Tag: Incapacity Planning

How Divorce Can Impact Your Estate Plan – Failure to Update an Existing Plan

June 16, 2016

Now that we have addressed property settlement agreements, beneficiary designations, real and personal property and special needs, what happens if an estate plan already exists and you do nothing to update it?  Presumably, the existing plan was prepared during the marriage and has the former spouse in fiduciary positions and named as a beneficiary.  The entire plan should be updated to reflect new trustees, personal representatives/executors, financial powers of attorney and healthcare agents.  But often, recently divorced individuals simply do not have the inclination to handle one more legal matter (particularly if the divorce was not amicable).

Virginia law has a savings clause that may apply.  Under Virginia law, if a person creates a last will and testament while married, divorces and subsequently dies without updating his or her last will and testament, the divorce “revokes any disposition or appointment of property made by the will to the former spouse.”  Va. Code §64.2-412.  In addition, any appointment of the former spouse as a fiduciary under the will, including as executor, trustee, conservator or guardian, is revoked.  However, this law does not change any financial power of attorney or healthcare power of attorney under which the former spouse may be named.  Furthermore, the law does address provisions contained in a trust agreement.  Therefore, a former spouse may have authority to act or be treated as a beneficiary unless changes are made or other state statutes apply. 

Moreover, if there is an irrevocable trust or “spousal lifetime access trust” (SLAT) that benefits a spouse, then there may continue to be income tax consequences to the creator of that irrevocable trust even though the parties divorce.  The regulatory and legislative history surrounding the applicable tax code sections (Sections 71, 672, 677 and 682)  is not as clear as it should be, in certain circumstances, as to whether a grantor (or creator of the trust) will still be held liable for the income tax associated with the irrevocable trust that otherwise benefits an ex-spouse.  Therefore, the trust agreement and relevant tax law need to be reviewed and a determination made regarding any ongoing tax liability.

Overall, taking into account all of the considerations described throughout this series, it is clear that after a divorce (and perhaps even during a divorce), it is imperative that you begin the process of updating your estate plan to avoid the potential of having a former spouse in a position of authority during incapacity or upon death and to avoid a former spouse unintentionally benefiting from your demise. #beginthebegin #divorce #estateplanning #updateyourestateplan @bgnthebgn

How Divorce Can Impact Your Estate Plan – Property Settlement Agreements

May 19, 2016

With the increased divorce rate in today’s society, many individuals experiencing a divorce focus on the issues directly involved in the divorce.  For example, they may focus on spousal support, child support and the division of assets, but those same individuals forget that after a divorce or even during, there are additional considerations involving their estate plan.  This article is the beginning of several articles that will highlight a number of those additional considerations.  We begin with a discussion about property settlement agreements and the requirement to maintain life insurance. 

As a result of most divorces, a property or marital settlement agreement (“PSA”) is executed in an effort to dictate the obligations of each party to the other party.  In most cases the focus is on finalizing the PSA and not the effect of the PSA on other aspects of an individual’s life, such as his or her estate plan.  However, during this phase of the divorce, it may be helpful to consult with an estate planning attorney to ensure that the PSA permits some level of flexibility from an estate planning perspective. 

For example, if there are children from the marriage, very often the PSA will contain a provision requiring each party to maintain life insurance with a certain death benefit.  Thus, one spouse may be required to maintain five hundred thousand dollars ($500,000.00) of life insurance and name the other spouse as the beneficiary, name the children as beneficiaries or name the other spouse as trustee for the benefit of the children.  The purpose of such a provision is to provide a substitution for child support in the event of the death of either parent.  Very often the requirement to maintain the life insurance ceases when the obligation to pay child support ends.

But what happens if a death occurs and the life insurance proceeds are paid out to the former spouse directly or for the benefit of minor children?  In the first instance, the former spouse can receive and use the monies without much oversight.  Hopefully, the PSA specifies the permitted uses, but the PSA may be silent and/or the former spouse may disregard the PSA.  If the minor children are named as direct beneficiaries, then a court proceeding requesting guardianship of the child’s estate may be required and the court’s oversight continues until the child reaches age 18, at which point the child has the ability to receive unfettered access to the funds.  If the PSA simply states that the former spouse is to be named trustee for the benefit of the children, what are the provisions of the trust agreement?  Does the so-called trust remain discretionary and then become available when the child reaches age 18? 

