Posts Tagged ‘estate planning’

Can You Change Your Will By Writing On It?

NOVEMBER 18, 2013 VOLUME 20 NUMBER 44

So you have a will, and you want to make some changes. Can you just write in the new provisions? How about if you sign somewhere on the document?Can it be a copy of your will, or does it have to be on the original to be effective? Do you need witnesses?

The correct answer: don’t make changes that way. There are too many variables, too many interpretations, too many ways for those changes to just add cost to the probate of your estate while not effecting the result you intend. Talk to your lawyer, get changes made formally, and have a new will drawn up. Can it just be a codicil? Yes, but there is frankly almost no reason in this age of computerization to ever sign a codicil to your will — just sign a new will. One drafted by your lawyer.

Sometimes, though, time just gets away from you. If you want to make changes, you probably ought not wait until just before your 100th birthday. That’s probably the biggest mistake Jenny Travis (not her real name) made.

Ms. Travis had signed a will in 2002, and a codicil a few months later in 2003. In 2010 she had her caretaker call her lawyer, asking him to make a visit to review her estate plan.

The lawyer made a photocopy of Ms. Travis’ existing will and codicil, and went to her home to discuss them with her. During their meeting, he hand-wrote several changes in the margins of his copy of her existing will. As she described the changes, he scratched out two individuals’ names next to a bequest and wrote in two replacements. In another place he deleted a paragraph, and in another made modifications to the way a bequest would be handled. Another was changed from $10,000 to $42,000, again in the lawyer’s handwriting. Finally, the two charities who were scheduled to get the remainder of her estate in the 2010 will were crossed out and replaced with Ms. Travis’ brother.

At this point the lawyer had Ms. Travis sign her name by each of the changes, and he signed as a witness. Then he wrote a note to his secretary at the top: “Linda, do a codicil that changes” the affected sections of the 2002 will and 2003 codicil. He took the document back to his office with him, and a codicil was prepared. Unfortunately, though, Ms. Travis died six weeks after her lawyer’s visit, without ever having signed the new, formally prepared codicil.

Did those handwritten changes constitute a will or a codicil? Not according to the Pennsylvania probate office, which declined to admit the handwritten changes to probate (but did admit the 2002 will and 2003 codicil).

Ms. Travis’ lawyer appealed, and the Superior Court (the second-tier appellate court in Pennsylvania) viewed things differently. The appellate judges ruled that Ms. Travis’ changes might be a codicil to her will — and that the probate court should conduct a hearing to determine whether that was what she intended when she signed (and her lawyer witnessed) beside each change. One of the nine judges considering the case would have gone further — he would have ordered the handwritten notes admitted to probate without any further testimony. Still, it seems likely from the language of the opinion that the lawyer’s notes will ultimately be given effect — it will just have taken a trip to the appellate court and a delay of several years before the issue is resolved. In Re Estate of Tyler, November 13, 2013.

Assuming that Ms. Travis really did want to make the changes her lawyer wrote down, what might have been done differently to make sure her wishes were carried out? And would the same result be reached if Ms. Travis had lived and died in Arizona?

One obvious thing to consider would have been to make the changes earlier. By the time of her death Ms. Travis was 100 years old — if she had been thinking about making the changes for very long, she probably should have called her lawyer earlier. Perhaps, though, she had just recently made up her mind about the changes when she met with her lawyer.

Apparently Pennsylvania law permits changes to a will to be effective if written by someone else and signed by the person making the changes. It may not even have been necessary for her lawyer to sign as a witness (we don’t practice Pennsylvania law, so we might have gotten that wrong). The same is not true in Arizona — changes like those made by Ms. Travis’ lawyer would require her signature and two witnesses in Arizona. It’s not even completely clear that the changes would have been accepted then, since there does not seem to have been any indication in the written notes that the changes were intended to be a will or codicil, and they were made on a photocopy of her old will.

