Can You Make Heirs Behave from the Grave?

Imposing strange or amusing conditions upon heirs may make for good novels. However, in the real world, terms and conditions are limited by the law. A last will or trust contains language specifying how you want assets to be distributed after your death. There are some conditions and terms included, but others should be left for fiction authors, according to a recent article titled “What Can You Force Your Heirs to Do To Get Your Wealth” from Forbes.

If something is illegal or against public policy, it is not acceptable in a last will. Defining public policy is not as easy as whether something is illegal, but it can be described effectively enough, or clarified by your estate planning lawyer. For example, making a gift of land to the town on the condition that an offensive statue be placed in the middle of the land would be against public policy. Requiring an individual to not marry a specific person or type of person before they can inherit is considered illegal in a last will. Beneficiaries are not to be prevented to live their lives freely through the force of a last will.

Whether a condition is valid also depends upon whether it is a precedent that existed at the date of your death or a condition that occurs after your death. For instance, a requirement for a beneficiary to live in a specific location at the time of your death might be considered valid by a court. However, a condition requiring a spouse to never remarry would not be valid.

Blatantly illegal terms of an inheritance are easy terminated. Leaving money to a known terrorist organization or requiring an heir to commit a crime is an easy no-go. However, sometimes things get murky. Restraints on getting married or selling or transferring property are two of the biggest problems, and often the stories behind the last wills are sad ones.

A condition of not marrying, divorcing, or remarrying is not legal. However, a condition that the beneficiary does not marry outside of the faith has been enforced as a valid last will condition. A complete prohibition of a second marriage by a surviving spouse has been deemed void. It should be noted that certain requests have been permitted, like having a surviving spouse lose payments from a trust when they remarry. As antiquated as it may sound, courts have affirmed the concept of the specific limitation to provide financial support only until the surviving spouse remarries and is, therefore, not void.

A probate court will not void a condition on a bequest automatically, even if it is clearly illegal. The beneficiary, or another interested party, must file with the probate court to have the condition voided. If you fail to do so, when the last will or trust is allowed, it is possible to lose your right to void the condition.

A better way to go: don’t try to control your heir’s behavior from the grave. It creates terrible ill will and may cloud a lifetime of happy memories. If you don’t want to give something to someone, your estate planning attorney will help you create an estate plan, and possibly a trust, to control how your assets are distributed.

Reference: Forbes July 21, 2021 “What Can You Force Your Heirs to Do To Get Your Wealth”

How to Protect an Estate from a Rotten Son-in-Law

If you’ve been working for a while, you have an estate. If you’ve been working for a long time, you may even have a sizable estate, and between your home, insurance and growing retirement funds, your estate may reach the million dollar mark. That’s the good news. But the bad news might be an adult child with a drug or drinking problem, or a child who married a person who doesn’t deserve to inherit any part of your estate. Not to mention an ex-spouse or two. What will happen when you aren’t there to protect your estate?

There are steps to protect your estate and your family members, as described in the recent article “Is your son-in-law a jerk? Armor plate your estate” from Federal News Network.

Don’t overlook beneficiary designations. Most employer-sponsored retirement and savings accounts have beneficiary designations to identify the people you wish to receive these assets when you die. Here’s an important fact to know: the beneficiary designation overrides any language in your last will and testament. If your beneficiary designation on an account names a child but your will gives your estate to your spouse, your child will receive assets in the account, and your spouse will not receive any proceeds from the account.

Don’t try to sell a property for below-market value. The same goes for trying to remove assets from your ownership to qualify for Medicaid to cover long-term care costs. Selling your home to an adult child for $1 will not pass unnoticed. Estate taxes, gift taxes, income taxes and eligibility for government benefits can’t be avoided by this tactic.

A common estate planning mistake is to name specific investments in a will. A will becomes part of the public record when it is probated. Providing details in a will is asking for trouble, especially if a nefarious family member is looking for assets. And if the sale or other disposition of the named asset before your death impacts bequests, your estate may be vulnerable to litigation.

