Is An Online Will A Good Idea?

Sure, many of us would prefer to fill in the blanks in private, than have to talk to anyone about our questions. However, it’s better to get professional advice.

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 an online 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 of us 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 an online 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 schedule a call with us today. 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”

 

Vacation Home: What’s the Best Way to Pass 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 for potentially giving, 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”

 

Should You Include a No-Contest Clause in Your Will?

It’s impossible to know what is in the heart and mind of the deceased, except to consult their last will and testament. However, when there is a suspicion that the last will and testament has been changed through undue influence, the care that went into the will might be undone cautions the Santa Cruz Sentinel in “No-contest clause throws kink into trust plan.”

The example given is of a woman whose mother was in the care of her niece, who was also the trustee of her mother’s trust. The mother modified the trust to give the niece her home, which is estimated to be worth about a fifth of the total estate value. The daughter notes that at the time these changes were made to the will, her mother was in hospice care and being given morphine. It does sound as if it could be influence because changes made to a will during a critical illness, especially in the presence of strong pain medication, are questionable.

Since the trust included a no-contest clause, the daughter wonders if it’s worth challenging the will for one-fifth of the estate to charge the niece with undue influence?

An undue influence claim needs to have three points:

  • A confidential relationship — that between the grandmother and the grandchild;
  • Active procurement — the granddaughter got her grandmother to amend the trust;
  • Unjust enrichment — the granddaughter’s inheritance was increased to more than she would have otherwise received.

If all three elements are met, then the burden of proof shifts to the niece to show that she was not doing anything wrong.

There may also be a lack of capacity claim, based on the medication. It may be that the grandmother was too medicated to understand what she was doing.

The no-contest clause does present a problem. If the will is challenged, the daughter is disinherited — but only if she loses. If she wins, that no-contest amendment is invalid, and the trust returns to what it was before the changes were made.

At one point, no contest clauses were so powerful that there was consideration given to not allowing them to be used in wills. In California, as of Jan. 1, 2010, a person may file a contest and if the judge determines that they had probable cause, they are not automatically disinherited.

In this case, if the facts would lead a reasonable person to conclude that there was undue influence, it’s likely that the daughter in this example would win. It would be up to the court to determine whether she should be disinherited. No-contest clauses are strictly construed by the courts, so unless the no-contest clause says that it applies to amendments, she may be okay.

There is one fact that she needs to ascertain, before moving forward. If the estate planning attorney met with the mother and prepared the amendment, then the attorney will be a neutral witness who will be able to testify to her mother’s mental capacity and her wishes.

It is not uncommon for people to change their wills to favor the person who spends their last weeks or days with them, as they prepare to die. One must wonder in this case, as to why the niece and not the daughter was with the grandmother at this time. Perhaps the two were very close, or perhaps the granddaughter was manipulating her grandmother. However, no one will ever truly know, except for the granddaughter and the deceased.

Reference: Santa Cruz Sentinel (March 3, 2019) “No-contest clause throws kink into trust plan”

 

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

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

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

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 age 18, 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.

In Arizona, the threshold is $10,000. Check with a local estate planning attorney to determine your state’s limitations.

If the asset is valued at more than $10,000, or whatever the threshold is for the state, 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.

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

 

Beverly Hills 90210 Star Luke Perry Did Have an Estate Plan
Luke Perry

Beverly Hills 90210 Star Luke Perry Did Have an Estate Plan

Luke Perry’s death at age 52 from a condition that we think of as something that happens to older people, has made many people thinks differently about strokes. As reported in the Forbes article “Luke Perry Protected His Family With Estate Planning” Perry was savvy enough to do the proper estate planning, which made a difficult situation easier for his family.

Perry was heavily sedated following the first stroke and five days later, his family made the difficult decision to remove life support. It had become obvious that he was not going to recover, following a second stroke. He was surrounded by his children, 18-year-old Sophie, 21-year-old Jack, Perry’s fiancé, ex-wife, mother, siblings and others.

The decision to allow Luke Perry to die, when only a week earlier he had been alive and vibrant, could not have been easy. It appears that he had the correct legal documents in place, since the hospital allowed his family to make the decision to end life support. In California, those wishes are made in writing, using an Advance Directive or Power of Attorney. Without those documents, his family would have needed to obtain an order from a probate court to permit the hospital to terminate life support, especially if there was any disagreement about this decision from family members.

That would have been a public and painful experience, making things harder for his family.

Perry reportedly had a will created in 2015 leaving everything to his two children. Earlier that year, he had become a spokesperson for screening for colorectal cancer. He had undergone a colonoscopy and learned that he had precancerous growths, which led him to advise others to do the same testing. According to friends, it was after this experience that Perry had a will created to protect his children.

It is thought (but not yet verified) that Perry had a reported net worth of around $10 million, so it’s likely that he created a revocable living trust, in addition to a simple will. If he had only a will, then his estate would have to go through probate court. It’s more likely that he had a trust, and if it was properly funded, then his assets could pass onto his children without any court involvement.

The only question at this time, is whether he made any provisions for his fiancé, Wendy Madison Bauer. Since the will was done in 2015, it’s unlikely that he included her in his estate plan. If they had married, she would have received rights that would not have been automatic but would have depended upon the wording of his will or trust, as well as whether the couple had signed any prenuptial agreements. If they had married and documents did not include an intent to exclude Bauer, she would have been entitled to one-third of his estate.

Luke Perry’s tragic death provides an important lesson for all of us. No one should wait until they are old enough to do estate planning. Perry’s cancer scare, in 2015, gave him the understanding of how quickly life can change, and by having an estate plan in place, he helped his family through a difficult time.

Reference: Forbes (March 8, 2019) “Luke Perry Protected His Family With Estate Planning”