Source: https://www.mcalisterlaw.com/articles-all/category/Estate+Planning
Timestamp: 2019-08-18 23:51:22
Document Index: 573743725

Matched Legal Cases: ['§1151', '§1158', '§12', '§21', '§81', '§178', '§114', '§178', '§178', '§408', '§122', '§199', '§1717', '§512', '§512', '§269', '§114', '§175', '§175', '§1258', '§1102', '§1104', '§1002', '§2025', '§142', '§1255', '§74', '§137', '§11061', '§2503', '§2513']

Estate Planning — Articles — McAlister, McAlister, Baker & Nicklas
Issues in Unplanned and Poorly Planned Estates
by Cody Jones and Ashley Ray for the Oklahoma Bar Journal February 2019
The term “estate planning” implies that a plan for the administration of an estate exists, which, of course, most estate planning attorneys would prefer. However, those same estate planning attorneys likely spend much of their time administering estates of decedents who did not have a plan in place at their death or who had a plan in place that was poorly prepared or never updated. This article addresses some common issues attorneys might encounter in unplanned or poorly planned estates.
IMMEDIATE NEEDS UPON DECEDENT’S DEATH
When a loved one dies, addressing the immediate needs of the individual’s estate can be chaotic for the family. One of the first decisions the family must make is determining the manner of the disposition of the decedent’s remains. If family members all get along, this may not be a contentious decision. When emotions run high and family members do not see Eye to Eye, this decision may become volatile. If the decedent had exercised thoughtful foresight while alive, he or she could have executed an assignment of right regarding disposition of remains pursuant to 21 Okla. Stat. §1151 (2011), which would have delegated to someone the right to control the decisions regarding the decedent’s remains. If no such assignment exists, the individual with priority to control the decisions is determined pursuant to 21 Okla. Stat. §1158 (2011), which is similar to the statute determining those individuals who will have priority to serve as administrator of an intestate estate.[1] The Oklahoma Court of Civil Appeals has previously found it is “highly impractical” to obligate a funeral home to determine all persons who are in the same degree of kinship to the decedent and obtain consent from all of them.[2] Thus, in poorly planned estates, the decisions regarding disposition may be decided on a first-come-first serve basis. In order to avoid such disputes among children, for instance, an assignment of right regarding disposition of remains is advisable.
The welfare of pets is also an immediate concern upon someone’s death. If it is not desired for pets to be surrendered to the local shelter, an individual should have a discussion with friends and family to identify who would be willing to care for the pets – perhaps even including provisions within the individual’s estate planning documents to provide accordingly. A pet owner might consider creating a “pet trust” for the benefit of his or her domestic animals.[3] Without such planning in place, what happens when the care for pets has not been considered in advance? By statute, dogs are considered the personal property of the owner, and by analogy other domesticated pets may also be considered personal property.[4] Thus, the provisions for personal property under a will and the provisions for exempt property allowed the family likely control pursuant to 58 Okla. Stat. §12 (2011). The greater concern, however, is the immediate welfare of the animals. If law enforcement has reason to believe an animal has been abandoned or neglected by the owner and no one is coming forward to care for the animal, the officer may obtain a warrant and the animal will be impounded.[5] The owner (or the deceased owner’s representative) will receive notice of a hearing to determine if the animal was in fact abandoned, and if the court determines a violation has occurred, the animal will be surrendered to a shelter or euthanized, depending on the circumstances, and costs will be allocated to the owner or the owner’s estate.[6] Thus, it is in the best interests of the estate for the personal representative or immediate family members to care for the pets of the decedent or locate someone who can until further disposition can be made.
Another issue that may be an immediate concern after death is an issue that has arisen with the growth of social media. What should the family do with the decedent’s social media accounts, especially when the unfortunate news about the decedent’s death is spreading? Being aware of the options for management of a deceased person’s account for each networking website can prevent additional, unnecessary anxiety for the family. Although thoughts, prayers and fond memories may be publicly expressed and appreciated on social media sites, awkward or inappropriate messages may also be posted to the decedent’s page, in which case they may linger indefinitely if no one is appointed personal representative. Upon appointment as executor or administrator of the estate, the personal representative is given the power by statute to control the decedent’s social networking, blogging and emailing service websites.[7] However, each website has its own policy and procedures. For example, Facebook allows users to appoint a “legacy contact” to manage the decedent’s page, which can be memorialized or deleted following the decedent’s death.[8] Most other social networking websites require an immediate family member or personal representative to contact the company to either memorialize, deactivate or delete the user’s account.[9] Memorializing an account, which prevents others from making changes to the account, is an Immediate Action on most networking websites. Deleting the account, however, may take several months. Thus, it is in an individual’s best interests to explore relevant social media website policies in advance in order to control the account management soon after death.
Lastly, another immediate concern upon death is locating the decedent’s original estate planning documents, if any, and safely securing them for as long as necessary because documents can and do go missing if not properly secured. If an individual has a planned estate, yet the plan cannot easily be located, then even the best laid plan can go awry quickly. The original documents may identify the nominated personal representative, which will give the personal representative assumed authority to make decisions regarding the safety of the decedent’s pets, the security of the decedent’s home and the security of the decedent’s accounts. The original will should be delivered to the named executor in the will or otherwise filed with the district court, if possible, pursuant to 58 Okla. Stat. §21 (2011). While determining if a probate of the will is necessary, the named executor should secure the document in order to avoid proceedings to prove a lost will under 58 Okla. Stat. §81 (2011), if a probate is ultimately deemed warranted. Practitioners should make a habit of noting in their clients’ files where their client intends to store their original documents, hopefully ensuring someone other than the client will have access to them when needed. Although the practice cannot prevent the loss of all documents, this file note may be invaluable when the family contacts the decedent’s attorney upon the decedent’s death.