How will you leave real estate assets to heirs? Real estate assets can be problematic and need special consideration. Are you leaving shares to a vacation home or the family home? If kids or their spouses don’t get along, or one person wants to live in the home while others want to sell it, this could cause years of family fights.

Making a bequest to a grandchild instead of to a troubled adult child. Minor children may not legally inherit property, so leaving assets to a grandchild does not avoid giving assets to an adult child. The most likely guardian will be their parent, undoing the attempt to keep assets out of the parent’s control.

Include a residuary clause in a will or trust. Residuary clauses are used to dispose of assets not specifically mentioned in a will or trust. Your estate planning attorney will create the residuary clauses most appropriate for your unique situations.

Prepare for the unexpected. Your estate plan can be designed to address the unexpected. If a primary beneficiary like a daughter or son divorces their spouse, a trust could prevent the ex from gaining access to your assets.

An effective estate plan, prepared with an experienced estate planning attorney, can plan for all of the “what ifs” to protect loved ones after you have passed.

Reference: Federal News Network (Sep. 1, 2021) “Is your son-in-law a jerk? Armor plate your estate”

Do I Need to Update My Estate Plan?

Given a choice, most people will opt to do almost anything rather than talk about death and life for others after they are gone. However, estate planning is essential to ensure that your life and life’s work will be cared for correctly after you’ve passed, advises the article “Is Your Estate Plan Up to Date?” from NASDAQ.com. If you own any assets, have a family, loved ones, pets or belongings you’d like to give to certain people or organizations, you need an estate plan.

Estate planning is not a set-it-and-forget it process. Every few years, your estate plan needs to be reviewed to be sure the information is accurate. Big life changes, from birth and death to marriage and divorce—and everything in between—usually also indicate it’s time for an update. Changes in tax laws also require adjustments to an estate plan, and this is something your estate planning attorney will keep you apprised of.

Reviewing and updating an estate plan is a straightforward process, once your estate planning attorney has created an initial plan. Keeping it updated protects your wishes and your loved ones’ futures. Here are some things to keep in mind when reviewing your estate plan:

Have you moved? Changes in residence require an update, since estate laws vary by state. You also should keep your advisors, including estate planning attorney, financial advisor and tax professional, informed about any changes of residence. You’d be surprised how many people move and neglect to inform their professional advisors.

Changes in tax law. The last five years have seen big changes in tax laws. Estate plans created years ago may no longer work as originally intended.

Power of Attorney documents. A Power of Attorney authorizes a person to act on your behalf to make business, personal, legal and financial decisions. If this document is old, or no longer complies with your state’s laws, it may not be accepted by banks, investment companies, etc. If the person you designed as your POA decades ago can’t or won’t serve, you need to choose another person. If you need to revoke a power of attorney, speak with your estate planning attorney to do this effectively.

Health Care Power of Attorney and HIPAA Releases. Laws concerning who may speak with treating physicians and health care providers have become increasingly restrictive. Even spouses do not have automatic rights when it comes to health care. You’ll also want to put your wishes about being resuscitated or placed on artificial life support in writing.

Do you have an updated last will and testament? Review all the details, from executor to guardian named for minor children, the allocation of assets and your estate tax costs.

What about a trust? If you have minor children, you need to ensure their financial future with a trust. Your estate planning attorney will know which type of trust is best for your situation.

A regular check-up for your estate plan helps avoid unnecessary expenses, delays and costs for your loved ones. Don’t delay taking care of this very important matter. You can then return to selecting a color for the nursery or planning your next exciting adventure. However, do this first.

Reference: NASDAQ.com (July 28, 2021) “Is Your Estate Plan Up to Date?”

How to Keep the Vacation Home in the Family

There are several ways to protect a vacation home so it remains in the family and is not overly burdensome to any one member or couple in the family, according to the article “Estate planning for vacation property” from Pauls Valley Daily Democrat.