The complexity surrounding the beneficiary designation and possible involvement of the court can be resolved if the PSA permits the parties to name a revocable living trust that would include provisions for the benefit of the children.  Therefore, the beneficiary designation is simpler since only the revocable living trust is named.  Moreover, a properly drafted revocable living trust agreement would contain provisions specifically detailing the trustee, dispositive provisions for the funds and handling any ‘what ifs.’  For example, what if the named trustee (i.e., former spouse) predeceases or what if a child predeceases, who will manage the funds and what happens to the funds in those circumstances?

In the case where complex estate planning exists, such as irrevocable life insurance trusts, the need to review the estate planning is important to prevent negative tax consequences and to ensure that the proper beneficiaries ultimately receive the assets.  Ideally, the initial drafting of such complex estate planning will take into account the possibility of a future divorce.  For example, the trust agreements can address what happens in the event of divorce with respect to a spouse continuing as a beneficiary and/or trustee.  The PSA would then detail how the assets connected to the complex estate planning are handled or distributed, and by revisiting the estate plan post-divorce, any necessary adjustments can be made.

Therefore, for those who have experienced a divorce or are in the midst of a divorce, have you revisited your estate plan recently?  What obligations to maintain life insurance do you have?  Does the PSA have certain requirements for the creation of a trust, and if so, what are those requirements?  It is better to begin to review all these issues sooner before an event, such as incapacity or death, makes it impossible to resolve later.  #estateplanning #divorce #lifeinsurance #revocabletrust

A Lesson from Sumner Redstone’s Competency Battle

May 12, 2016

For a variety of reasons, many have been following the drama filled court battle involving Sumner Redstone’s capacity that was dismissed earlier this week.  Unfortunately, a battle over control of an individual and his or her money is not an uncommon occurrence.  Typically, the higher the stakes the more likely a challenge will be lodged if a so-called beneficiary is cut out, which appears to be part of the rationale behind the Redstone case.  For the individual who has been cut out, there may be nothing to lose by objecting.  On the other hand, for the individual creating the Last Will and Testament or revocable living trust, there may be a desire to avoid a major legal battle between those beneficiaries who are to receive distributions after he or she is gone.  If that is the case, then one way to deter such a battle is to have a ‘no contest’ or ‘in terrorem’ clause.

A no contest clause simply states that if a beneficiary objects to the provisions of the Last Will and Testament or revocable living trust, then they run the risk of completely losing or diminishing their share of any distribution.  It may also mean that any of their descendants may lose or diminish their share depending on how the provision is drafted.  The goal is to dissuade beneficiaries from objecting and possibly overturning the intent behind certain provisions of the Last Will and Testament or revocable living trust. 

The use of no contest clauses depends on whether the jurisdiction in which one resides recognizes such provisions as valid.  For example, not all jurisdictions recognize such clauses within revocable living trusts.  Some jurisdictions place emphasis on a person’s final wishes as evidenced by the execution of a Last Will and Testament or revocable living trust and it is difficult to overturn that intent.  Other jurisdictions void such clauses if there is good faith, probable cause or reasonable justification for bringing a suit, which may lessen the deterrent factor in using a no contest clause.  However, these defenses also recognize that at times there are in fact valid reasons for objecting, such as undue influence, lack of capacity, or the like.  In all three neighboring jurisdictions (Virginia, Maryland and the District of Columbia), each recognizes no contest clauses in some fashion. 

Thus, it may be that in a case like Redstone’s, a no contest clause would have prevented court action.  But if there is a likelihood of litigation, the use of such clauses should be carefully considered.  #sumnerredstone #incapacity #competency #nocontestclause #estateplanning 

 

 

May is National Elder Law Month

May 5, 2016

In 1963, President Kennedy declared May to be Senior Citizens Month to honor those who are 65 and older.  Since then every President has proclaimed May to be a month to show support for older Americans.  President Jimmy Carter changed the name in 1980 to Older Americans Month and the National Academy of Elder Law Attorneys supports this annual proclamation by declaring the month of May to be National Elder Law Month.

