Barnes Lipscomb & Stewart PLLC

Why Wills and Estate Planning are Not Do-It-Yourself Projects

Estate planning attorneys are often called upon to repair the damage, after homemade wills are found to be invalid.

It sounds like a great idea, kind of like building your own furniture or baking your own bread. But wills and estate plans are governed by state law, and laypeople often run into problems when drafting their own wills, as reported by Kiplinger in “5 Avoidable Mistakes in the Will You Write.” These are the top mistakes made by non-lawyers who try to draft their own wills. Here’s a better idea: have it done by a trusted professional.

1. Considering Your Family. A will lets you leave your money to whomever you choose. However, most people don’t know that your nearest family members may be allowed to contest your will in court. They’ll probably lose, but your next of kin have the right to know that you are disinheriting them. They should be placed on notice when you die and your will is submitted to the court for probate. The court will want to know your nearest heirs, particularly if you are estranged from them, since the judge will assume they’re the most likely ones to contest your will. You should include your spouse, children, parents, and siblings who are alive or deceased, so the court knows that these people don’t need to be put on notice, along with the addresses of where your next of kin reside. If a close family member is being disinherited, make sure to spell that out in the will.
2. Leaving Money to Minor Beneficiaries. Minors can’t own substantial funds in their own name, and the probate judge will conduct a guardianship or conservatorship proceeding to appoint someone to oversee the funds (at the expense of your estate), until the child reaches 18. The guardian appointment is something you’d have no control over, so let your executor leave bequests made to minors to a Uniform Transfers to Minors Act (UTMA) account. That way the funds will be administered by your choice of custodian until the child is 21. If you are planning on leaving a child a considerable sum, create testamentary trusts in your will. You can instruct how the funds can be used, like “for the beneficiary’s health and education until she reaches 30, at which point all remaining trust funds are to be distributed.” Designate a suitable trustee and stipulate who receives the funds, if something happens to the beneficiary.
3. Naming an Inflexible Executor. The executor will oversee your estate’s affairs, so name the most trustworthy and capable person you can think of to serve as the executor of your estate. A common mistake is naming too few or too many executors. If you name only one, and she can’t serve, your beneficiaries may wait a while for the court to appoint another executor. If you name too many people, there could be disagreements and a lack of coordination. Designate responsible and reliable people as executors, and name at least one or two younger people to succeed your initial selection.
4. Failure to Launch. If you draft your own will and there’s an issue, your family will only know about it after your death, when nothing can be done to rectify the situation. Sign your will in front of a specific number of witnesses, and you may need them to sign an affidavit in front of a notary. If you mess this up, your will may be invalidated.
5. Failing to Locate the Original Will. If you draft your own will, you need an original, signed document. If an attorney drafted the will and it becomes lost, the attorney may be able to verify a signed copy of the original will in a court during a lost will proceeding.

It’s understandable why someone would want to create their own will, but what often happens is they leave behind a will that is either invalid altogether or creates a situation for their heirs that requires the services of an attorney to complete. Better yet: sit down with an experienced attorney and discuss your overall goals to create an estate plan that will work for you and your loved ones.

Reference: Kiplinger (July 2017) “5 Avoidable Mistakes in the Will You Write”

Women and Retirement: Special Challenges

Women who are widowed or divorced or those whose careers are impacted by raising children or caring for a loved one, are in a more precarious position than their male counterparts when it comes to retirement finances.

A third of all widows lose their husbands before age 60, and a half of widows lose their spouses before age 65, according to a study by the Women’s Institute for a Secure Retirement. This data presents a hard truth about women and retirement: planning is essential to maintain a quality of life as women age. New Hampshire Business Review’s recent article, “Why retirement planning is so important for women,” details two of the reasons retirement planning is so critical for women.

Women Still Have a Late Start. Despite more gender equality, women still do the majority of childcare. Some women can balance home and work life, but many mothers leave jobs or reduce their hours to care for their children. That means a reduced or no income, making saving for the future difficult. A Society of Actuaries study found that caregivers who leave the workforce lose an average of $303,800 in lifetime earnings.