To begin, families have the option of creating a legal entity to own the asset. This can be a Family LLC, a partnership or a trust. The best choice depends upon each family’s unique situation. For an LLC, there needs to be an operating agreement, which details management and administration, conflict resolution, property maintenance and financial matters. The agreement needs to include:

Named management—ideally, two or three people who are directly responsible for managing the LLC. This typically includes the parents or grandparents who set up the LLC or Trust. However, it should also include representatives from different branches in the family.

Property and ownership rules must be clarified and documented. The property’s use and rules for transferring property are a key part of the agreement. Does a buy-sell agreement work to give owners the right to opt out of owning the property? What would that look like: how can the family member sell, who can she sell to and how is the value established? Should there be a first-right-of refusal put into place? In these situations, a transfer to anyone who is not a blood descendent may require a vote with a unanimous tally.

There are families where transferring ownership is only permitted to lineal descendants and not to the families of spouses who marry into the family.

Finances need to be spelled out as well. A special endowment can be included as part of the LLC or as a separate trust, so that money or investments are set aside to pay taxes, upkeep, insurance and future capital requirements. Anyone who has ever owned a house knows there are always capital requirements, from replacing an ancient heating system to fixing a roof after decades of a heavy snow load.

If the endowment is not enough to cover costs, create an agreement for annual contribut6ions by family members. Each family will need to determine who should contribute what. Some set this by earnings, others by how much the property is used. What happens if someone fails to pay their share?

Managing use of the property when there is a legal entity in place is more than a casual “Who calls Mom and Dad first.” The parents who establish the LLC or Trust may reserve lifetime use for themselves. The managers should establish rules for scheduling.

For parents or grandparents who create an LLC or Trust, be sure it works with your estate plan. If they intend to keep the property in the family and wish to leave a bequest for its maintenance, for instance, the estate planning attorney will be able to incorporate that into the LLC or Trust.

Reference: Pauls Valley Democrat (July 29, 2021) “Estate planning for vacation property”

Checklist for Estate Plan’s Success

We know why estate planning for your assets, family and legacy falls through the cracks. It’s not the thing a new parent wants to think about while cuddling a newborn, or a grandparent wants to think about as they prepare for a family get-together. However, this is an important thing to take care of, advises a recent article from Kiplinger titled “2021 Estate Planning Checkup: Is Your Estate Plan Up to Date?

Every four years, or every time a trigger event occurs—birth, death, marriage, divorce, relocation—the estate plan needs to be reviewed. Reviewing an estate plan is a relatively straightforward matter and neglecting it could lead to undoing strategic tax plans and unnecessary costs.

Moving to a new state? Estate laws are different from state to state, so what works in one state may not be considered valid in another. You’ll also want to update your address, and make sure that family and advisors know where your last will can be found in your new home.

Changes in the law. The last five years have seen an inordinate number of changes to laws that impact retirement accounts and taxes. One big example is the SECURE Act, which eliminated the Stretch IRA, requiring heirs to empty inherited IRA accounts in ten years, instead of over their lifetimes. A strategy that worked great a few years ago no longer works. However, there are other means of protecting your heirs and retirement accounts.

Do you have a Power of Attorney? A POA gives a person you authorize the ability to manage your financial, business, personal and legal affairs, if you become incapacitated. If the POA is old, a bank or investment company may balk at allowing your representative to act on your behalf. If you have one, make sure it’s up to date and the person you named is still the person you want. If you need to make a change, it’s very important that you put it in writing and notify the proper parties.

Health Care Power of Attorney needs to be updated as well. Marriage does not automatically authorize your spouse to speak with doctors, obtain medical records or make medical decisions on your behalf. If you have strong opinions about what procedures you do and do not want, the Health Care POA can document your wishes.

Last Will and Testament is Essential. Your last will needs regular review throughout your lifetime. Has the person you named as an executor four years ago remained in your life, or moved to another state? A last will also names an executor for your property and a guardian for minor children. It also needs to have trust provisions to pay for your children’s upbringing and to protect their inheritance.