In Arizona it would have been better for the lawyer to write out a separate document describing what it was and the intended effect, and to have Ms. Travis sign it in front of two witnesses. Such a document would probably have been effective. Another alternative, since Arizona permits “holographic” wills, would have been for Ms. Travis to write out her changes in her own handwriting, and to sign that document (no witnesses would have been required) — though that creates plenty of opportunity for her to get the changes jumbled, or leave out portions or make mistakes. Presumably the lawyer, familiar with will drafting, would have had an easier time making the changes correctly.

Of course it would have been wonderful if the lawyer could have returned to Ms. Travis’ home with a beautifully typed new will (again, just forget codicils) the next day and had her sign in front of two witnesses. It is unclear why that did not happen — whether Ms. Travis was unable to discuss her wishes shortly after the initial visit, or the lawyer’s secretary Linda was out sick the next day, or what else might have intervened. The central lesson: if you want to make changes to your estate plan, get to it promptly, and talk with your lawyer right away.

Disinheritance of Adult Child With Disabilities Leads to Lawsuit

OCTOBER 21, 2013 VOLUME 20 NUMBER 40

Suppose you have two children. Your daughter is very capable, very mature, very responsible. Your son has a developmental disability, or a drinking problem, or just problems handling money. What should you do with any inheritance you leave to your son? Put it in a trust? Make your daughter trustee?

Again and again clients tell us that they don’t want to do that. It seems like a lot of fuss, and probably the son whose inheritance goes into a trust will feel injured, like maybe his parents have said they don’t trust him, or don’t value him. Can’t you just leave everything to your daughter, and tell her to be sure to take care of her brother? Won’t that work?

No.

That’s essentially what Howard Kaufman (not his real name) decided to do. By all reports Howard was very strong-willed and domineering. He had a living trust, written in 2002, which divided most of his estate equally between his two daughters. He named his daughters as successor co-trustees.

Howard’s older daughter, Diane, was blind, diabetic and receiving Social Security Disability benefits. His younger daughter, Jackie, was a successful business woman.

In 2009, Howard decided to change his trust’s terms. He called a meeting with Jackie and his long-time girlfriend (Diane was not included); he arranged for a notary to be present. He told the three of them that he had changed his mind, and that he was going to disinherit Diane. He told Jackie that it would be her duty to see that Diane was “taken care of” with the inheritance she was to receive. Then he had the notary prepare amendments to his trust removing Diane as a beneficiary.

When Howard died, Diane was surprised to learn that she had been left out of his estate plan. Nonetheless, she turned to her sister to continue the pattern Howard had set of helping out so that she could live on her Social Security and disability insurance payments. Jackie declined to continue his pattern of gifts; she insisted that her father had left her his estate (of approximately $4 million) to “do with as I will.”

Diane ended up suing her sister. The theory of her lawsuit, though, was unusual. Rather than arguing that the trust change was invalid, or that Jackie had unduly influenced their father, she sued for a breach of contract. Her theory: Jackie had promised to take care of her, and it would take about $2 million over her lifetime to do that. She also claimed that Jackie had taken advantage of both their father (a vulnerable adult) and Diane (a dependent adult).

The jury in Diane’s case found that Jackie had broken her promise, and had taken advantage of Diane. The jury awarded actual damages of $1.4 million, plus punitive damages of $260,000 and attorneys fees of another $700,000. The jury also ruled against Diane with regard to the vulnerable adult claim — it found that Jackie had not taken advantage of their father. Jackie appealed the judgments against her.

The California Court of Appeals upheld the verdict. It ruled that Diane’s lawsuit was not a disguised trust contest, and that it was not inconsistent that they found Jackie had exploited Diane but not their father. One of the main issues: whether Diane was entitled to a jury trial on her claim. The appellate court ruled that she had, and that Jackie’s promise to take care of her sister was an enforceable contract. Kalfin v. Kalfin, October 15, 2013.

What is the lesson to be learned from Howard’s trust case and his daughter’s lawsuit? There are several, but two key ones jump out:

  1. Disinheriting your child with disabilities and relying on another child to “take care of” them is not a reliable way to handle division of your estate. It might work, but there are real risks — and the cost and family disharmony resulting from litigation is almost certainly worse than what would be involved in simply setting up a trust for te child with a disability.
  2. Do you have a child with a disability? A complicated estate? Uncommon wishes? Talk to a lawyer. A notary public is not going to be the best choice for drafting your estate plan. The cost of doing it right will be way, way less than the cost of dealing with the aftermath.