They live longer. Women outlive men by an average of five to six years, so their financial requirements exceed those of men (they tend to spend more years in retirement). As the Society of Actuaries noted, the average woman spends more years experiencing some form of disability. With healthcare costs rising, planning for disability care is critical to women.

Here are some retirement planning tips:

Organization: Keep a list of account numbers, logins, balances, and other important records, in case of a life-altering event. It will allow you to easily determine where you stand. Consider how your income might change due to the loss of your spouse. If you have a pension, look at the survivorship payout, so you’ll know what to anticipate for added income.

Control: If you’re single or preparing for that possibility, take responsibility for your finances. Start financial planning and save for retirement now. Start regular 401(k) or IRA contributions or increase contributions to receive your employer’s match.  You should also start saving funds for emergencies. As a woman, you can’t save too much.

Estate Planning: A widow can suffer the pain of losing her spouse, and then get another shock when she sees that she doesn’t have an estate plan in place.  In addition to an estate plan, draft medical and financial powers of attorney, so a trusted person can make decisions for you, if you’re incapacitated. It is also recommended that you add designated beneficiaries to your accounts and correctly title your property.

With good planning and an open mind, widows can successfully navigate their senior years. Life is different without a beloved spouse by your side, but it can still be fulfilling. Having a financial and estate plan in place in advance, is important for a rewarding life during this stage.

Reference: New Hampshire Business Review (June 23, 2017) “Why retirement planning is so important for women”

Is a Revocable Trust Right For Your Estate Plan?

Creating an estate plan offers peace of mind for the individual and their family. Revocable trusts are a good fit for many estate plans.

Also known as “living trusts,” a revocable trust is a very flexible document that can be modified during your lifetime to reflect changes in your family or in your circumstances. They typically become irrevocable when you die, at which point they protect assets for your family.

Motley Fool’s recent article, “Revocable Trusts: What You Need to Know,” explains that a revocable trust is a trust you create to hold whatever property you want to be subject to its provisions. What makes a trust “revocable”, is that even after you create it, you can change it or cancel it and distribute its assets back to yourself. When you create a revocable trust, you act as its trustee during your lifetime.

A revocable trust is worthwhile, if you become ill or an injury incapacitates you to such a degree you can’t handle your financial matters. Successor trustee provisions of your revocable trust let the individual you name take care of those matters on your behalf. The successor trustee becomes responsible for paying your regular bills and handling ordinary financial needs that arise. When you're able to manage your own affairs again, you can take back the trustee role.

The revocable trust includes your wishes for what should happen to trust assets after your death. For example, a revocable trust can be useful for those with minor children. You can provide for the trust to continue and for trust distributions for the benefit of those children to be made by the successor trustee, until they’re old enough to handle their own financial affairs.

Another benefit of revocable trusts is that your family can usually avoid probate. Revocable trusts are private documents that typically aren't subject to probate proceedings. A successor trustee can manage your affairs without court intervention or public scrutiny.

Your estate planning attorney will help set up the revocable trust, but you will need to formally transfer the title of your assets to the name of the trust. Neglecting this final step means that the provisions of the trust will not apply, and your heirs will likely have to go to court after you pass—which you were trying to avoid by using a revocable trust—to address distribution of those assets.

An estate planning attorney will be able to explore how incorporating a revocable trust in your estate plan will benefit you and your family.

Your estate planning attorney will also be able to advise you regarding whether good wills are what your family needs.  In Texas, for example, the probate process is relatively simple and inexpensive; if you have good wills that are self-proved and create an independent administration, this may be the best and least expensive option for you.

Reference: Motley Fool (June 23, 2017) “Revocable Trusts: What You Need to Know”

How to Prove Heirs Have Ownership of Mom’s House

Having a properly prepared will that clearly states your wishes, is the most important part of passing an asset like the family home to your children.