Speaking of Trusts. If your estate plan includes trusts, review trustee and successor appointments to be sure they are still appropriate. You should also check on estate and inheritance taxes to ensure that the estate will be able to cover these costs. If you have an irrevocable trust, confirm that the trustee is still ready and able to carry out the duties, including administration, management and tax returns.

Gifting in the Estate Plan. Laws concerning charitable giving also change, so be sure your gifting strategies are still appropriate for your estate. An estate plan review is also a good time to review the organizations you wish to support.

Reference: Kiplinger (July 28, 2021) “2021 Estate Planning Checkup: Is Your Estate Plan Up to Date?

Do Singles Need Estate Planning?

Pauls Valley Democrat’s recent article entitled “Even ‘singles’ need estate plans” tells us what might happen if you die intestate (without a last will and testament). In that case, your any assets without a surviving joint owner or designated beneficiary or titled in a revocable living trust may be required to pass through the probate process. As a result, they’ll be distributed by the court, according to the state’s intestate succession laws.

Even if you don’t have children, you may have nephews or nieces, or even children of cousins or friends, to whom you’d like to leave some of your assets. However, if everything you own goes through probate, there’s no guarantee that these people will get what you wanted them to have. Therefore, if you want to leave something to family members or close friends, state this in your last will and testament.

However, you may also want to provide support to some charities. You can just name these charities in your will. However, there may be options that could provide you with additional benefits. One such possibility is a charitable remainder trust. With this trust, you’d transfer appreciated assets, such as stocks, mutual funds or other securities, into an irrevocable trust. Your named trustee could then sell the assets at full market value, avoiding the capital gains taxes you’d have to pay if you sold them yourself, outside a trust.

Moreover, if you itemize, you may be able to claim a charitable deduction on your taxes. With the proceeds, the trust can purchase income-producing assets and provide you with an income stream for the rest of your life. At your death, the remaining trust assets will go to the charities that you’ve named.

A single person also should have as part of his or her estate planning, a durable power of attorney and a health care proxy. A durable power of attorney allows you to designate an individual to manage your finances, if you become incapacitated. This is really important, if you don’t have a spouse to step in.

If you become incapacitated, your health care proxy – also known as a health care surrogate or medical power of attorney – allows you to name another person to legally make health care decisions for you, if you are unable to do so yourself.

Estate planning can be complex, so work with an experienced estate planning attorney.

Reference: Pauls Valley Democrat (June 24, 2021) “Even ‘singles’ need estate plans”

Do You Need a Revocable Trust or Irrevocable Trust?

There are important differences between revocable and irrevocable trusts. One of the biggest differences is the amount of control you have over assets, as explained in the article “What to Consider When Deciding Between a Revocable and Irrevocable Trust” from Kiplinger. A revocable trust is often referred to as the Swiss Army knife of estate planning because it has so many different uses. The irrevocable trust is also a multi-use tool, only different.

Trusts are legal entities that own assets like real estate, investment accounts, cars, life insurance and high value personal belongings, like jewelry or art. Ownership of the asset is transferred to the trust, typically by changing the title of ownership. The trust documents also contain directions regarding what should happen to the asset when you die.

There are three key parties to any trust: the grantor, the person creating and depositing assets into the trust; the beneficiary, who will receive the trust assets and income; and the trustee, who is in charge of the trust, files tax returns as needed and distributes assets according to the terms of the trust. One person can hold different roles. The grantor could set up a trust and also be a trustee and even the beneficiary while living. The executor of a will can also be a trustee or a successor trustee.

If the trust is revocable, the grantor has the option of amending or revoking the trust at any time. A different trustee or beneficiary can be named, and the terms of the trust may be changed. Assets can also be taken back from a revocable trust. Pre-tax retirement funds, like a 401(k) cannot be placed inside a trust, since the transfer would require the trust to become the owner of these accounts. The IRS would consider that to be a taxable withdrawal.

