Louisiana Estate Planning and Successions

Remarriage and Your Estate Plan

Congratulations - you're getting remarried!  It's important to take time to celebrate such an exciting event, but it's also a good time to review your estate plan.  Even though you may have assembled a solid estate plan during your first marriage, stepchildren and financial changes make a new estate plan a must.  To ensure that your interests are taken care of when you remarry, consider the following:

• Take an inventory of your assets and debts, and decide how to handle finances. For example, is one spouse selling a home?  Will that spouse contribute to the current or new home?
• Decide what you want to happen when you die. Are there certain assets you want to remain with your children from the first marriage? Is a trust necessary to protect your children?
• Change your beneficiary designations!  Can't stress this enough. It's not automatic.  Your divorce decree may limit your options.
• Consider a prenuptial agreement.
• Consult an estate planning attorney.  Even if you have minimal assets, it makes sense to sit down with a professional and discuss the issues.

Source for Post: Elder Law Answers. Read it here.

Special Needs Trust Issues: Commingling Funds

A recent case from Rhode Island portrays how easy it can be for untrustworthy people to steal from a trust created to benefit a child with special needs.  Matthew Goodness was born with cerebral palsy and later obtained a deferred annuity as a partial settlement of a lawsuit.  The payments started on Matthew’s 18th birthday.  They were deposited into a trust for special needs created by his parents, Mary and Francis Goodness, for his sole benefit.  His parents were assigned as the co-trustees of the trust, and Fleet Bank (now Bank of America) was appointed as successor trustee.

By the time Matthew started receiving the annuity payments, his parents were separated and seeking a divorce.  Mary and Francis began withdrawing money from Matthew’s trust and putting the funds into their separate personal bank accounts.  While Mary used trust fund money to buy groceries and pay rent, Francis spent the funds he took on beer.  Although Matthew’s essential living expenses were paid for, neither parent coordinated his care with the other.  Eventually both Mary and Francis asked the court to remove the other as a co-trustee.  After a hearing, the Rhode Island Superior Court ousted both Mary and Francis as trustees and appointed Bank of America as the successor.  The court concluded that both parents “(1) breached their duty of loyalty to the Trust; (2) impermissibly comingled Trust funds with their personal funds; (3) wasted and depleted Trust fund assets; and (4) breached their fiduciary duty to the Trust.”

The Goodness case serves as a drastic example in commingling trust funds with personal assets, and should alert reliable parents who are the trustees of a special needs trust.  Trustees have a “fiduciary duty” to administer a trust in the best interests of the beneficiary. Key to successfully managing a trust of any nature is the separation of trust assets from the beneficiary’s and the trustee’s personal property. One who takes funds designated for the beneficiary and uses them for himself without approval is not only violating his fiduciary duty, but also stealing.  Common solutions to this problem are to appoint an independent trustee to serve alongside a family member trustee or establish a committee of trust advisors to monitor the trustee.  The trustee must remember to keep the best interests of the beneficiary at heart and to work with a qualified special needs planner to monitor and supervise the trust.

To read the opinion, click here.

Source for Post: Academy of Special Needs Planners

Wills & Trusts: When to Distribute to the Children

Setting up a living trust or drafting a will including a trust involves making choices about how to regulate your children’s inheritance.  There are several things to consider:  your children’s ages, the size of the inheritance and your degree of concern. Generally speaking there are three options:

• An outright distribution, free of trust, to a child who is at least 18 years of age or older;
• A distribution to a trust for the child with defined provisions and a termination of the trust at a specified age; or
• A trust for the life time of a child.                                                            

The first option may be chosen, for example, if your children are age 30 or older and are free of health, marital, tax and liability issues. You may decide that an outright distribution to the child/children is best and, in addition, set up trusts for grandchildren if the child/children predeceases.  The second scenario may be the optimum choice if, for example, you leave minor children as heirs. The inheritance may be placed into a trust where distributions can be made to their guardian till they reach a specific age.  Once this specific age, i.e. 25, is reached, the remaining principal can be disbursed.  This trust can be set up to allow a trustee to make distributions for important events that come up such as a college education, a wedding or the purchase of a new car.  The third option, a life time trust, may be selected if the inheritance is such a large amount that you wish to have a trustee distribute the funds to the child/children over their life time. This is the most restrictive of the three.

All of your children are unique, and you can choose to arrange different terms for distributing inheritance for each child.  These matters are important and you have a variety of options. Discuss them with your estate planning attorney to decide what is best for you and your children.

Source for Post: California Estate Planning Blog

Minor Children & Your Estate Plan

Another reminder of the dangers of not have an estate plan in place if you have minor children. This one from The California Estate Planning Blog.  One of their authors writes (and is right):

I am constantly amazed at how many parents do not have an estate plan in place to protect their minor children.

It's one thing not to be overly concerned when your children are older, but if you have minor children in your home, life insurance policies, real estate and the usual extended family with grandparents, aunts, uncles -- there is almost nothing more important that consulting with an estate planning attorney to find out what you need to do to protect your minor children in case you and your spouse pass away.