ISSUES DISCOVERED AFTER IMMEDIATE NEEDS ARE ADDRESSED
The Effect of Divorce on Beneficiary Designations
After the obvious concerns are addressed in the first few days after a death, issues in the decedent’s estate tend to surface. Discovering the decedent failed to update beneficiary designations before death is one of the most common issues estate attorneys must face. Although property division is a significant issue dealt with during a divorce, updating the beneficiary designations on such property postdivorce can often be overlooked. By statute, all provisions in a will in favor of a decedent’s ex-spouse are revoked.[10] Likewise, all provisions in a trust created by a decedent in favor of the decedent’s ex-spouse, which are to take effect upon the death of the decedent, are also revoked.[11] What happens to assets naming the ex-spouse as primary beneficiary if a property owner fails to update the beneficiary designations on assets passing by contract outside of the decedent’s probate or trust estate? For instance, are the provisions of a payable-on-death designation on a financial account enforceable upon the decedent’s death? Under 15 Okla. Stat. §178 (2011), “all provisions in the contract in favor of the decedent’s former spouse are thereby revoked” upon divorce, subject to a few exceptions. This statute applies to life insurance, annuities, compensation agreements, retirement arrangements and other contracts executed on or after Nov. 1, 1987, and to depository agreements and security registrations executed on or after Sept. 1, 1994. This begs the question, is a transfer-on-death deed naming an ex-spouse still enforceable at death if it was never revoked by the grantor-owner? Although similar to a will, a transfer-on-death deed is expressly not a testamentary disposition, so 84 Okla. Stat. §114 (2011) is seemingly inapplicable to a transfer-on-death deed.[12] The transfer-on-death deed is also not a bargained for contract in which consideration is exchanged, so 15 Okla. Stat. §178 (2011) is also seemingly inapplicable. Thus, arguably, a transfer-on-death deed designation may survive a divorce, which is something family law practitioners should be mindful of in addressing a property division.
One other exception to the revocation of a beneficiary designation upon divorce involves the ex-spouse’s interest in ERISA benefit plans.[13] In Egelhoff v. Egelhoff ex rel. Breiner, the United States Supreme Court held that a Washington statute revoking the beneficiary designation of an ex-spouse was pre-empted as it applied to ERISA benefit plans.[14] Given this decision, Oklahoma’s version of the Washington statute, 15 Okla. Stat. §178 (2011), would be ineffective in terminating an ex-spouse’s interest in a decedent’s ERISA plan. Therefore, a divorced decedent must have updated the ERISA plan’s beneficiary designation to someone other than the ex-spouse, or the ex-spouse must subsequently waive such interest, otherwise the plan will be administered with benefits being paid to the named ex-spouse, which may or may not be part of the divorce settlement.
The Effect of the Beneficiary Predeceasing the Decedent
Perhaps more commonly than after divorce, owners fail to update beneficiary designations after a named beneficiary dies. This may be due to the owner’s neglect or due to the owner’s incapacity and inability to change beneficiary designations. Upon the owner’s death in such situations, the language of the document will typically control if the asset passes 1) to the estate of the deceased beneficiary, 2) to a contingent beneficiary or 3) to the decedent’s estate. If a contingent beneficiary is not named, most assets will default to the estate of the decedent.
However, if a contingent beneficiary is not named on a bank account, the share of the deceased primary beneficiary shall be paid to the deceased beneficiary’s estate rather than the decedent’s estate.[15] This runs contrary to most expectations that a gift to a deceased beneficiary will lapse.[16] In the case of real property under the Nontestamentary Transfer of Property Act, a gift of real property pursuant to a transfer-on-death deed will lapse if the grantee beneficiary does not survive the owner.[17] If no contingent beneficiary is named, the real property will be trapped in the name of the deceased owner and default to the deceased owner’s estate.
Failure to update beneficiary designations on individual retirement accounts can trigger unwanted estate administration as well as unwanted tax consequences. When there is no living beneficiary designated for an IRA, upon the accountholder’s death, the IRA passes according to the terms of the associated financial institution’s plan. If an account holder fails to name a designated beneficiary, then oftentimes the IRA benefits are distributed based on who the financial institution states is the default beneficiary. The institution may have a few layers of default beneficiary designations for the account – such as passing to the decedent’s spouse, then children and then to the estate.[18] These default designations may result in negative tax consequences that could have been avoided if the account holder had updated the beneficiary designations.
When an IRA is made payable to a decedent’s estate there is a unique scheme for distributions because the IRS does not consider an estate to be an individual.[19] Logically, a nonindividual, such as an estate, does not have a life expectancy over which to stretch out required minimum distributions. Whether there ends up being a More or Less favorable outcome for the eventual takers of the estate depends on if the original account holder survived to the age of taking mandatory distributions.[20] If the account holder did not reach such age, then the eventual takers of the IRA must distribute the balance of the account by the end of five years.[21] If the original account holder did survive past the age of taking mandatory distributions, then the eventual takers may stretch the IRA distributions over a period calculated by “[u]sing the life expectancy listed next to the owner’s age as of his or her birthday in the year of death” and “[r]educ[ing] the life expectancy by one for each year after the year of death.”[22] While the second option does not allow the individuals to stretch the IRA over their own lifetimes, it will allow some benefit from delaying distribution, and the resulting tax, of the entire amount.