There isn’t much difference between owning the assets yourself and a revocable trust. Assets still count as part of your estate and are not sheltered from estate taxes or creditors. However, you have complete control of the assets and the trust. So why have one? The transition of ownership if something happens to you is easier. If you become incapacitated, a successor trustee can take over management of trust assets. This may be easier than relying on a Power of Attorney form and some believe it offers more legal authority, allowing family members to manage assets and pay bills.

In addition, assets in a trust don’t go through probate, so the transfer of property after you die to heirs is easier. If you own homes in multiple states, heirs will receive their inheritance faster than if the homes must go through probate in multiple states. Any property in your revocable trust is not in your will, so ownership and transfer status remain private.

An irrevocable trust is harder to change, as befits its name. To change an irrevocable trust while you are living takes a little more effort but is not impossible. Consent of all parties involved, including the beneficiary and trustee, must be obtained. The benefits from the irrevocable trust make the effort worthwhile. By giving up control, assets in the irrevocable trust may not be part of your taxable estate. While today’s federal estate exemption is historically high right now, it’s expected to go much lower in the future.

Reference: Kiplinger (July 14, 2021) “What to Consider When Deciding Between a Revocable and Irrevocable Trust”

Does a Beneficiary on a Bank Account Override a Will?

You’ve named beneficiaries to accounts many times already, when you opened an IRA, bought an insurance annuity, a life insurance policy, started an investment account, signed up for a pension or bought shares in a mutual fund. These are the accounts that come to mind when people think about beneficiary designations. However, according to a recent article in Forbes titled “Do You Need a Beneficiary for Your Bank Account?,” they are not the only financial instruments with beneficiary designations.

When you open a bank account, most retail banks don’t ask you to name a beneficiary, but it’s not because you can’t. If the bank allows beneficiaries on their accounts, it’s usually a pretty simple process. In most cases, you’ll be asked to fill out a form or go through the bank’s process online.

Banks don’t push for beneficiary accounts because they are not required to do so. However, this is a smart move and can be a helpful part of your estate plan. The biggest benefit: funds in the account will be distributed directly to the beneficiary upon your death. They won’t have to go through probate and won’t be part of your estate. Otherwise, whatever assets you keep in your bank accounts will be counted as part of your estate and subject to probate.

Probate is a court process to validate the will and the named executor, supervising the distribution of assets from your estate. In some cases, it can be complicated, take months to complete and depending on the size of your estate, be expensive. If the money in your bank accounts does not go to a beneficiary, it can be used to pay off estate debts instead of going straight to a beneficiary.

For married people, bank account funds are treated differently. Half of the balance goes to your spouse upon death, the rest goes through probate.

Naming a beneficiary is a better alternative. The beneficiary may collect the money immediately. They’ll need to go to the bank with an original or certified copy of a death certificate, required identification (usually a driver’s license) and the money is transferred to them.

If you are married and don’t live in a community property estate, a surviving spouse may be able to dispute the terms of a beneficiary arrangement, but that will take time.

Another means of transferring assets in a bank account is to change your accounts to POD, or Payable On Death accounts. There are other names: In Trust For (ITF), Totten Trust or Transfer on Death (TOD). The named beneficiary is referred to as the POD beneficiary.

There is considerable flexibility when naming a POD beneficiary. It may be a living person, or it can be an organization, including a nonprofit charity or other trusts. You are not allowed to name a non-living legal entity, like a corporation, limited liability company (LLC) or partnership.

Beneficiary designations override wills, so if you forget to change them, the person named will still receive the money, even if that was not your intent. You should review beneficiaries for all of your accounts every year or so. Divorce, death, marriages, births and any other lifetime events are also reasons to check on beneficiary designations.

Reference: Forbes (July 9, 2021) “Do You Need a Beneficiary for Your Bank Account?”

Aging Parents and Blended Families Create Estate Planning Challenges

Law school teaches about estate planning and inheritance, but experience teaches about family dynamics, especially when it comes to blended families with aging parents and step siblings. Not recognizing the realities of stepsibling relationships can put an estate plan at risk, advises the article “Could Your Aging Parents’ Estate Plan Create A Nightmare For Step-Siblings?” from Forbes. The estate plan has to be designed with realistic family dynamics in mind.