 

Why Do I Need a Lawyer — Can’t I Write My Own Will?

OCTOBER 14, 2013 VOLUME 20 NUMBER 39

“My father hates, absolutely hates, lawyers,” a casual acquaintance tells us at a social gathering. “I know it’s a bad idea, but can’t he just write his own will?”

Let’s get the answer out of the way right up front: yes, he can. And there’s a very high likelihood he will do it just fine.

We can hear the faint and distant voices of thousands of other lawyers from across the country even as we write those words. “You wouldn’t do your own brain surgery, would you?” they ask. Or, more subtly: “go ahead, encourage everyone to write their own wills — lawyers’ children will go to much better colleges as a result.”

We’ll let that one sink in a moment.

Seriously: writing a will is not brain surgery. It doesn’t require anesthetic, and failure to do a good job doesn’t lead to instant death. For our money, there are much better comparisons. Would you build your own airplane (and then fly it)? Or maybe, more prosaically: are you comfortable doing your own business income taxes? In either of these two cases the project is detailed and complicated, and the negative results flowing from a mistake will not be immediately apparent. In both cases (and numerous others we might draw on) the possible negative repercussions could be far more costly than getting good professional help at the outset.

And yet thousands of people do build kit airplanes and fly them. Millions prepare their own tax returns. So can’t they prepare their own wills?

Yes, they can. There are forms and computer software to help. In our experience most people will do just fine with those kinds of assistance. The product may not be beautiful, but it can be perfectly functional.

Are we saying that you don’t need a lawyer to prepare a will? Absolutely not — there is simply no question that you are better off getting a lawyer’s advice about your estate planning. And the cost is amazingly inexpensive (it is easy to insist on that point after our visit last week to the dentist — her bill was more than we usually charge for estate planning consultations, and the visit was both shorter and more painful). Though you can prepare your own will, here are some of the reasons you should not:

  • We frequently see mistakes in do-it-yourself estate plans. We have seen wills that failed to name a personal representative (what used to be called an executor), and percentage divisions that didn’t add up to 100% of the estate, and attempts at legalese that probably reversed the writer’s actual intentions. We have seen innumerable wills that attempted to leave individual items to someone, even though beneficiary designations (which overrode the will) named someone else as recipient. We once probated a “will” written on the back of an envelope on the way to the airport — the writer, incidentally, didn’t die on that trip but five years later, with the envelope still the most recent signed document.
  • “Holographic” wills — handwritten, signed wills, which are very popular among the do-it-yourself crowd — are not valid in every state. Requirements vary. The result: a lot of self-prepared wills turn out not to be wills at all.
  • So far we have focused on wills — but should you be preparing a living trust? Do you need a Limited Liability Company established? Are there income tax considerations involved in your estate planning? Does your son need a special needs trust? How will you know, without talking with a lawyer? Well-written documents are important, but what your lawyer realizes (and you might not) is that the choice of document is often more important than the words and phrases in the document.
  • Similarly, it is usually not enough to just write a beautiful will (or trust, or power of attorney). Beneficiary designations, titles, and the relative values of your assets all are important considerations in your larger estate plan. And yes, the documents need to be well-written, too.
  • Your estate plan is not immutable. How long will your will, trust, power of attorney and beneficiary designations last? Well, they will “last” forever, or until you change them — but they will likely start being out-of-date within about five (perhaps as many as ten) years of being completed. So your self-help approach, leaving you slightly uncomfortable about whether you have done everything right, will need to be started all over in about five years.

We can go on, but perhaps our point has been made. You hire an attorney to handle your estate plan so that you can be sure the correct questions have been asked (and answered), not just to write elegant-but-wordy documents. What you get from your lawyer is, yes, good documents — but also an effective estate plan and more peace of mind.