To qualify for inherited IRA treatment, 26 U.S.C. §408(3)(C)(ii) (2018) requires that the “individual for whose benefit the account or annuity is maintained acquired such account by reason of the death of another” and that they were not the “surviving spouse.” Although not binding authority, in a private letter ruling (PLR) the IRS discussed the issue of whether the ultimate beneficiaries of an estate can qualify for inherited IRA treatment.[23] In that PLR, an estate was the designated IRA beneficiary, received the IRA and conveyed it to a trust. The trust was to terminate and distribute all assets to the deceased’s four children. The IRS allowed the four children to each establish an inherited IRA for each respective share. Thus, failed designations may not have negative tax consequences, but this is by no means guaranteed.
The Backfiring of Joint Tenancy Ownership
Oftentimes, the death of a named beneficiary triggers issues when individuals exercised self-help to avoid probate. One of the more common options for avoiding probate is titling assets in joint tenancy with rights of survivorship. This can be dangerous planning for individuals, particularly the original owner, because it exposes the asset to the creditors of all the joint tenants. Additionally, if the joint tenants do not die in the expected order, the use of joint tenancy may backfire. For example, if the oldest
owner, typically the one who was trying to avoid probate, is the sole surviving owner, the owner may no longer be able to make alternative arrangements due to incapacity. Joint tenancy may also create confusion if utilized only for convenience prior to the decedent’s death, in which case the use of joint tenancy on a bank account may result in a constructive trust argument.[24] Self-help through joint ownership might also create inequitable results. Many times, joint tenancy is utilized by the decedent subject to the mutual understanding between the owners that the survivor will manage and distribute the assets according to the decedent’s wishes. However, the surviving joint owner may decide not to fulfill the decedent’s wishes, in which case the surviving owner may reap a windfall. Additionally, the surviving joint owner may lack capacity or have new creditor issues, in which case even if the surviving joint owner was well-intentioned, the decedent’s wishes for the property will remain unfulfilled.
Tasking the surviving joint owner to fulfill the decedent’s wishes may also trigger gift tax consequences for the surviving owner’s estate. For a surviving owner to fulfill a decedent’s wishes for others to benefit from the asset now wholly owned by the survivor, the survivor must give the assets to other individuals. In doing this, the survivor must keep in mind that these transactions may have gift tax consequences. Each individual has a lifetime gift tax exclusion representing the total amount they can give away over their entire lifetime without gift tax consequences. With the passage of the Tax Cuts and Jobs Act (TCJA) in 2017, the basic exclusion amount increased significantly. After being indexed for inflation, the thresholds for 2019 are now $11,400,000 for an individual and $22,800,000 for a couple.[25] Additionally, each year an individual may gift a certain amount without cutting into their lifetime basic exclusion amount.[26] The individual may give up to $15,000 annually to any person as of 2019 without utilizing his or her lifetime exclusion amount. In order to avoid any gift tax consequences while honoring the decedent’s wishes, a surviving joint owner must avoid giving more than $15,000, or potentially $30,000 for a donor couple, in a taxable year.[27] If the surviving owner decides to gift more than this in the taxable year, the sum over the annual gift tax exclusion will reduce the survivor’s lifetime gift tax exclusion amount, creating potential problems if the surviving owner already has a substantial estate.
As is evident, the road to avoid conflicts and cost after death is often paved with good intentions. Practitioners clearly cannot follow their clients throughout their lifetimes making sure fiduciary powers are adequately assigned, assets are appropriately titled and beneficiary designations are frequently reviewed. Perhaps it would be useful to give an estate information handbook to clients to review and complete independently on an annual basis, providing them a convenient resource for all their beneficiary designations, funeral wishes, fiduciary appointments, online information and any other relevant asset information. Such handbook would not prevent the consequences of an unplanned estate, but it might prevent what was once a well-planned estate from turning into a poorly planned estate due to circumstances beyond the estate attorney’s control.
1. See 58 O.S. §122 (2011).
2. Brady v. Criswell Funeral Home, Inc., 1996 OK CIV APP 1, ¶9, 916 P.2d 269, 271.
3. 60 O.S. §199 (2011) (stating trusts for the “care of domestic or pet animals is valid” and such instrument shall be liberally construed).
4. See 21 O.S. §1717 (2011).
5. 4 O.S. §512(A) (2011).
6. Id. §512(C).
7. 58 O.S. §269 (2011) (stating the personal representative has power “to take control of, conduct, continue, or terminate any accounts of a deceased person”).
8. See “Managing a Deceased Person’s Account,” Facebook www.facebook.com/help/275013292838654 (last visited Oct. 3, 2018) (select “Facebook Help Center”; then follow “Polices and Reporting”; then follow “Managing a Deceased Person’s Account”).
9. Practitioners and clients should explore policies for addressing decedent’s accounts on Twitter, Instagram, LinkedIn, Facebook and Pinterest and discuss such matters with their clients.
10. 84 O.S. §114 (2011).
11. 60 O.S. §175 (2011). Note §175(B)(6) permits the trustor to name the ex-spouse as a beneficiary in an amendment executed after the divorce or annulment.
12. 58 O.S. §1258 (2008), stating a transfer-on-death deed “shall not be considered a testamentary disposition.”
13. See Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141 (2001).
14. Id. at 147-51 (“The [state] statute binds ERISA plan administrators to a particular choice of rules for determining beneficiary status . . . [I]t runs counter to ERISA’s commands that a plan shall ‘specify the basis on which payments are made to and from the plan,’ §1102(b)(4), and that the fiduciary shall administer the plan ‘in accordance with the documents and instruments governing the plan,’ §1104(a)(1)(D), making payments to a ‘beneficiary’ who is ‘designated by a participants, or by the terms of [the] plan.’ §1002(8).”).
15. 6 O.S. §2025(A)(2) (2011).