But what is encompassed in elder law?  And how can an elder law attorney assist older Americans?  Here is a brief list of some of the major issues that an elder law attorney advises upon:

  • Incapacity planning that would include a discussion regarding financial and medical powers of attorney
  • Tax planning
  • Estate planning, including a discussion surrounding the management of assets during incapacity and upon death
  • Medicaid
  • Medicare
  • Long-term care, including continuing care retirement communities (CCRCs), skilled nursing facilities (SNFs) and assisted living facilities (ALFs)
  • Social Security (SSDI and SSI)
  • Special Needs planning (e.g., special/supplemental needs trusts)
  • Conservatorship and guardianship
  • Asset protection
  • Elder abuse and exploitation
  • Retirement planning, including beneficiary designations, death benefits and spousal benefits
  • Mental health law
  • Estate and Trust Administration

Keep in mind that some elder law attorneys are like your internist, that is, they can spot the issues and advise in broad terms.  Other elder law attorneys are specialists.  For example, certain elder law attorneys may handle only social security disability claims and appeals while others only litigate nursing home abuse cases.   Whatever the issue, it is important to make sure the relationship with an elder law attorney is a good fit for your circumstances and helps achieve your goals.  In the meantime, this month and beyond be sure to celebrate older Americans!  #elderlaw #olderamericansmonth @aclgov #nationalelderlawmonth

 

Caring for Pets As Part of Your Estate Plan

April 21, 2016

Many if not all of us have had a pet during our lifetimes.  But what happens to that pet if the owner becomes incapacitated or dies?  Virginia (Section 64.2-726), Maryland (Section 14.5-407)  and the District of Columbia (Section 19-1304.08) all have statutes that permit the creation of a trust for the care of a pet.  In determining how to provide for a pet during incapacity and/or at death, here are a few items to remember:

1.  The owner should ensure that, at a minimum, they have a Power of Attorney giving someone authority to take care of their pets using the owner’s monies to do so.   In addition, the owner should ensure that instructions for caring for the pet have been provided for in their estate plan.  This can be done in various ways including specific provisions in a Last Will and Testament or through a Revocable Living Trust.

2.  An owner of a pet may want to carry information in a wallet or purse that identifies the fact that he or she owns a pet, what kind of pet, where the pet is located and any special instructions regarding care.  The thought is that if the owner is unable to return home those going through the wallet or purse will find this information and ensure the pet receives the proper care.

3.  Along with other important papers relating to one’s estate plan, there should be a document that summarizes all pertinent information relating to the pet including any medical history, veterinarian’s contact information, allergies, likes/dislikes, etc.  The information carried in the purse or wallet would also be included and further detail provided, if necessary.

4.  Many pet owners now post a notice near their front door that they have pets in the house to alert anyone entering the home to be on the look out for the animals.

5.  If the owner is considering establishing a Pet Trust, then the following questions must be asked:
     a. Who will be named as caregiver for the pet?
     b. Will there be different caregivers for different pets? 
     c. Is the proposed caregiver willing to serve? 
     d. Who are the alternate caregivers?
     e. Who will be Trustee of the Pet Trust? 
     f. Will the Trustee be the same as the caregiver?
     g. Who will be successor Trustee?
     h. How much money should be set aside for the pet or pets that the Trustee will manage?
     i. What special care instructions should be included in the Pet Trust?
     j. How should the Trustee make distributions from the Pet Trust (i.e., to the caregiver or directly to the vendor)?
     k. Should any monies be paid to the caregiver from the Pet Trust?
     l. What should happen to any remaining monies upon the death of the pet or pets?
     m. Are there any specific burial and/or cremation instructions for the pet or pets?