Understanding the process by which real property is passed along to heirs, can give peace of mind to parents who are concerned about leaving a legal tangle for their children. In this case, as discussed in Newsday, “How can my children prove they own my houses after I die?”, a woman is concerned about her children being able to prove ownership of the two houses.

The executor will engage an attorney to file the decedent’s will in probate court. In many instances, it’s the same attorney who initially drafted the will.

After the probate judge reviews the document, he or she, more often than not, validates the will and issues “letters testamentary.” These letters authorize the executor to carry out the instructions in the will.

Children won’t be required to do anything to prove ownership of the houses. After the decedent’s will is probated, it’s a public document, and a buyer’s title insurer will verify that the sellers—in this case the four children—do indeed own the house.

A certificate of the court’s “letters testamentary” is the only document the executor is required to have, in order to legally sell your house and to distribute the proceeds in equal shares to the children.  However, it’s not uncommon for a buyer to request a copy of the death certificate, although it’s really unnecessary, since it’s been filed with the court in the probate proceeding.

To ensure that the house in the second state passes correctly, the executor will want to retain an attorney in that jurisdiction to file for what is known as “ancillary probate”, before the house can be sold. That state’s court will ask the first court’s state for “exemplified” copies or official copies of documents that include the death certificate, the will, letters testamentary and the signatures of the probate judge and county court, where the will was initially probated.

A meeting with an estate planning attorney who is admitted to practice in both of the states where the houses are located would be an ideal situation. He or she would be able to explain the process in depth. It may also be helpful for the children to meet with the attorney and the parent, so that everyone understands what will take place.

Reference: Newsday (June 28, 2017) “How can my children prove they own my houses after I die?”

Next Up for Inheritances: Millennials and Gen Xers

The next few decades will see a vast amount of wealth transferred from Baby Boomers to their children. The question is, will those children be ready to manage new wealth?

Almost $30 trillion in assets has already started to pass from one generation to the next, according to Delaware Online in “You've just inherited a million dollars. Now what?” Ten percent of this enormous transfer will take place within the next decade, and the passing of Boomers, who are considered the wealthiest generation ever, will create a whole new class of millionaires.

Many are saying that the situation is tougher on the person receiving the money, than the one giving it away.

It is hard to tell a younger person to think long-term today.  However, the best thing a “suddenly rich” person can do is to hire a financial advisor, trust and estates attorney and a CPA.

It’s best for children look around, until they find a financial advisor who matches their needs. Studies show that about 66% of children fire their parents' financial advisor when they inherit their wealth. Millennials and Gen Xers may feel more comfortable with a person closer to their own age with contemporary ideas.

Get comfortable with that person and their compensation. Make sure that you select a financial advisor who has your best interests at heart.

Children who inherit a large amount of money should pause and consider their short- and long-term goals. When you understand your goals, it’s easier to find an advisor who can execute that vision.

A financial advisor will monitor the inheritors’ financial goals and keep them on course. Sometimes, those who receive a sudden windfall don’t truly comprehend how much money they have. As a result, they burn through it like it was going out of style.

Inheritors shouldn’t run out and make major lifestyle changes right away. Flaunting new found wealth, like buying a Porsche or adding a swimming pool to your house, could make you a target for scammers.

Boomers and their children should have meaningful discussions about what the inheritances will mean to the heirs and how to handle a sudden windfall. Perhaps the family wishes to establish a legacy, or maybe the kids want to start a business. Another consideration: talk with an estate planning attorney about the use of trusts to protect spendthrift kids. An estate planning attorney can guide parents and heirs.

Reference: Delaware Online (June 23, 2017) “You've just inherited a million dollars. Now what?”

You Don’t Have to Be Famous to Need a Will!

All a celebrity has to do is die without a will and the details of their lives are all over the news. There’s a fascination with seeing how those who have achieved a high degree of success, fortune and fame create an epic fail, when it comes to planning for their demise.