16. 84 O.S. §142 (2011).
17. 58 O.S. §1255(B) (2011).
18. See, e.g., Morgan Stanley Funds Designation of Beneficiary Form, Morgan Stanley Investment Group (March 2017)www.morganstanley.com/im/publication/forms/msf/designationofbeneficiaryform_msf.pdf.
19. I.R.S., Dep’t of the Treasury, Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) 9, 10 (Feb. 6, 2018).
20. See I.R.S., Dep’t of the Treasury, Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) 10 (Feb. 6, 2018).
23. See I.R.S. Priv. Ltr. Rul. 2012-08-039 (Nov. 17, 2011).
24. See Isenhower v. Duncan, 1981 OK CIV APP 31, 635 P.2d 33 (“The proper basis for impressing a constructive trust is to prevent unjust enrichment.”). See also 60 O.S. §74 (2011) (discussing joint tenancy); 60 O.S. §137 (2011) (explaining when a trust is presumed).
25. See Tax Cuts and Jobs Act of 2017, Pub. L. No. 115-97, §11061, 131 Stat. 2054, 2091 (2017).
26. See 26 U.S.C. §2503 (2017).
27. See 26 U.S.C. §2513 (2017).
Originally published in the Oklahoma Bar Journal -- OBJ 90 pg. 7 (February 2019)
Tagged: Cody Jones
Generational Trends in Estate Planning
by Lloyd McAlister with the assistance of Ashley Ray
Estate planning is not a single, one-size-fits-all document or decision made at the end of life; it is a long-term strategy shaped by an individual’s life. As lives change, plans adapt to fit new needs and desires. There are many influences that impact an individual’s life, but one critical factor is family. When guiding clients in planning the future of their assets, our estate planning lawyers consider the developments occurring inside the family unit. For instance, changes in generational characteristics, family demographics, and family structure have led to transformations in estate planning and trust management.
Each generation’s characteristics have been shaped by the unique circumstances and trends of the world they’ve grown up in. The Boomer Generation, individuals born from 1946 to 1964, have had different experiences than the Millennial Generation, individuals born from 1982-2002. For example, a defining question for a Boomer may be, “where were you when President Kennedy was shot?” but a defining question for a Millennial may be “where were you on 9/11?” Technology has also been an impactful force on generations. For instance, a Boomer could probably describe when their family got its first television, but a Millennial would be more apt to remember how old they were when they got their first iPhone. One influence that has influenced all generations is the increase in life expectancy. From 1970 to 2010, the US life expectancy increased gradually from age 68 to 75 for men and from age 75 to 80 for women. Between the years of 1990 and 2010, the percentage of the global population over 65 steadily increased, while the population under 5 steadily decreased. It is projected that from 2015 to 2050 the global population over 65 will increase from 8% to over 16%, while the population under five will remain fairly constant at 7%.
These and other trends have shaped how the individual generations make decisions, balance work and life, and raise their children. The Boomer generation’s parental model usually includes a breadwinner and a breadserver. Instead of children being taught to strictly obey adults, like the children of past generations, children accommodate adults. This generation is generally optimistic, competitive, and lives to work. Decision making shifted from being command and control to consensus based. For the Boomer generation, competence and expertise come before self-esteem. In contrast to the previous generations, Gen X, which includes individuals born between 1965 and 1981, has a parental model of two breadwinners. Additionally, children frequently teach adults. Gen X is skeptical, suspicious of authority, and focuses on achieving a work/life balance. Decision making is pragmatic, independent, and impatient. Self-reliance and validation lead to self-esteem. Like Gen X, the Millennial generation features two breadwinners. Adults generally accommodate and consult children. This generation is optimistic, has a delayed adulthood, and is collaborative. Decision making is net-educated and networked. This generation works to live. Self-esteem generally precedes competence. All of these generalized traits have developed from each generation’s unique circumstances.
Changes in generational characteristics have corresponded with changes in family demographics. According to data from the U.S. Census Bureau, over the last 75 years there has been a steady decrease in the percentage of married households and a steady increase in the percentage of non-family households. Notably, from 1995 to 2015, married households decreased from around 58% to 50%. Additionally, from 1996 to 2016, the number of unmarried couples without children increased from around 3 million to over 8 million. Couples are also waiting longer to get married. From 1985 to 2015, the median age for a first marriage increased from 26 to 29 for men and from 22 to 28 for women. Instead of marriage taking place right after courtship, the increasing social norm is for marriage to occur after cohabitation, attainment of financial security, and the birth of children.
Generational differences and shifting demographics have impacted the structure of the archetypal family unit. It has been said that “[t]he demographic changes of the past century make it difficult to speak of an average American family. The composition of families varies greatly from household to household.” Troxel v. Troxel, 530 U.S. 57, 63 (2000). Families come in all shapes, sizes, and configurations. For example, according to the Pew Research Center, one-out-of-six American children live in a blended family. Additionally, 40% of American adults have at least one step-relative in their family. The Census Bureau reported that in 2013 the composition of American families was: 35% traditional, 34% modern (blended, multigenerational, etc.), and 31% households without children.
The above developments of the family unit have led to a recasting of the traditional estate planning paradigm. Planning has evolved from being hierarchical and oriented towards the nuclear family to being more humanistic and sensitive to family structure. Additionally, instead of individuals being predominantly focused on financial wealth, a holistic understanding of family wealth has developed. A further change is that grantor intent is becoming more flexible, aspirational, and better conducive to beneficiary engagement. The transformations to the family have led to a reconsideration of how families do their planning. For prior generations, estate planning was a decision made before mortality, and the decision would be disclosed to family afterwards. However, contemporary families usually begin the planning process with family dialogue between the spouses and their children. The plan is then designed, implemented, and then concludes with family disclosure.