A last word: many clients think it might save money if they prepare their own documents and then have a lawyer review them. That almost never works. The lawyer’s fees are largely based on collecting information, analyzing your situation and determining what ought to be done. Those steps have to be completed even if you prepare the documents yourself. And your lawyer probably will take longer to review your documents than to prepare her own, more familiar ones — and she will be less comfortable with the result, too. So the cost is likely to be the same or higher if you take homemade documents in for review.

Oh, and a last last word: when someone tells us that their father just hates lawyers, we have exactly the reaction you might imagine.

 

Pondering Your Power of Attorney

SEPTEMBER 16, 2013 VOLUME 20 NUMBER 35

Do you have a power of attorney? If so, do you know how it works? Is a “springing” power of attorney the best way for you to keep authority over your health care and financial decisions until a transition is needed? Many people have powers of attorney but do not understand how they work.

The power of attorney gives authority to an individual (the “agent” or “attorney in fact”) to make financial or medical decisions for another person (the “principal”) in the event of incapacity. Although sometimes health care powers of attorney are incorporated into general durable power of attorney, most people prefer to separate the two kinds of documents. A health care power of attorney gives an agent duties to make medical-related decisions and a durable power of attorney authorizes an agent to handle financial matters. While some states may give your health care agent the power to authority an autopsy, organ donation or burial arrangements, no American jurisdiction recognizes a power of attorney after the death of the principal. If you want to refresher on the basics, you might want to look at this white paper written by Slade V. Dukes.

One of the most important things to understand about your durable or health care power of attorney is whether it is a springing power or surviving power. A springing power of attorney is not immediately effective when you, the principal, sign it. Instead, the power can only become effective and “spring” into action when a specified event occurs like your incapacity or disability. A surviving power of attorney is effective the moment you sign it and survives even if you become disabled or incapacitated.

So, is it dangerous to have a surviving power of attorney and give your agent immediate authority to act on your behalf? Does it make more sense to create a springing power of attorney that only gives your agent authority to act when you really need the help? Now that you’re digging through your desk door in a panic, trying to decipher if your powers of attorney are springing or surviving — relax. The answer is that it depends.

Although Arizona recognizes springing powers of attorney, we see a general trend away from the use of springing powers. Legal standards of capacity are different then medical standards of capacity, so not all doctor’s letters are created equal. Even with a notarized doctor’s letter, it is not uncommon for a financial institution to object that a springing power of attorney has not, well, sprung. There is at least one state, Florida, that does not recognize springing powers of attorney in any form. A general consensus among practitioners seems to be that though springing powers can be used in some circumstances, they should not be the default.

Our office drafts both springing and surviving powers of attorney for our clients. And before we draft a power of attorney, it helps to learn about our clients’ health and family relationships. Making a thoughtful decision about selection of your agent is a critical part of preparing a power of attorney that will serve you well. In some cases, where there is a history of family conflict or a client has complex business or financial arrangements, there may be good reasons to create a springing power of attorney. In other cases, springing powers of attorney can be problematic and create hurdles that may make it difficult for an agent to act when the call for help comes.

So which is the right answer for you? Here’s a quick question for you to consider: do you completely and implicitly trust the person you are naming as agent? If your answer is “yes,” then it should not cause any problem to give them immediate authority to act. If the answer is “no,” then we need to talk about your choice of agent. Think about it: if you do not trust them enough to give them immediate authority, then perhaps they are not the right agent for you.

It’s easy to be glib, however, and a lot harder to actually live your life. Sometimes there are not good choices. Sometimes people may simply not be comfortable with an immediately effective power of attorney. When we prepare your estate plan, you should talk through your concerns and preferences — the point of signing a power of attorney is to give you peace of mind, not to make you more anxious.

Arizona Legislative Changes Effective September 12

AUGUST 26, 2013 VOLUME 20 NUMBER 32

The Arizona legislature meets every spring, and in most years adopts changes that affect elder law attorneys, estate planners, guardians, conservators and trustees. The changes become effective nine months after the end of the legislative session, which means that late summer is the time for annual review of new laws about to become effective.