There is certainly more information that can be included in the Pet Trust depending on the kind of pet, the standard of care, the amount of money to be set aside and the overall goals and objectives of the owner.   But these items will help you to start thinking about what happens next for your pets who are more likely than not a part of your family, and therefore, need to not be forgotten in any estate plan.  #pettrust #estateplanning #incapacityplanning #caringforanimals

National Healthcare Decisions Day – April 16

April 14, 2016

Previous posts have talked about you controlling your final moments and also how you want to be remembered.  April 16 is National Healthcare Decisions Day and provides a reminder that having a living will in which you express your wishes regarding life-prolonging procedures or choosing not to have a living will are crucial components in every estate plan.

To that end, during this past legislative session of the General Assembly of Maryland, a bill was introduced that would authorize a qualified individual to request aid in dying.  The Richard E. Israel and Roger “Pip” Moyer End of Life Option Act would have allowed individuals meeting certain criteria to request and receive from their physician a lethal dose of a particular medication.  The bill was withdrawn from consideration as it lacked enough support, but not before sparking public conversation about the topic.  At this juncture, there are four states that have death with dignity statutes: Washington, Oregon, Vermont and California.  In fact, California’s statute is so new it will only take effect in June.  Montana does not have a statute, but a 2009 Montana Supreme Court case (Baxter v. State of Montana) examined whether a physician could prescribe a fatal dose of medication to a terminally ill individual without being charged with a crime because consent was involved.  In the end, although attempts have been made to pass aid in dying legislation, Montana does not have a statute legalizing the practice and the Baxter case addressed a very narrow aspect of the practice.

Regardless of your position on death with dignity statutes, end of life decision-making and advance healthcare planning is an important conversation to have and to share with your loved ones and National Healthcare Decisions Day helps remind us of the need to begin the dialog on the subject.  @deathwdignity @NHDD #livingwill #estateplanning #endoflife #advancedirective #NHDD

Online Forms – To Use or Not to Use?

January 10, 2016

Many people ask why they should not use online forms that are available for free? Why do I need to go to an estate planning attorney? If you choose to use a form, you run the risk that the form will not be accepted in the state in which you live. Each state has different requirements for the execution of a will, trust or power of attorney. An estate planning attorney can help guide you through the requirements and also ask the tough questions about the family dynamics that are often not considered when using a form. More importantly, using an estate planning attorney ensures that your wishes for the disposition of your estate are clearly identified for your family in the proper manner.

In addition, a form does not encourage the dialog that a visit with an estate planning attorney does. That dialog includes important topics such as incapacity planning, tax planning, health care decisions and guardianship. However, an estate planning discussion also involves the little stuff. For example, who will receive Aunt Sue’s china or Uncle Frank’s antique car. Very often people forget about the little things and focus on the house, bank accounts or life insurance, when in fact, the disputes arise over a particular piece of furniture or jewelry that had strong sentimental value. Forms do not address these issues in the way that having a conversation does. Regardless of the value of your estate, forms do not lay the complete groundwork for your legacy. #legalforms #estateplanning

Your final moments…

January 3, 2016

We may not know what Army veteran Matthew Whalen’s final wishes were, but one can imagine that dying so young was not in his plans although saving lives seemed to be part of who he was.  Many of us would like to control our final moments, but very often cannot. However, by having an advance medical directive and living will, we can control who is in charge of making those final healthcare decisions and provide guidance to our family and friends about end of life decisions and organ donation.  And, what is more important is that by establishing these directives, the conversations can be had with family and friends about those specific wishes and desires and avoid having to figure out what was wanted at an already stressful time. #advancedirective #estateplanning #livingwill #organdonation

Why Estate Planning Continues to Matter

December 30, 2015

There are those that wonder if estate planning will remain an important consideration given that many estate and gift tax planning provisions that were enacted in early January 2013 are ‘permanent’. However, we know that individuals have needs in addition to potential estate and gift tax planning, and estate planning encompasses much more than tax planning. Here are a few items to remember as to why estate planning continues to matter.