While estate planning decisions are being formulated, strategic issues must be addressed that involve considering the context of the American family. According to Hugh McGill from Northern Trust Company, the major questions that must be addressed are:
· “How and to Whom will Financial Wealth be Allocated,
· How will Trusts Evolve for Modern Families,
· Are There Limits to Longevity, and
· How will Modern Families Collaborate and Make Decisions.”
It has been estimated that, as of 2009, 68% of adults had no will, 11% had a self-drafted will, and 20% had a will drafted by an attorney. To ensure you have an effective plan tailored to your family’s unique needs, please contact our office. We will be happy to guide you through the dynamic world of estate planning with special attention to the people and purposes important to you.
Preparing Your Estate: 10 Loose Ends To Tie Up Before You Die
Creating an estate plan can provide peace of mind for our clients because if all goes according to plan, their beneficiaries will be equipped and prepared to settle their estate according to their written wishes. However, when our clients walk out the door of our office armed with their detailed plan, change doesn’t come overnight. It takes some effort from our clients to make sure the plan is fully implemented and properly maintained. These are a few of the unresolved or incomplete matters we often see, which can cause the plan to go awry.
1. Safe Deposit Boxes. Your safe deposit box is subject to a box rental agreement and access to the box is limited upon your incapacity or death. Review the box rental agreement. If you have a revocable trust, make your trust a party to the box rental agreement. Otherwise, you should coordinate with your financial institution to make sure someone you trust has authorization to access your safe deposit box upon your death or incapacity, which may require adding them as a joint or successor owner on the account.
2. That “Small” Bank Account. Many of our clients dismiss their assets of limited value, assuming they will not cause their survivors or caretakers any trouble, but many times it’s these small assets that require the most work after an owner’s death. If you have a revocable trust, transfer the account ownership to your trust, ensuring the successor trustees will have easy access to these funds. If you do not have a trust, consider adding a payable-on-death designation to the account to ensure the funds in the account are accessible by your survivors. Otherwise, your survivors may need to pay an attorney to gain access to the account. Such expense often exceeds the value of the account. This issue is easily avoidable if you take the small step during your lifetime instead of leaving unfinished business which requires big steps after your death. If you opt to add a payable-on-death beneficiary designation, please make sure you update your beneficiary designation if a named beneficiary predeceases you. Otherwise, the funds in the account may not be allocated to the beneficiaries you prefer.
3. Those Minimal Minerals. Even if your mineral interests are not worth much now, they may be worth much more after your death. One of the most common triggers for probates and estate administrations are mineral interests that clients failed to either transfer to their revocable trust or otherwise provide for succession of ownership by deed during their lifetimes. A simple quitclaim deed during your lifetime can avoid significant cost after your death, a cost most of our clients intend to avoid with their estate plans.
4. Boats, Trailers, Motorcycles, and Other Motorized Objects. They have titles too. If your name is the only name on the title at your death, the ownership is trapped in your name. Barring a few exceptions, no one will have authority to sell this asset without being appointed by the court. Once again, if you have a revocable trust, take the easy step to transfer the title to your trust now. Otherwise, you might consider adding a co-owner to the asset to make sure the person you wish to receive each asset can easily assume ownership upon your death.
5. Bonds, Paper Bonds. United States Savings Bonds are no longer issued as paper bonds, but many of our clients have old Series E Bonds or something similar. More likely than not, these bonds do not have a beneficiary. If you have bonds in your name upon your death, these bonds will undoubtedly trigger an estate administration. Please contact us so we can advise you on how to convert your paper bonds and update ownership during your lifetime.
6. The Future of Your Pets. If you have pets, do you know what will happen to them upon your incapacity or death? Have a conversation with your loved ones to make sure they know your wishes. Make sure they have the knowledge and ability to assume caretaking responsibilities for your pets as you desire, and if not, direct them as needed. The more they know, the more likely your wishes are fulfilled.
7. Old Beneficiary Designations. If your spouse or child predeceased you, please review your beneficiary designations on your retirement accounts and life insurance policies. Oftentimes, the surviving spouse forgets to update these designations. If your named beneficiary is not living upon your death, the proceeds of these assets will likely be payable to your estate, triggering a costly estate administration or probate. Updating your beneficiary designations is an easy loose end to address.
8. Pesky Passwords, Codes and Keys. Make sure your loved ones have access to your passwords, keys and access codes for your cell phone, email, social media, online billing, financial institutions, security systems, internet streaming services, and other similar accounts. If you have a code for your safe, ensure someone other than yourself has access. If you have multiple keys, make sure they are labeled as necessary. If you do not want to give individuals access to this information during your lifetime, we will gladly keep this information in your client file for your heirs and successors, as needed.
9. Trusted Advisors. You know yourself and your assets better than anyone, and you know who you trust for advice for various purposes. Consider making a list of these trusted advisors for your survivors so they do not need to reinvent the wheel. Let them know who your CPA, financial advisors, attorneys, doctors, realtors, and other professional advisors are. This information can be extremely helpful and cost-effective, particularly when your survivors live out of state.
10. Blended Families. Blended families often have different desires than what is provided for under state law. Please call us to make sure your estate plan fits your family situation.
Imagine driving home from a holiday party this season and the unexpected occurs – Santa’s sleigh crashes into your vehicle! Leftover pumpkin pie and dressing splatter all over the reindeer. Jingle bells, toys, and cookies are strewn across the street in a 30-yard radius. Santa and his crew speed away without a scratch to finish deliveries to all the good boys and girls across the world. You, however, are incapacitated and require an emergency trip to the hospital, where you experience loss of consciousness (with visions of sugar plums) until Valentine’s Day.