Trouble often begins when one parent loses the ability to make decisions. That’s when trusts are reviewed for language addressing what should happen, if one of the trustees becomes incapacitated. This also occurs in powers of attorney, health care directives and wills. If the elderly person has been married more than once and there are step siblings, it’s important to have candid discussions. Putting all of the adult children into the mix because the parents want them to have equal involvement could be a recipe for disaster.

Here’s an example: a father develops dementia at age 86 and can no longer care for himself. His younger wife has become abusive and neglectful, so much so that she has to be removed from the home. The father has two children from a prior marriage and the wife has one from a first marriage. The step siblings have only met a few times, and do not know each other. The father’s trust listed all three children as successors, and the same for the healthcare directive. When the wife is removed from the home, the battle begins.

The same thing can occur with a nuclear family but is more likely to occur with blended families. Here are some steps adult children can take to protect the whole family:

While parents are still competent, ask who they would want to take over, if they became disabled and cannot manage their finances. If it’s multiple children and they don’t get along, address the issue and create the necessary documents with an estate planning attorney.

Plan for the possibility that one or both parents may lose the ability to make decisions about money and health in the future.

If possible, review all the legal documents, so you have a complete understanding of what is going to happen in the case of incapacity or death. What are the directions in the trust, and who are the successor trustees? Who will have to take on these tasks, and how will they be accomplished?

If there are any questions, a family meeting with the estate planning attorney is in order. Most experienced estate planning attorneys have seen just about every situation you can imagine and many that you can’t. They should be able to give your family guidance, even connecting you with a social worker who has experience in blended families, if the problems seem unresolvable.

Reference: Forbes (June 28, 2021) “Could Your Aging Parents’ Estate Plan Create A Nightmare For Step-Siblings?”

Estate Planning Matters for Singles

If you’re not married and you have relatives or friends to whom you would like to pass certain assets, then you need an estate plan, says the article “Estate planning important even if you’re not married” from Rocky Mountain Telegram.

If you die without a last will and testament or other estate planning documents in place, a probate court will make the decisions about how to distribute assets according to the laws of your state. That may not be what you wanted, but it will be too bad—and too late.

If you want to leave assets to family members or close friends, you’ll need to plan for this with a last will and testament. The same goes for any donations you may wish to leave to one or more charitable organizations. You could just name organizations in your will, but there are many different ways to give to charity and some have tax benefits for you and your heirs.

One way to leave assets to charity is a Charitable Remainder Trust. Your estate planning attorney will help guide you through the steps. Appreciated assets, like stocks, mutual funds, or other investment securities, are transferred into an irrevocable trust. You get to name the trustee—you could be the trustee, if you prefer—and then you can sell the assets at full market value, avoiding any capital gains taxes that you’d pay if you sold them as an individual.

If you itemize your income taxes, you might be able to claim a charitable deduction on taxes. With the proceeds, the trust can purchase income-producing assets and provide an income stream for the rest of your life. When you die, the assets remaining in the trust will go to the charity or charities that you have named.

Family members and charities aren’t the only ones to consider in an estate plan for a single person. You need to prepare to protect yourself. With the absence of an immediate family, being protective of your financial and health care decisions requires a durable power of attorney and a health care proxy, among other documents.

The durable power of attorney authorizes a person of your choice to manage finances, if you were to become incapacitated. This is especially important when there is no spouse to take on this role. Your health care proxy, also known as a medical power of attorney, authorizes someone you name to make health care decisions on your behalf, if you are unable.

Estate planning can be complex. An experienced estate planning attorney will be an invaluable resource as you go through the process. Who will be the best candidate to select as your power of attorney? What other documents do you need to ensure that your assets go to the people or charities you want? Once this is done, you’ll be prepared for the future—and protected.

Reference: Rocky Mountain Telegram (June 6, 2021) “Estate planning important even if you’re not married”