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Estate Planning Questions and Answers
Excerpts from questions sent to questions@rushforth.org. |
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Estate Planning Questions and Answers
Excerpts from questions sent to questions@rushforth.org. |
Answer: I doubt I can give you a good answer, but I can at least give you something to think about. Ultimately, you have to visit with an attorney in your area to discuss fees.
In some areas around the country, it is common for a complete "standard estate planning package" to cost $3,500 and more when prepared by an upscale, specialty law firm that focuses on custom-drafted documents. Solo practitioners and law firms that focus on more standardized documents may charge significantly less. Let me explain some of the factors involved.
In addition to the fees related to the initial creation of the documents, there may be additional charges for keeping things up to date. For most people, the maintenance of a living trust amounts to keeping a current inventory of trust assets, periodically changing a written list related to items of personal property to be given at death, and making a trust amendment once in a blue moon to change trustees and modify how distributions are to be made to beneficiaries. At the other extreme, I have clients who have already paid thousands of dollars, and their estate plan, to them, is more like a work in progress than something that is ever finished.
If you spend more time and effort buying a new car than you do shopping for the right estate planning attorney, perhaps you need to adjust your perspective a bit. Your estate plan will affect ALL of your assets, not just your car. With estate planning attorneys, you do not always get what you pay for, but be careful about the too-good-to-be-true bargains. This is too important to look for the cheapest trust you can get. (See also http://rushforth.org/planning/answers5.html#ChooseAttorney for a discussion of how to pick an estate planning attorney.)
Answer: In deciding where to keep original wills, consider the following factors:
1. Will the will be easily accessible to the executor upon my death?
2. Will the will be protected from fire, theft, and destruction (whether by accident or by the intentional acts of those who would not want the will carried out)?
3. What is the state law with respect to using a copy of the will when an original is not available?
4. If a will is in a bank's safe deposit box, will state law require the box to be sealed for a time and what is the bank's policy with respect to access to a decedent's safe deposit box?
I recommend against having an attorney (or anyone else) keep the only original will unless the will is kept in a fireplace location. Since I do not have fireproof storage for the wills I have, I decline to keep the only original. In our office, we have our clients sign "duplicate originals". I keep one, and the client takes one. The copy I keep can be retrieved by the client at any time by merely signing a receipt for it. I recommend that clients keep their originals in a fireproof location, such as a fire safe or a bank's safe deposit box. In Nevada, safe deposit boxes are not sealed (as they sometimes are in states having a state inheritance tax). The executor should be a signatory on the safe deposit box or should have a key or combination to the safe in which the will is located. Alternate executors should be told where the original will is kept, just in case.
If a bank or trust company is the named executor, I suggest giving a copy of the will to the bank or trust company. I normally provide the bank or trust company with a photocopy except for those that offer a free fireproof repository for original documents.
I normally do not suggest that clients provide beneficiaries with copies of documents. Many documents are revised or replaced over the years, and having many copies of superseded wills can cause confusion later.
Preservation and accessibility are the key factors. After that has been worked out, everything else comes down to personal preference.
Answer: False! While a person can write a will to give the executor great power, in the absence of a specific authorization in the will, the executor has no right to take any assets. The executor is entitled to reasonable compensation from the estate (which varies from state to state), but the executor is under a duty to carry out the wishes of the will. If the executor takes something contrary to the will other than compensation, it is embezzlement. In Nevada, where I practice, the executor is even forbidden to purchase assets from the estate even for full price. This is to discourage an executor from taking advantage of his or her position of trust.
Answer: Under your will, you can direct distributions of cash or of specific assets, or you can direct the distributions of fractional shares and give your personal representative (executor) the right to decide whether the distributions will be made in cash or in kind. ("In kind" just means a distribution of assets rather than cash proceeds from the sale of assets.) Most personal representatives like the flexibility of being able to distribution "in cash or in kind".
The federal estate tax exemption ($675,000 in 2000) applies only to the federal estate tax. Each state has its own inheritance or estate tax exemption. (Some states -- such as Nevada where I live -- do not have a separate inheritance tax and only collect a portion of the federal estate tax. In those states, if there is no federal tax, there is no state tax.)
Answer: Before you contest a trust, it is absolutely necessary to consult a qualified trust and estate attorney who is licensed in the state in which the trust is being administered. Many trusts will have a provision that if you contest it, you get nothing and are treated as if you died.
It is within your mother's rights to set up an income-only trust or a discretionary trust under which all distributions are made in the trustee's discretion. This can be done for generation-skipping purposes (i.e., to leave the principal to the next generation or even later generations while allowing the current generation to benefit from the income) and it can be done for creditor-protection purposes because in most states a discretionary trust cannot be attached or garnished by a beneficiary's creditors.
My suggestion is that you contact a bank's trust department or a trust company in the state (and preferably the city or county) where the trust is and get the name of two or three attorneys whom they recommend as experienced in the area of trusts. Make an appointment to visit them. They may want you to send them a copy of the trust before the meeting or at least bring a copy with you to the meeting. (Providing it before the meeting may make the meeting more productive.) I suggest that you go to at least two attorneys. Many attorneys will give you an initial consultation for a reduced fee or even no fee, and I would encourage you to take advance of that.
In most states, a parent has no legal duty to leave children any benefits under a trust. The fact that you are (a) getting less than you want, (b) treated differently than your siblings, or (c) getting less than you think you need does not mean that the courts will have sympathy towards you. A good attorney will explain to you what your rights are and what the consequential risks and potential expenses might be, and then you can decide if you want to pursue this any further.