Even without reckless reindeer on the road, about 750 car wreck-related injuries occur over the holiday season in Oklahoma, according to the most recent Fact Sheet published by the Highway Safety Office of the Oklahoma Department of Public Safety. Because car accidents occur so commonly, they provide a perfect illustration for imagining how easily any of us could become incapacitated. Any one of us could experience an accident or an illness and become unable to manage our day-to-day affairs, like paying our bills or driving to our doctor’s appointments.
What can we do to prepare for a season of life where we simply cannot take care of ourselves? Such a season could affect our physical abilities, mental abilities, or both. It could involve temporary impairment for only a season or permanent incapacity for the rest of life. Incapacity could occur slowly and over a long period of time, or it could occur suddenly and unexpectedly. The legal definition of “incapacity” incorporates a broad spectrum of circumstances, including the following:
impairment due to mental illness or disability;
impairment due to physical illness or disability;
impairment due to drug or alcohol dependency;
the inability to meet essential requirements for health and safety; and/or
the inability to manage financial resources
Preparing for a season of your own incapacity could provide a huge blessing to your family and others who depend on you. Here are some ways you can prepare for the possibility of incapacity:
Appoint a person who can act for you in legal and financial matters. This person, your “agent,” is appointed in your Durable Power of Attorney. In case you ever need a court-appointed guardian, you can utilize your Durable Power of Attorney to nominate the person you would want to serve as your guardian.
Appoint a person who can act for you in making health care decisions. This person, your “Health Care Agent,” is appointed in your Health Care Power of Attorney. He or she can be authorized to communicate with your doctors and medical caregivers about your care and make decisions on your behalf if you are unable to do so. In case you ever need a court-appointed guardian, you can utilize your Health Care Power of Attorney to nominate the person you would want to serve as your guardian.
Appoint a person who can make decisions about end-of-life matters. You should have an Advance Directive in place, to document your decisions about the type of care you would want to receive if you become incapacitated and experience an end-of-life condition, such as becoming persistently unconscious or terminally ill. An Advance Directive also allows you to appoint a person, your “Health Care Proxy” to make sure your wishes, as expressed in your Advance Directive, are carried out by your health care providers.
If you already have these important documents in place, make sure your family members know where these documents are located and how to use them. Make sure these documents are accessible to those who might need them. Also, if you have appointed one of your children before another to serve an important role in your care, please consider explaining your decision to your children while you have the capacity to do so in order to avoid potential family strife after you are no longer able to communicate your wishes.
Talk to your family members and/or close friends about what information they will need to know if you become unable to take care of yourself and/or unable to continue taking care of them. This information includes the name and contact information for advisors you trust to assist you and your family during a period of incapacity.
What is the difference among a Personal Representative, Trustee, Agent, Guardian and Proxy?
The Personal Representative, also known as an Executor, settles your estate if a court-supervised probate is required. You can appoint your Personal Representative in your Will.
The Trustee is the person or entity who manages assets owned by your trust and distributes the trust fund to the named beneficiaries according to the dispositive provisions of the trust. A husband and wife who create a trust often appoint themselves as the initial trustees and their children as their successor trustees. Instead of appointing their children as successor trustees, some clients opt to appoint an entity as their successor trustee, such as a trust company.
An Agent is the person you appoint in your Power of Attorney document to make decisions on your behalf if you are incapacitated or otherwise cannot conduct your business. Through the Health Care Power of Attorney, our clients appoint an Agent to make decisions regarding medical and other personal care matters. Through the Durable Power of Attorney, our clients appoint an Agent to make decisions regarding legal, property, and financial matters. If a third party requires court authorization, the Guardian is the person you nominate, or suggest, the court to appoint. Most often, a client selects the same individual to be his or her Agent and Guardian.
A Proxy is the individual you nominate under your Advance Directive to ensure your end-of-life decisions are fulfilled.
What do I need to do if my spouse becomes incapacitated?
If your spouse’s mental or physical condition is rapidly declining such that he or she is unable to make financial and medical decisions for himself or herself, you need to take steps to protect your spouse. You may need to obtain letters from your spouse’s physicians to document the incapacity. These letters accompanied by an affidavit will allow you to notify third parties that your spouse is no longer able to serve in a fiduciary role as agent or trustee. Also, if your spouse has a power of attorney triggered upon his or her incapacity, you will need to present the physicians’ letters and the power of attorney to third parties in order to act as your spouse’s agent. If your spouse does not have a power of attorney document, it may be necessary for you to seek a court-appointed guardianship to care for your spouse.
Our married clients commonly have estate plans in which each spouse is authorized to act for the other (as agent, trustee, and health care proxy) without having to document their spouse's incapacity. Many single clients have similar delegations of fiduciary authority to other adults (children, parents, siblings, or trusted friends). Planning for your incapacity, or for your assistance to loved ones who become incapacitated, is important and can be done in many creative ways to ensure a person's needs are met in the best way possible.
What do I need to do when my spouse dies?
Every person's affairs are different as their life comes to an end. Although a long list of detailed tasks could be compiled in advance, much of it would be unnecessarily confusing or inapplicable when the time comes for its use. The best advice is two-fold. First, consult with your attorney, accountant, doctor, and financial advisor to have good estate planning in place and keep it up to date with annual plan reviews. Then, when a death occurs or seems imminent, convene a meeting of those advisors to confirm the planning in place and the appropriate actions to take after considering the circumstances at the time. Each person has their own unique circumstances with a need for a unique plan, unique in both implementation and in execution. Plan your work, then work your plan.