We can’t all be Prince. But you still need a will, especially if you own a home, assets and have a family. As reported in New Haven (CT) Register’s article, “Even celebrities fail at estate planning,” you definitely need to have your estate planning done properly, if you live in Connecticut or other states that have a state estate tax with a lower exemption than the federal rate. Otherwise, your heirs may find themselves scrambling to figure out how to pay their tax bill.

There are 14 states and Washington, D.C. that impose an estate tax that’s separate from the federal estate tax. The federal “death tax” is an astronomical 40%, but applies only to assets above the federal exemption of $5.49 million (2017). For example, in Connecticut, the state starts imposing its estate tax on assets exceeding $2 million.

You’d think that celebrities who have considerable wealth would make certain to include estate planning, in their personal finance plan. They can easily afford to engage a team of attorneys and advisers. But many fail to do so. This only shows how common it is for high net worth individuals to neglect estate planning.

Prince: The musician died in April 2016 at the age of 57, but he didn’t prepare a will. A judge will decide how to distribute the $300 million estate.

Heath Ledger: The actor who died unexpectedly in 2008 at age 28 left a will—but he didn’t update it when his daughter was born in 2005. This caused confusion over heirs and possible legal battles, but Ledger’s family did gift the entire estate to his daughter.

Warren Burger: You would think the former chief justice of the U.S. Supreme Court would know how to take care of his legal obligations. But when he died in 1995, he left behind a one-page will that he typed himself. That document was poorly worded and left his family susceptible to a $450,000 estate tax bill and court fees that wouldn’t have been imposed, if had he had hired an estate planning attorney to create a trust.

Depending on your asset level and the complexity of your family life, estate planning can be simple or complicated. Regardless of which category you fall into, you’ll want to work with an experienced estate planning attorney to address taxes, distribute assets and ensure that your wishes are carried out. Maybe your passing won’t make headlines around the globe—but you still want to plan for those you leave behind.

Reference: New Haven (CT) Register (June 24, 2017) “Even celebrities fail at estate planning”

Elder Abuse Law in Arizona Clarified by Supreme Court Ruling

The standard governing nursing home abuse suits is too restrictive, and runs contrary to the aims of state law, according to a recent decision from the Arizona Supreme Court.

With a decision that dismantles a four-part test established in 2002, the Arizona Supreme Court has reversed and remanded a Pima County court’s granting of summary judgment to a nursing home and a doctor who were sued on behalf of a patient, who died while a resident of the nursing home. The lawsuit alleged abuse and neglect of Sandra Shaw under Arizona’s Adult Protective Services Act, and was reported by Law360 in “Arizona Supreme Court Clarifies State’s Elder Abuse Law.” The action was brought against Manor Care of Tucson and Dr. Gordon J. Cuzner, by Marika Delgado on behalf of Sandra Shaw.

Ms. Shaw went to Manor Care’s Tucson facility, after treatment at several hospitals in 2011 and 2012. At the time, she’d already suffered from kidney and heart disease and had a prior operation to remove a brain tumor. After some improvement, her condition worsened in April 2012.

Dr. Cuzner ordered a lab test and urinalysis which showed evidence of an “early” septic infection. However, no additional care was given. After two days of not eating or taking fluids, Shaw’s condition was reported to the assistant director of nursing. But again, no action was taken, and she died the same day.

The lawsuit alleged abuse and neglect under the APSA and other claims. The trial court granted a motion from the facility and doctor for summary judgment, holding that the claims failed a four-part test derived from the 2002 Arizona Supreme Court case, Estate of McGill ex rel. McGill v. Albrecht. That test says that a proper claim under the Act must arise from a caregiver-recipient relationship, be closely connected to the relationship, be connected to service given “because of the recipient's incapacity” and be related to the problems causing the incapacity.

The trial court ruled that the death from sepsis was “not related [to the condition(s)] that [] caused [her] incapacity.”  However, the Supreme Court held that the McGill test was difficult to apply in cases like Shaw’s, where patients had multiple medical conditions throughout their nursing home stay. In such cases, the Supreme Court found that “courts navigating their way through the McGill test have made fine distinctions which, at times, seem to be at odds with the broad protective provisions of APSA.”