Answer: Probably not. Except as permitted (1) under the terms of the instrument or (2) under state laws relating to trust reformation, removing a beneficiary from an irrevocable trust is not usually possible without the beneficiary's consent. Of course, it depends on the wording in the trust document, but "irrevocable" usually means that modifications are not possible. Sometimes a trust will give the trustee (or some other person) discretion to make distributions in favor of one beneficiary instead of another, and sometimes a person is given a "power of appointment", which allows a change of beneficiaries, usually upon some triggering event, such as a prior beneficiary's death.
Irrevocable trusts are sometimes designed to allow the settlors (trust creators) to purchase assets back from the trust, which can prevent specific property from passing to an undesired beneficiary, but the purchase price must be the current fair market value of trust assets, which means that the value still belongs to the trust's beneficiaries. If the trust holds insurance, purchasing the insurance policy by the insured [or by a trust that is a "grantor trust" as to the insured] may accomplish the intended objective.
The only way to be sure about the options available is to have the trust reviewed by an experience trust and estate attorney who is licensed in the state whose laws govern the trust.
Answer: The English common law recognized the concept that some lifetime transfers were to be counted against an heir's inheritance. Such transfers are called "advancements". Most states now have statutes that specify what transfers are considered advancements, and the calculation of a will beneficiary's share takes advancements into consideration. In order for a lifetime transfer to be considered an advancement, it is usually required that the donor specifically declare -- or the donee to acknowledge -- the transfer to be an advancement, in writing.
Another method of dealing with this issue is to have the will or revocable trust contain an "equalization clause" that directs the trustee to take into consideration certain transfers, such as lifetime gifts, property received by right of survivorship, and assets received by beneficiary designation.
Although most states allow beneficiaries to agree on a division of assets different from that provided in the will or living trust, I caution against relying on an unwritten agreement or understanding among the beneficiaries that they will equalize things later. Unwritten "understandings" are hard to prove and sometimes unenforceable under the law. Financial problems, marital problems, or health problems can cause a beneficiary to be unwilling or unable to honor the family "understanding" that everything will be made equal. Everything should be carefully documented with legally binding documents. [NOTE: I can only guess that the equalization does not occur as often as it should, but I really have know way of knowing because I do not get consulted when things go right. I get consulted when someone feels cheated because the family members do not agree to equalize.]
Answer: Estate planning is full of acronyms. (It's like alphabet soup.) A QSST is a "Qualified Subchapter S Trust". This is typically an irrevocable trust with one beneficiary, and it is used to own S corporation stock (which is a corporation that has elected to be taxed at the shareholder level and not at the corporate level). Irrevocable trusts cannot usually own stock in S corporations unless the trust is either a QSST or an ESBT (another acronym). An "ESBT" is an Electing Small Business Trust. A QSST is usually more favorable from a tax perspective, but it requires the cooperation of a trust's beneficiaries. If the one or more beneficiaries do not cooperate with the trustee to qualify a trust as a QSST, an ESBT may be a better option.
It is common for estate planning attorneys to include a provision authorizing or requiring a Trustee to put S corporation stock into a QSST or an ESBT. It is harmless if you never acquire S corporation stock, but it is important to have just in case you do. It is not just important for revocable trusts; it may be even more important for irrevocable trusts. For example, we had a client whose major asset was an S corporation that she had established. When she died, her insurance was paid into an irrevocable trust. The family CPA advised the family that the insurance trust should purchase the S corporation stock from the revocable trust to provide liquid funds to pay estate taxes. While that was sound advice, it did not work because the irrevocable trust did not have the QSST/ESBT language and could not own S corporation stock without terminating the corporation's status as an S corporation.
The rest of his estate amounting to over $1.5 million was left under the terms of his will to a friend. I was not named in the will nor was anyone else. I have written the friend twice asking for title to the home we lived in together. The friend has not answered my letters.
I do not know how to contest the will or if there is any chance I can recover any portion of my "husband's" estate.
Answer: Unless the state in which you live recognizes common-law marriages AND provides for a mandatory inheritance ("forced heirship") for spouses, you are simply out of luck except as to the CDs where you were the designated as the pay-on-death beneficiary.
In most states, a person has the ability to leave one's estate to whomever he or she wishes. There are some exceptions for spouses and children, and you should look into it. If you had been married, the consequences might be different. If you had also lived in a community property state, the consequeces would be signficantly different.
The person who contests a will generally has the burden to prove that (1) the person making the will did not have sufficient mental capacity, (2) legal formalities were not observed, (3) the will was made under threat, coercion, or "undue influence", or (4) the will is superseded by a forced heirship statute. In your case, even if you had the will invalidated by a court, you would then have to prove that you are an heir under your state's intestate succession statutes.
I recommend that you contact your state or county bar association's attorney referral service or get an attorney recommendation from a local bank trust department or trust company. Arrange for an initial consultation, but be prepared for bad news.
Answer: Most of my clients who have a child or a parent with special needs have established a discretionary trust that is intended to supplement other resources that may be available to the child or parent. We call it a "supplemental needs trust" or a "special needs trust". The trust provides for discretionary distributions. In other words, there are no mandatory distributions because in most situations mandatory distributions may reduce or eliminate benefits available to the child or parent from SSI, Medicaid, and other public assistance programs.
If a client prefers not to have public assistance benefits (at least until the assets are dissipated), then the trust need not be discretionary and can provide for mandatory (instead of merely discretionary) benefits.
You need to consult with the public assistance agencies in your area to see what assistance benefits would be available. Then you can consult with an attorney to design a trust that is consistent with your objectives to provide for discretionary or mandatory benefits.
The hardest decision will be to arrange for guardians, caregivers, and or a care facility to make sure that the child or parent is properly cared for. That, too, should be provided for in your will or trust, as required under your state's laws.
Email address:
layne@rushforth.org
Your comments and suggestions will be greatly appreciated.