For 2013 the effective date for most new legislation will be September 12. There are a handful of changes affecting our practice area, including:

Fingerprints. The legislature decided to make it a little bit harder for most people to get appointed as guardian or conservator for a family member or other person needing assistance. It has long been the law that unrelated guardians of minors had to submit to fingerprinting; now anyone seeking a guardianship or conservatorship over an adult (related or not) can be required to undergo fingerprinting. Not every person will be required to provide official fingerprints, and it is not yet clear how the courts will implement the new law.

If the courts require fingerprinting, the change will primarily affect family members, since professional fiduciaries already have to go through a fingerprint review to get licensed in the first place. The cost is modest; probably most important for petitioners will be the half-day it usually takes to get to the fingerprinting office, wait in line and get the card. Then it will be submitted for a criminal record check.

This change continues the trend of the past several years to make court proceedings more difficult, and to discourage concerned family members from initiating protective proceedings. While the effect will probably be small, there is a cumulative shift making it more expensive and difficult to seek legal help for a failing family member. It also increases the importance of advance planning to avoid having to turn to the courts for that help.

Simplified probate proceedings for small estates. It has long been possible to avoid probate in Arizona for smaller estates. If personal property in the decedent’s name does not total more than $50,000 (and that does not include joint tenancy property, property held in a trust or property with a valid beneficiary designation) then the person entitled to the property can collect it with a simple affidavit. Even real property can be subject to a simplified probate proceeding, up to $75,000 in value.

Now both of those figures are set to increase. The personal property limit will go from $50,000 to $75,000, and the real estate limit from $75,000 to $100,000. This one will affect a small number of estates, but can save significant costs for those who fit under the increased limits. More good news: the valuation figures are for estates as of the date of collection, not the date of death. In other words, for a decedent’s estate worth more than $50,000 but less than $75,000 the best strategy will likely to be to wait another month before taking action.

Trusts created by married couples. This change is a little bit arcane, but could have broader impact than was probably intended. Many married couples establish trusts that become irrevocable (or partly irrevocable) after the death of the first spouse. Typically, those trusts permit the surviving spouse to manage the assets and, in some circumstances, to even withdraw the principal for their own use. The new law will make it a little harder for surviving spouses to legitimately withdraw money from those trusts — though another family member acting as trustee will not face the same limitations.

With the significant increase in federal estate tax exemption levels (there is currently no tax until the estate is more than $5 million in most cases), many of our clients want to eliminate irrevocable trusts set up by a now-deceased spouse when the estate tax figures were very different. This new law will make that a little more challenging, but not impossible in most cases.

Section 529 plans. Most lawyers have long assumed that money set aside for education of children and grandchildren probably was protected in bankruptcy proceedings — but the law was not explicit. It is now, at least for Arizona. If the education account is a “Section 529 plan” account, then it is not an asset of the person who set it up if they later file for bankruptcy — provided that the bankruptcy filing is at least two years after the account was set up. Incidentally, the beneficiary of a 529 Plan account is also protected in the event of bankruptcy.

It was a slow year at the legislature for those of us involved in estate planning, trust administration and elder law. That’s OK with us.

Simple Estate Planning for a Married Couple

AUGUST 12, 2013 VOLUME 20 NUMBER 30

Last week we saw a married couple in our office. The couple had come to us for estate planning. They did not have children with disabilities, or spendthrift sons-in-law or daughters-in-law. Their assets were not unusual (some Arizona real estate, a brokerage account, several bank accounts). Their net worth was well under the $5.25 million that would have made us want to talk about federal estate tax issues. They intend to leave their estates to one another and, on the second death, to relatives and a few charities. In short, they were a pretty typical couple.

This couple already held everything they owned as “joint tenants with right of survivorship.” That, of course, means that on the death of the first partner, the survivor would receive everything without having to go through the probate process. Ordinarily we would have told them that they ought to have fairly simple wills and Arizona powers of attorney. We would have suggested that they transfer all their real estate and brokerage assets into “community property with right of survivorship.” That’s a slight improvement on joint tenancy because on the first death the survivor gets a stepped-up income tax basis on the entire value of assets held as community property. It is an option that is only available to married couples, and it’s usually worth considering.