With the passage of the 2012 Tax Act, provisions now exist that will encourage individuals to continue focusing on estate planning. For example, for the foreseeable future, the gift, estate and generation-skipping transfer tax exemptions are unified, with exemptions of $5 million per person ($10 million for married couples), indexed for inflation, and a tax rate of 40% (for 2016 the exemptions will be $5.45 million per person).  There are those that may rely on the ‘permanence’ of these provisions. However, as has been seen in the past, nothing tends to be permanent with Congress and commentators have been quoted that ‘permanent’ is in the eye of the beholder. With that said and given the continued uncertainly as to when Congress may next change course, including, but not limited to, passing additional provisions that reduce the availability of some advanced estate planning techniques, individuals who are considering making life time gifts to family members, including grandchildren, are well advised to make those gifts sooner rather than later and take advantage of the continued higher exemptions. For example, transfers of closely held business interests may be accomplished by utilizing the increased exemptions and applying valuation discounts that are available.

In addition, the 2012 Tax Act allows married couples to transfer any unused Federal estate tax exemption to a surviving spouse. This ‘portability’ provision has also been made ‘permanent’, but the executor must file an estate tax return in order to claim the unused exemption. Failure of the executor to timely file the estate tax return may result in future application of estate tax to the surviving spouse’s estate, if exemptions decrease and/or the estate increases, and the possibility of liability for exposure to the estate tax. In addition, individuals must understand that if a surviving spouse remarries and the new spouse dies, only the unused exemption of the second deceased spouse can be used. Therefore, the application of the portability provision must be analyzed at that time to determine whether it best fits the circumstances.

Finally, individuals living in Maryland and the District of Columbia need to remember that lower exemptions from estate tax exist. For example, Maryland’s exemption for 2016 is only $2 million per person and the exemption for the District of Columbia is currently only $1 million per person (although that may change). Thus, proper planning is essential to minimize the impact of those taxes.

Beyond estate and gift tax planning, many worry about what happens if they become incapacitated whether through an illness or accident. Planning for long-term care has gradually become and continues to be a major consideration in any estate plan. Individuals want to ensure that during any period of incapacity they have the appropriate fiduciaries in place to manage their financial and healthcare affairs. Without adequate planning, families may have to resort to the guardianship and conservatorship process, a court driven process, to gain access to assets and make important decisions. Furthermore, those without proper estate planning may find themselves and their hard earned savings wasted by family members, and therefore, not used or available for their care. Although conservatorship proceedings may be necessary in certain circumstances, a financial or durable general power of attorney would permit an individual to appoint an agent to act on their behalf with respect to their property, finances and personal affairs.

Moreover, planning for health care is also a necessary part of any estate plan, particularly now after the enactment of health care reform. Studies have shown that only between one-fourth and one-third of Americans actually have an advance medical directive or health care power of attorney. These studies have shown that in dealing with end of life circumstances, individuals who have had the detailed conversations about their health care ultimately reduce the emotional and financial costs associated with their end of life care, and therefore, reduce the overall burden on surviving family members. A healthcare power of attorney or advance medical directive allows an individual to appoint an agent to make medical decisions on their behalf.

Without the appropriate financial and medical powers of attorney in place, individuals are relying on their family members to make the ‘right decisions,’ which may not be in the best interest of the actual incapacitated individual. For example, sufficient assets may exist to keep an individual at home with the aid of home health care providers, but without specific direction in an estate plan and a trusted named fiduciary, those who have control of the finances, whether by default under state law or by familial relationship, may decide to sell the home and move the individual to a low-cost facility in order to preserve an inheritance for future generations (i.e., the person in control of the finances). This result does not satisfy the individual’s ultimate financial and health care goals.

Alternatively, individuals may use a revocable living trust to plan for incapacity and specifically outline how they want their assets used for their benefit and for the benefit of those who depend on them, including family members with special needs. Special needs planning can be accomplished through estate planning. Without such planning, special needs family members may not receive the care and support that was intended.

Estate planning encompasses much more than tax planning or planning for what happens immediately after one’s death. The laws are constantly changing. An individual’s family situations may change as well as their goals and objectives over time. Estate planning should, therefore, have a priority in all our lives. #estateplanning #taxplanning #incapacityplanning