSI), you may need a Special Needs Trust. The trustee can pay for services or items for the beneficiary directly, without affecting government benefits. The beneficiary may not receive any money directly.

If an older person is a beneficiary, you also have the option to leave them an “income only trust.” They have no right to receive any of the trust’s principal. If the beneficiary requires nursing home care and must apply for Medicaid, the principal is protected from nursing home costs.

An estate planning attorney will be able to review your family’s situation and determine which type of trust would be best for your family.

Reference: Times Herald-Record (Feb. 16, 2019) “Leaving inheritances to trusts puts you in control”

estate planning for married couples

Getting Married Again? Protect Your Spouse and Your Children

One of the goals in estate planning when one spouse moves into the home of another spouse, is to ensure that if the owner spouse dies first, the new spouse will be permitted to remain in the home, while preserving the value of the home for the owner spouse’s children. It’s not always an easy situation to resolve, according to an article in the Times Herald-Record, titled “How to preserve your home’s value when remarrying,” but with good planning and a solid estate plan, it can be done.

With poor planning, however, your assets could go to your second spouse and then, to his or her own children, leaving your own children empty-handed.

A common approach is to leave the surviving spouse the right to use and occupy the residence, with a provision in a trust or a will that the surviving spouse pays taxes and home insurance costs and maintains the house. The right to live in the house can be for a limited number of months or years or until they pass away or enter a care facility. When the surviving spouse dies, or the time limit is reached, he or she leaves the house, the house is sold and the proceeds are divided among the children of the owner.

There are other ways to provide more flexibility to the surviving spouse. If the house is too large or expensive to maintain, he or she may be given the right to use and occupy a substituted property, which may be purchased with the proceeds from the owner spouses’ home. Another arrangement allows the owner spouse’s home to be sold with the surviving spouse using the income from the proceeds of the sale of the house to pay for a rental. When the surviving spouse dies (or when the term expires), the children of the first spouse inherit what is left.

A few important things to consider:

  • How well the surviving spouse will be able to maintain the house, either for financial or physical reasons.
  • If the surviving spouse is not taking care of the house and it falls into disrepair, the children may have to file an eviction proceeding.
  • If the trust or will does not specifically instruct the surviving spouse to pay for home maintenance, the children of the owner spouse could be responsible for those costs, and depending on how long the surviving spouse lives, that could be a large burden for a long period of time.

This situation requires thoughtful planning, with many “what if’s” to be asked. An experienced estate planning attorney, who has worked with second marriages and home ownership issues, will be able to provide an objective view of the issues and the solutions.

In addition, bringing family members in for a meeting to discuss the situation, may go along way to prevent, or at least attempt to prevent, larger issues in the future.

Reference: Times Herald-Record (Sep. 22, 2018) “How to preserve your home’s value when remarrying”

Generational Divide Between Musicians Now and Then

As singers and actors from prior generations die and we learn about their business lives

Maybe people who went into the music in the past, led with their hearts and souls, like Aretha, but the difference in income is astronomical.

ArethaAs singers and actors from prior generations die and we learn about their business lives, there’s a huge disparity between their earnings and that of today’s artists. Stars from the past, beloved and working into their later years, continue to pass away with estates that wouldn’t be deemed sufficient for a CEO to change jobs today.

Wealth Advisorsays in its new article, “Aretha Franklin’s Estate Almost Criminally Undervalued Even At $80 Million,”that description now fitsAretha Franklin, the Queen of Soul.

She sold 75 million records and is credited as a songwriter on hundreds of albums by other artists. However, even the most generous estimates of her career earnings are no more than $80 million.

Compare her to Taylor Swift. She started at about the same age, has been working one fifth as long and the same calculations say she’s worth more than $300 million.

The mega stars in Aretha’s imperial period didn’t earn as much as they do today. Management was often aggressive and took a huge chunk of every dollar earned from the artists’ record sales, concerts, merchandising and media appearances.

Aretha also didn’t do herself any favors, by allowing her husband to manage her early career. When they divorced, he took a lot of her lifetime earnings with him. A raw deal or not, it was the way the industry worked at the time. As a result, paying alimony meant she had to keep working for her ex.

That may be why Taylor Swift hasn’t gotten married. Despite a finely crafted prenuptial agreement and trusts to protect her money, a wrong decision could cost her hundreds of millions of dollars.

The music industry has changed dramatically. Traditional revenue sources never really grew much bigger than they were in the 1960s. Some, like selling the actual music, tanked and have yet to revive. Today’s music icons, like Taylor Swift, thrive because they manage their own tours and take in ticket income rather than record sales. Many own their own publishing outlets, and that maximizes their percentage of every song they sell. That’s not how it worked in Aretha’s day.

 However, Aretha died with money in the bank. Her children will inherit considerable sums. She most likely gave huge amounts to charity and did it in the most tax-efficient way her advisers could find.