If something happens to both Mom and Dad, there are guardianship issues, money issues and other issues that immediately come up. You want to make it easy for your family and friends by providing clear instructions on who should be the guardian, the executor, the trustee and the like. You don't want to make it any harder should your children be facing the loss of both Mom and Dad unexpectedly.

I could go on and on, but consulting with an attorney to draft up wills, trusts, and other related documents is a definite must do.

Hat tip to: The California Estate Planning Blog.

Have a Backup Plan

Special Needs Answers reports on a recent Wisconsin case that highlights the importance of having back-up guardians in place in case the original guardian can no longer serve. They report:

Paul V., a 27-year-old man who has been severely disabled since birth, was placed under guardianship in Illinois, with the court naming his grandparents, whom he lived with, and a bank as guardians. Subsequently, Paul's mother, Vicki B., petitioned for and was granted guardianship in Wisconsin without disclosing that Paul already had guardians in Illinois. In 2003, a Department of Human Services in Wisconsin filed a petition to be named Paul's guardian because his mother and grandmother were in the process of pleading guilty to federal mail fraud charges. His mother and grandmother agreed to the appointment, but did not discuss with the court provisions for a successor guardianship so that Paul would not have to rely on a state guardian for the rest of his life.

Paul's aunt, Kristin, then petitioned the court to remove the Department as guardian and appoint her as successor guardian. The Department objected, arguing that under state law, a petitioner for successor guardianship must be an "interested party." Since Paul's original guardians had left no instructions for the court requesting that Kristin or another close family member have the potential to become a successor guardian, Kristen was unable to prove to the court that she was an interested party. Therefore, the court did not grant her petition, and Paul remained a ward of the state.

This case illustrates an important point: don't take anything for granted. Even in Paul's case, where his original guardians were clearly unable to care for him properly, they could have given input to the court on behalf of others who could have done a better job. This situation can also occur when a guardian passes away while still performing his or her duties. In these cases, simply inserting a brief request in your will naming your choice for a successor guardian could make that person "interested," and, therefore, eligible to care for your loved one after you are gone.

Backups are also a good idea when naming executors and trustees. Don't leave it up to a judge. Include backup planning in your estate plan.

Upcoming Changes in the Estate Tax Exclusion

On January 1, 2009 the federal estate tax exclusion is scheduled to jump from $2 million to $3.5 million. This change in estate tax law will give high-net-worth Americans who care about the financial well-being of their heirs a powerful incentive to survive until that date. Make it to the new year and save your heirs a bundle.

The top estate-tax rate (45%) won't change. But raising the exclusion by $1.5 million could translate into tax savings of hundreds of thousands of dollars for fortunate heirs.

The upcoming change has increased the importance of staying healthy, especially for wealthy people in poor health. Based on current law, there's an even bigger incentive to survive until 2010 when the federal estate tax is scheduled to disappear entirely, only to reappear again in 2011 with a $1 million exclusion for 2011. Don’t count on a total repeal of the estate tax - Congress must act next year.

Although it is unknown what Congress will do and we are in an election year, it's significant that, under both candidates' plans only a small fraction of estates would incur the federal estate tax. Some experts estimate that the Obama plan would tax less than one-half of one percent of all estates of people dying in the U.S. And, the McCain plan would tax less than one-quarter of one percent.

• The Obama Plan: $3.5 million exclusion and retain the top rate of 45%

• The McCain Plan: $5 million exclusion and cut the top federal estate-tax rate to 15%

Despite their differences, both senators support retaining the current system for valuing stocks, mutual-fund shares and other inherited property whose value has increased over the years. The system, commonly referred to as “stepped-up basis,” works like this. Someone dies and leaves you an assortment of stocks and fund shares that have risen sharply in value over the years. Your cost basis for purposes of calculating taxes would typically be the increased value on the date of death (versus the cost when purchased). The current step-up system is scheduled to continue through 2009, and then undergo major changes in 2010.

Click here to read entire article.

Source for Post: Wall Street Journal, “Stayin' Alive: How to Cheat The Estate Tax” Tom Herman - July 2, 2008

Estate Planning and Divorce

Leanna Hammill, an estate planning attorney in Massachusetts has an excellent series of posts on how divorce affects your estate plan and what you should do about it. In summary, Leanna suggests (and I agree) that you should:

Before the divorce is final, meet with your estate planning attorney to:

• Examine any powers of attorney (POA) in which you have named your current spouse and revise them to designate someone else as your agent. Also, check to make sure any entity that has a copy of the old POA is notified of the change and is provided a copy of the new POA. This is very important because most couples draft the POA to be effective immediately, which means your now about-to-be-ex-spouse has access to your bank accounts and other assets, even if those assets are titled in your name only
• Likewise, examine any health care proxies or powers of attorney for health care. Revise them to name an alternate agent and make sure those who have copies are notified of the change and provided new copies
• Examine your current will and any trusts and design a new plan for distribution of your assets and protection of your children

When the divorce is final (as soon as possible), meet with your estate planner again to:

• Sign your new estate planning documents
• Review and revise all beneficiary designations on IRA accounts, investment accounts, life insurance policies, etc.