The Court referred to the law itself, finding that it provides four elements: the individual is a vulnerable adult who has suffered an injury caused by abuse from a caregiver.

“The fact that APSA identifies the requirements for an abuse claim, combined with the difficulties accompanying the four-part McGill test, prompts us to reconsider the McGill test. In particular, the third and fourth prongs of the McGill test are not found in the statute, and, when applied, have produced a great deal of confusion,” the Court said.

As a result, the Supreme Court said the McGill test should be abandoned in favor of using the four elements of the APSA. With that analysis, the Court ruled that Delgado’s suit on behalf of Shaw was valid and reversed the trial court’s order.

The attorney representing the nursing home made a statement that the Arizona Vulnerable Adult Abuse statute has been at the center of much litigation and the state legislature should direct its attention to fixing the statute.

Reference: Law360 (June 20, 2017) “Arizona Supreme Court Clarifies State’s Elder Abuse Law”

Retirement Planning Doesn’t Stop with Retirement

Being retired requires you to become the Chief Financial Officer of your own life. You need to manage your income, including Social Security, distributions from retirement accounts and any other sources and oversee investments.

Most people think of retirement as the time that they don’t have to make a lot of decisions or work very hard. Wrong! While you may not have job responsibilities in retirement, you do have a new job of managing every aspect of your finances. The challenge: unless you return to employment, the only income you have is that which you have generated from a lifetime of working.

With that in mind, The Brainerd (MN) Dispatch offers a few ideas to consider early on in retirement in its article, “3 Moves you should make in the first 3 years of retirement.”

Understand that retirement can be a long time. Compared to 60 years ago, we're seeing seniors who are retired for nearly 40 years! That means today's retirees must be prepared for a significantly longer retirement than their parents. Nothing is a certainty, but you should plan for a retirement that could last several decades. A percentage of your portfolio should be allocated in stocks and other growth-oriented investments that have historically provided the returns needed to preserve your portfolio for extended periods of time.

Roth Conversions. Diversification means having diversified tax treatments of your savings. If you have most of your savings in a 401(k), nearly every dollar you withdraw in retirement will be taxed. If your savings are only tax-deferred, you'll be hit with required minimum distributions (RMDs) when you reach age 70½. RMDs are a required percentage of your tax-deferred savings that you must withdraw each year—regardless of whether you need the money or not, resulting in a potential jump in your taxable income later in retirement. The solution is to proactively make Roth conversions, so the money will potentially grow tax-free, and you won't have to pay taxes on qualified distributions. You're also decreasing the amount of your savings that’ll be subject to RMDs in the future.  However, you will pay taxes on the amount you convert, so consider the tax ramifications before doing a conversion.

Estate Planning. Think of estate planning as your "legacy planning." When you die, where do you want your assets going? Have a legal will in place and if it suits your situation, a trust. Talk to an estate planning attorney about whether a trust is appropriate for you.  You should also ask your attorney about a power of attorney and a living will to protect you, in the event that you become incapacitated.

To protect your retirement, work with a trusted estate planning attorney and keep a close watch on your finances. By taking these steps in the early stage of retirement, you should be in good shape for what will hopefully be a long and fulfilling retirement.

Reference: Brainerd (MN) Dispatch (June 16, 2017) “3 Moves you should make in the first 3 years of retirement”

How to Make Sure You’re Remembered

How do you ensure that you’ll be remembered as time and generations continue after you’re gone? One way to create a legacy is through the use of life insurance.

According to this article in MarketWatch, “5 ways to make a great impression after you’re dead,” life insurance is the Swiss Army knife of creating a legacy to ensure that you are remembered long after you have passed. That includes a legacy to loved ones as well as your community or causes that matter to you.

The payout from a life insurance policy—known as a “death benefit”—can be used to create a legacy. It’s even more than that for someone who wants to leave a legacy to their spouse and children. A life insurance policy can have a direct impact on individual lives, after you’ve passed away.