Just like Prince, it’s safe to say that sales of her recordings will take a leap, anything as yet unreleased will be repackaged and her name and image will start being monetized. As a brand and a legend, she will be enjoyed by new generations of music lovers. Her family will benefit, and her fans will grow in number.

Reference: Wealth Advisor (August 20, 2018) “Aretha Franklin’s Estate Almost Criminally Undervalued Even At $80 Million”

The Most Common Estate Planning Mistakes

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.

MP900400332Some 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”

Living Trust and Fiduciary Duty at Issue in Case Before California Court of Appeals

This case involves the issue of whether and to what extent superior courts have authority to intervene in the administration of nonintervention estates.

This case involves the issue of whether and to what extent superior courts have authority to intervene in the administration of nonintervention estates.

MP900387776A successful business owner, Mildred Vail had purchased a number of properties in the Healdsburg area during the course of her lifetime. She was also the mother of four children: Patricia, Jonatha, Michael and Steven.

Leagle.com recently published the case of “In re Mildred M. Vail Living Trust.”In this litigation, Mildred executed a Living Trust naming her four children as equal beneficiaries in 2003. The Trust instrument named Mildred as the "trust manager" and provided that her four children would become joint successor "Co-trust managers" in the event of her death, incapacity or resignation. It also gave Mildred the absolute power to revoke or amend the Trust during her lifetime and to add or remove property from the Trust at any time. Mildred placed several properties in the Trust.

In October 2004, before heart surgery, Mildred gave Steven her general durable power of attorney and a separate durable power of attorney "for banking and other financial institution transactions." In 2007, she revised her trust. She resigned as Trustee and named Steven as the "new trust manager."

In 2006, Steven led an effort to purchase and develop a property on behalf of the Trust. A family meeting was held to discuss the transaction. To obtain the money to buy the property, two Trust rental properties were sold, netting $466,000.

Mildred died on in 2011, at the age of 94. At that time, the four siblings, including Steven, behaved as though they had become successor co-Trust Managers. Steven later testified at his deposition that at the time of his mother's death, he hadn’t remembered her resignation as trust manager, but he later found the document making him the substitute trust manager.

Michael filed a petition to remove Steven as a co-trust manager, which alleged Steven was taking action without the consent of the other co-trust managers and refused to provide an accounting of his activities. In 2012, the court relieved all four siblings as co-trust managers and appointed Shelly Ocana as the interim trust manager.

Michael provided Ocana with a witnessed 2011 letter signed by Mildred that stated that Steven has been engaged in "rogue [activities]" and "secretive dealings" and was not authorized to act under her power of attorney. Ocana investigated the claims against Steven and ultimately sold the property at issue. The four siblings then entered into a settlement agreement providing for the distribution of Trust assets.

In 2015, Michael filed a suit accusing Steven of "numerous acts of injury to his mother and her trust involving elder abuse, conversion, breach of fiduciary duty, theft of trust assets, fraudulent transfer of assets, forgery, co-mingling trust assets, impersonating as trustee of the trust for personal gain, undue influence, conflict of interest, breach of trust, constructive trust for wrongfully retaining, secreting and/or appropriating trust assets and perjury." The trial court issued a statement of decision concluding that Steven had produced credible evidence that he had spent $71,000 for legitimate trust purposes.

The Court of Appeal of California reviewed Steven’s claim that the trial court applied the wrong legal standard, when determining whether he violated his duties as trustee.

Judge Henry E. Needhamwrote the opinion of the Court and agreed with Steven that it was Mildred to whom he owed a fiduciary duty.

“A revocable trust is a trust that the person who creates it, generally called the settlor, can revoke during the person's lifetime,” Needham explained. The beneficiaries' interest in the trust is contingent only, and the settlor can eliminate that interest at any time. When the trustee of a revocable trust is someone other than the settlor, that trustee owes a fiduciary duty to the settlor, the Court said—not to the beneficiaries,  if the settlor is alive. During that time, the trustee needs to account to the settlor only and not also to the beneficiaries.

However, the judge did note that after the settlor's death, the beneficiaries have standing to assert a breach of the fiduciary duty the trustee owed to the settlor to the extent that breach harmed the beneficiaries, and that the trustee's conduct can be attacked for fraud or bad faith. Therefore, Michael had standing to bring claims against Steven for his alleged breach of his duty to Mildred while she was alive.

The judgment was affirmed.Judge Needham said he inferred that the court had found Steven to be liable based on a breach of his duties to his mother as settlor of the Trust, which was supported by substantial evidence. The court ruled that Steven was not credible regarding the expenditures for which he was claiming an offset. Those included a down payment to purchase a property, payments made on a property after it was sold and the cost of building out his office.

Reference: Leagle.com (March 27, 2018) “In re Mildred M. Vail Living Trust”

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