Can I transfer real property to my trust if it is subject to a mortgage? What if I need to refinance my home?
Federal law permits individuals to transfer their homestead property to a revocable trust for estate planning purposes without triggering the due-on-sale clause in a mortgage agreement. This law only applies to your homestead property – it does not apply to rental properties or vacation homes. If you need to refinance your home, most likely the mortgage company will require you transfer the home out of your trust to yourself individually. After you have refinanced, it is imperative for you to deed your home back into your trust to avoid probate and ensure your home passes according to the terms of your trust. You can transfer other real property subject to a mortgage to your revocable trust, but you will need to coordinate with the mortgage company to avoid triggering the due-on-sale clause.
What do I need to transfer to my trust?
In general, all assets requiring interaction with a third party in order to transfer the asset should be owned by your trust if you want the terms of the trust to govern the disposition of the asset upon your death or incapacity. You should consider transferring the following assets to your trust: real estate, automobiles, savings accounts, checking accounts, certificates of deposit, money market accounts, stocks, bonds, interests in general or limited partnerships, interests in limited liability companies, accounts receivable, notes receivable, mineral interests, royalty interests, boats, and other recreational vehicles. Some of these assets may pass by beneficiary designation or joint ownership if they are not transferred to your trust. You should review your beneficiary designations to determine if your trust should be listed as the primary or contingent beneficiary.
What should not or might not be transferred to my trust?
Retirement accounts, such as IRAs and 401(k)s, must be owned by individuals. A trust cannot own these types of assets. However, trusts can be the designated beneficiaries of such assets. Take caution though, because your trust should not be the designated beneficiary of your retirement accounts unless your trust contains certain "qualifying" provisions.
Retirement accounts are unique assets because they receive special tax deferral treatment. To take advantage of this special tax treatment, contact your financial institution and make sure you have primary and contingent beneficiary designations in place for all of your retirement accounts.
Some clients are uncomfortable with the thought of relying on beneficiary designations to transfer their retirement accounts to their beneficiaries. This discomfort is understandable because retirement accounts often comprise the bulk of many clients’ estates. If you prefer your retirement accounts pass to your beneficiaries according to the distribution provisions of your trust instead of providing complete control to your named beneficiaries, please contact us before designating your trust as the primary or contingent beneficiary of your retirement account. We will review your trust to make sure it includes the provisions required to “qualify” the trust for tax deferral.
I’m concerned about my child’s marriage, substance abuse, financial management, etc. How can I protect my child’s inheritance?
This is a concern shared by many clients. If your estate plan provides your children their inheritance outright, there is not much you can do to protect them from themselves or their creditors once their inheritance is distributed. At your death, if your trust distributes outright, your trustee must distribute your assets to your beneficiaries as your trust directs. Unless your trust specifically provides otherwise, your trustee will not have discretion to withhold assets from your beneficiaries, even if a beneficiary is a drug addict, in prison, filing for bankruptcy, or going through a divorce.
If this possibility concerns you, the best way to protect your child's inheritance is to set up a trust for their share. Your child's trust can authorize the trustee to use his or her discretion in deciding whether or not to distribute trust funds to your child. Because the trust fund can only be used at the discretion of the trustee and because the child, as beneficiary, cannot force a distribution, creditors cannot reach the child’s trust fund and the child's spouse cannot claim an interest in the trust fund as marital property.
Our address changed. Do we need to update our documents?
Your estate planning documents are not invalid because your address and phone number have changed. However, accurate contact information may become important when you provide these documents to third parties. For example, your Health Care Power of Attorney provides the name, address, and telephone number of your Agent, the person you have selected to make health care decisions on your behalf if you are incapacitated and unable to do so. In an emergency situation, your medical care providers should have accurate contact information on file so they will be able to contact your Health Care Agent as quickly and easily as possible.
What is my trust’s tax ID number?
For individual revocable trusts, the tax ID number for the trust is the social security number of the settlor, or creator, of the trust. For joint revocable trusts, the trust's tax ID number is usually the social security number of the primary reporting spouse. However, if the initial trustees of your revocable trust are no longer trustees, new identification numbers should be used to report trust income. You can file an SS-4 with the IRS to request a trust identification number.
Dispelling the Myth that Estate Planning is for Old People
“I/we don’t have enough assets to have a trust.”
“I won’t need an estate plan until I’m older.”
“I/we have too much debt for an estate plan.”
“I just want to know who will take care of my kids if I die.”
I often hear these responses when the twenty- and thirty-somethings I meet discover I’m an estate planning attorney. Although we’re told to plan for the worst and hope for the best, that advice rarely translates into preparing for our incapacity or death. Instead, our time is spent focusing on careers, finances, homes, families, and other adventures. As a thirty-something, I too am often guilty of forgetting my days are numbered, hoping I’ll have plenty of time to plan for the not-so-fun “adult” decisions of life. In doing so, we disadvantage our loved ones by leaving them to pick up the pieces without any foresight from us. Plus, we sacrifice the advantages of planning ahead.
Death is guaranteed, and incapacity is likely for all of us - no matter our age. If you have experienced the loss or incapacity of someone you love, you know it is difficult. We seldom think clearly in times of great tragedy. Planning ahead for such events can prevent additional stress in already stressful times. Such plans may include nominating someone you trust to care for you if you are incapacitated and documenting end-of-life decisions you would make if you were able. Nominating an agent or proxy for your health care may also prevent the need for a costly court-supervised guardianship.