In addition to Leanna's suggestions, it's also important to advise your business partners of your pending divorce and review relevant provisions of your partnership or operating agreement. Most LLCs and partnerships have documents that address what happens to your interest upon divorce.

Consulting your estate planning attorney before the divorce is final can help you plan for your divorce and ensure that things you fight for in your divorce settlement are protected. If you are in the midst of a divorce or are thinking of filing for divorce and need help with your estate plan, feel free to contact my office to schedule a consultation.

Read Leanna's posts here and here.

Business Succession Planning, Estate Planning, Trusts

Pass on Your Real Wealth - Your Values

The Boston College Center on Wealth and Philanthropy estimates that $41 trillion will change hands by 2053. That's the largest intergenerational transfer of wealth in American history and increasing numbers of those transferring wealth are considering transferring their values as well as their dollars. In the past, most families avoided discussing death and inheritance, but now more and more families are doing so. As part of that discussion, families are discussing their values and purpose in life. In the article, Patricia Angus of Shelterwood Financial Services puts it this way:

"The definition is broadening to include not just financial capital but human, social and intellectual capital,” Ms. Angus said. “Professionals used to think it was just, How do I transfer my financial assets at the lowest tax costs? Now people are asking, What is the purpose and meaning of what I’m doing here, and how do I pass those down? It’s not about death. It’s about an experience in life, an opportunity to talk as a family about purpose and values that might not otherwise come up. For people who just write a document and put it in a drawer to be opened on their death, I don’t see that opportunity coming up."

I've discussed having a family meeting to discuss you estate plan here before. It's an excellent way to manage expectations, pass along your values and limit disagreements after you die.

Source for Post New York Times

Boston College Center on Wealth and Philanthropy

Business Succession Planning, Estate Planning, Trusts

Choose IRA and Other Beneficiaries (and revisit them)

As Deirdre Wheatley-Liss observes in her blog, You and Yours Blawg, one common scenario that occurs on the death of the second spouse to die is that the second spouse has no idea who was named as a contingent beneficiary on insurance, retirement plans, etc. Sometimes those dollars go to unintended beneficiaries (whether they be children or Uncle Sam). An example:

After the recent death of his mother, James B. from Santa Barbara had a sit-down talk with his father, covering family finances.
'My father doesn't need to change anything, he's set up for life,' James said in an e-mail, 'but not changing anything means he wants to leave everything exactly as he had it with Mom. He says that his will sorts everything out, but I'm afraid we're missing something here.'
What James' father is missing is a named beneficiary on his individual retirement account; his wife was the beneficiary, but her death and the absence of a contingent beneficiary means the money will go the estate. The will eventually will sort things out, but the error will turn a lifetime of savvy investing into a Stupid Investment of the Week.

Something else I often see is the failure to revisit beneficiary designations upon the occurence of major life events such as a divorce, remarriage, death or birth. This is particularly tough in a remarriage situation where the beneficiary remains the first spouse. Imagine how "unhappy" the new spouse is to learn that the former spouse may get a majority of the benefits. It's important to remember that these benefits pass outside of your will and upon death the beneficiary designations are not changeable. That means the company pays whoever is still on the beneficiary designation form, which may not be the person you intended.

The end of the year is a good time to take a look at your will, retirement plans, IRA and other estate documents to see that they align with your family situation and your wishes. If they don't, contact your estate planning attorney and get a "tune up."

Technorati Tags: Elder Law, Estate Planning

Avoid Disputes About Caregiving With Sibling Agreements

Caring for an elderly parent is often stressful for families. Here is a common scenario. An adult daughter lives in the same town as her elderly dad. Her siblings live out of state. She is responsible for Dad's care. At some point, she decides Dad needs to move into a nursing home. The other siblings disagree. They might be concerned about their inheritance going to pay assocaited fees or perhaps they just don't understand the situation. The local daughter has witnessed the stove burner being left on or was called at 11 p.m. when Dad left the house in his PJs for a walk. Sibling disputes can escalate into a guardianship battle, potentially costing the family thousands of dollars and ruining relationships. One solution is to draft a Sibling or Family Care Agreement.

The agreement can cover topics such as:

• Where the parent is to live
• Which sibling has primary care responsibilities
• Guidelines for moving a parent into a nursing home
• How finances will be managed
• Whether the siblings will contribute to the costs of care
• What happens if a sibling does not comply with the agreement

The agreement can be a valuable aid to a trustee or the agent under a power of attorney, but is not a replacement for either estate planning tool. Ask your estate planning or elder law attorney about how to incorporate a Sibling Agreement into your family's plan.

Source for Post: Elder Law Answers

Read an article about Sibling Agreements from the Dallas Morning News.

Technorati Tags: Elder Law, Estate Planning