Immediate family first. The greatest legacy that you have is your family. Life insurance can assist with financial protection for them. If you have family who rely on your income for their day-to-day lives, think of them when deciding on life insurance and the amount of coverage you need. Your legacy can live on through a death benefit that can pay off the family home mortgage, contribute towards college tuition or help start a business. It can ultimately provide income that helps your loved ones continue to meet their financial needs, if you’re no longer around.

Be the “cool” aunt or uncle. Your nieces and nephews may not need a life insurance policy from you to cover their day-to-day financial needs. However, naming your nephew as a beneficiary of your life insurance policy is a gesture that would cement you as the best aunt or uncle ever. There are numerous uses for life insurance that could help your extended family. Be sure to talk to your siblings to make them aware, set expectations and allow them to factor the money into their family’s overall financial plans. A big influx of cash could have an impact on student aid, so it’s an important conversation to have.

Remember a legacy to your favorite charity. Maybe your legacy should be giving back to your favorite charity, like one dedicated to finding a cure for a disease or animal rescue. Life insurance offers the way to help charities after you pass. You can still continue giving back and advocating for what you believe in, after you are gone. Alternatively, you can name a trust as the beneficiary of your life insurance policy and provide the trust with specific instructions to give a certain amount of your estate to the charity when you die. You could also use your life insurance to establish a scholarship at your alma mater. Contact your school’s development or advancement office for assistance.

Talk with your estate planning attorney about how a life insurance policy can be a part of creating your legacy. You’ll want to make sure that the policy and your beneficiary designations are aligned with your estate planning objectives.

Reference: MarketWatch (May 8, 2017) “5 ways to make a great impression after you’re dead”

Proceeds from Auction of Famed Playwright’s Collection to Benefit His Foundation

One of America’s legendary playwrights was also an avid art collector, who amassed an extraordinary art collection. Unlike many collectors, he lived with his art, and it filled his downtown New York City loft.

The Edward Albee Foundation will be the beneficiary of proceeds from the sale of playwright Edward Albee’s museum-quality art collection, which is estimated to be worth $9 million. As reported in The New York Times, Albee created the foundation to provide a residence to writers and visual artists who would benefit from the time and space to focus on their creativity.

Broadway World says in its recent article, “Sale of Edward Albee's Estate Will Benefit His Foundation,” that the Chairman of Sotheby's fine arts division, Amy Cappellazzo, said: "Edward lived with the collection in a very special way. He lived with it deeply. Everything was placed in an open loft environment, and how they were hung was interesting and specific to him, so we're going to try to do justice to those ideas."

Albee’s estate will sell his art collection to raise money for his foundation in Montauk, N.Y. Sotheby’s is planning to auction more than 100 works from the playwright’s collection, which it anticipates will sell for more than $9 million. The work is mostly 20th Century fine art, such as Jean Arp, Milton Avery, Wassily Kandinsky and Lee Krasner, but it also includes some African and pre-Columbian pieces.

“He really loved objects, and he really loved painting,” said Cappellazzo. She noted that Albee amassed the collection over many years and across many genres. Some works were acquired based on his relationships with the artists, some were connected to devotional practices that interested him and some simply caught his eye.

“That eclectic taste is a mark of his curiosity,” she said. “He had tremendous reverence for the process of artmaking of all kinds, and the collection is definitely that of a collector who was interested in the minds of artists.”

Cappellazzo said Albee’s popularity is expected to increase sales.

Edward Albee, who died in his sleep at age 88 on September 16, 2016, was a celebrated figure of the American theater and recipient of three Pulitzer Prizes. In recognition of his contributions, in 2005 he was presented with a Lifetime Achievement Tony Award. Albee was also presented with the Kennedy Center Honors and the National Medal of Arts in 1996.

Reference: Broadway World (June 25, 2017) “Sale of Edward Albee's Estate Will Benefit His Foundation”