Not planning ahead can create confusion. Upon your death or incapacity, your loved ones will have heightened emotions, and each will react to grief in a different and personal way. One of the most sensitive questions that may be asked is who will take care of your minor children or other dependents. This may be a difficult question for you to answer, but it is even more difficult for others to answer when you cannot. Discussing the nomination of a guardian for your minor children or other dependents with your spouse and loved ones while you have the ability to express your reasoning and consider their input can help avoid controversy over an already difficult decision. Nominating a guardian helps provide a smooth transition for your children or other dependents and their caregivers.
Planning ahead can make planning later easier. Just as a football team is better prepared for the big game if the coach has a game plan, you can be more prepared for managing your estate as it increases in value if you create the framework from the beginning. Part of this framework may include a revocable trust that outlines how your assets may be used upon your incapacity and controls the distribution of your assets upon your death. You don’t need an abundance of assets to justify having a trust. If you have assets without beneficiary designations, such as a vehicle and a house, preparing a trust may be prudent. Even if you have debt associated with an asset, such as a mortgage, the equity you own is an asset of your estate. If you die and the legal ownership of the asset is trapped in your name, your loved ones will likely need to go through a court-supervised probate to access the value of the asset. A probate is avoidable if you properly utilize a revocable trust. Creating a trust to own your assets as you acquire them throughout your life can be less time-consuming and less expensive than implementing the same planning with a lifetime’s accumulation of assets later in life. With a trust already prepared, you can simply buy an asset in the name of your trust at the time of purchase and rest in the assurance the asset will be controlled by the trust upon your death or incapacity.
A plan eases the impact of unexpected circumstances. A revocable trust also provides a plan for unanticipated situations that joint ownership with rights of survivorship cannot address. Joint ownership only works well if at least one of the owners survives and has capacity. If both you and your spouse die or become incapacitated simultaneously, a revocable trust contains provisions to address such circumstances. Similarly, after your death if a beneficiary of your trust unexpectedly suffers from substance abuse or develops a disability, the trust can provide protections to avoid misuse or exhaustion of the trust funds which outright ownership cannot avoid.
Unexpected circumstances do not have an age limit. Take time today to look at your family situation and personal assets. Who will care for your children if you pass away? Who will care for you if you are incapacitated? What will happen to your assets upon your death or incapacity? If you don’t have answers to these questions, or if you have adult children who cannot answer these questions for themselves, make an appointment so we can help you plan ahead and provide everyone certainty and peace of mind.
Mrs. Jones’ attorney: “Mrs. Jones, your father’s life insurance is taxable and at an estate tax rate of forty percent.”
Mrs. Jones: “But I didn’t think my father’s insurance was in his estate!”
Mrs. Jones’ attorney: “The life insurance your father owned is not part of his ‘probate estate’ but it is a part of his ‘gross estate’ for estate tax purposes.”
Legal terminology can be confusing, causing people to misunderstand important legal and financial consequences. Few legal terms create more confusion than the word “estate” and the variety of uses for the word which have different legal and tax implications.
When a person dies, we often speak of their “estate,” usually referring to the property and legal rights the deceased person owned at the time of their death. However, sometimes we mean something narrower in meaning, with a more specific application. For example, we might be talking about the “estate tax” due as a result of the person’s death, in which case we might use the word estate to refer to their “taxable estate.” However, technically, to arrive at one’s “taxable estate” we must start with their “gross estate” and deduct allowable deductions. Now, what at first might have seemed somewhat simple becomes more confusing.
When referring to one’s estate, we might also be talking about their “probate estate.” Again, what might seem simple can become quite confusing because we referred to “taxable estate” and “gross estate” above, yet what comprises one’s “probate estate” might be quite different than those other terms used to refer to tax matters. If a person dies owning property titled in their name without valid transfer on death successor owner arrangements, the disposition of that property after the owner’s death is technically subject to the administration of such property by the “probate court.” The probate court determines: what property fits in that category (and, consequently, is subject to the jurisdiction of the probate court), whether there was a valid last will and testament of the deceased person which disposes of such property and, if no valid will exists which completely disposes of the property, the disposition of the deceased person’s property according to state law (called the laws of “descent and distribution”).
Although all the property in a deceased person’s probate estate might also be in their gross estate, it will not necessarily all be in their taxable estate due to the “allowable deductions” which are subtracted from the gross estate to arrive at the taxable estate, deductions such as the marital deduction for property passing to a surviving spouse or the charitable deduction for property passing to a charity. Similarly, it is entirely possible some or even all the deceased person’s property is in that person’s “gross estate” (again, using the term in its technical sense to refer to the gross estate for federal estate tax purposes) yet little or none of it is in their “probate estate” because the ownership of the property was such that there was no need for a probate court to determine the lawful, successor owners. The very common use of revocable trusts (also referred to alternatively as living trusts, inter vivos trusts, loving trusts, etc.) is an excellent example; a person might establish the ownership of some or even all their property in the name of the trustee of their revocable trust in order to avoid the court-supervised administration of their estate, a legal process called “probate.” By virtue of the legal fact that the client, now deceased, did not hold the title in their individual name but rather held title in their name (or someone else’s name) as a trustee of their trust, there is nothing to probate (nothing for the probate court to administer); the successor trustee named in the deceased person’s trust merely needs to accept or confirm their appointment as trustee. Since the property in one’s revocable trust is subject to the “estate tax” it is included in their “gross estate” and, possibly, their “taxable estate” even though such property is not in their “probate estate.” In fact, the deceased person may have planned their “estate” so that there will not be a “probate estate” and, consequently, no need for a court-supervised probate proceeding.
So, if you speak of someone’s “estate,” be careful to be clear about the type of “estate” to which you are referring. Otherwise, you may believe others understand what you said, yet you may not realize that what they think you said is not what you meant!