Though our couple was married, they did have one legal issue that complicates their estate planning. They are both of the same gender. They got married in another state, where same-sex marriages are recognized, and then retired to Arizona. They are looking forward to enjoying the sunshine, outdoor recreation opportunities, and casual lifestyle of The Grand Canyon State. Though Arizona was once known as The Valentine State (do you know why?), our state Constitution expressly invalidates this couple’s marriage.

Or does it? They have arrived in Arizona at a time of legal ferment. The U.S. Supreme Court has invalidated a federal ban on same-sex marriages; is invalidation of Arizona’s ban (and those in place in dozens of other states) far behind? And, more importantly for our couple, what are legally married gay couples supposed to do in the meantime?

Reasonable minds can differ on what our couple should do. In fact, we are fond of saying that if you get ten lawyers in a room and discuss legal issues, you will get at least twenty firmly-held, well-reasoned opinions. But here is what we discussed with our clients:

  • Consider creating a joint revocable trust. Declare in the trust that everything you own is community property, and file any future tax returns on that assumption. The worst that could happen would be that the IRS ultimately disagrees, and then you are back where you would be if you did nothing of the sort. BUT note that the establishment and funding of a trust is more expensive (by, perhaps, a factor of three or four), and opposite-sex married couples don’t have to go through this kind of silliness.
  • At least create reciprocal wills, and guard them more carefully than opposite-sex couples need to. If a couple whose marriage is recognized in Arizona never get around to making a will, or misplace their wills, it is likely that the default rules will follow what they wrote in their wills. If the marriage is not recognized, though, a missing will could mean biological family members of the deceased spouse take in preference over the surviving spouse — or at least that litigation is required to establish the validity of the out-of-Arizona marriage.
  • Critically important for gay couples, married or not, is signing of a document directing funeral arrangements and disposition of remains. Time and again we have seen same-sex partners shut out of funeral and burial arrangements, even by family members who professed affection for the surviving partner in the hours before death. The advent of same-sex marriages might turn out to have eased that kind of pain, but it may be yet another opportunity for litigation, and at a time of high emotional fragility.
  • Go ahead and try putting real estate and brokerage accounts in “community property with right of survivorship.” Expect a little different experience between stockbrokers and the County Recorder; the former is probably used to same-sex community property declarations, and the latter probably thinks it has a responsibility to uphold Arizona’s misguided law. Do you want to be a little bit subversive and act as an agent for positive change, albeit a small change? Talk with us — we like both of those ideas.
  • Review and update your plans more often than other couples need to. We usually counsel that estate plans have about a five-year life, and we expect to actually see clients again in about 7-10 years. Same-sex married couples ought to shorten that to 3-5 years, as there will be changes AND we want to have recent documents in the ultimate time of need (that’s a not-very-disguised euphemism for “when you get sick or die”).

We were very chagrined to have to advise this delightful couple that Arizona is so unwelcoming. We really want to help them secure the benefits of their marriage in Arizona. We can accomplish almost everything that an opposite-sex married couple can get with their Arizona-recognized marriage, except for the (admittedly small) income-tax benefit of “community property with right of survivorship” titling. But we can’t really tell our couple that they have a moral or legal duty to carry the torch for change in this arena, because the reality is that the benefit is modest for most couples. That’s because:

  1. Your real estate may well appreciate during your life, but if the only real estate you own is your residence then you already get a significant income tax avoidance opportunity (up to $250,000 in gain) without regard to your marital status. Be careful about relying on this as your sole tax-avoidance technique, but for most people it means that they will not ever pay taxes on increases in their home’s value anyway.
  2. Although capital gains in your stock holdings do not have the same partial exclusion opportunity, it is still easy to avoid paying income tax on the increased value by simply not selling the stocks. That means that an “unmarried” couple like our clients would have lost flexibility, not cash — still a negative, but not with as obvious a dollar cost.

For our part, we are looking forward to a time (we hope that it is soon) when these kinds of distinctions are no longer necessary. Meanwhile, we wish the very best for all our clients who have retired to The Valentine State.

 

Are You an Organ Donor? Are You Sure?

JULY 15, 2013 VOLUME 20 NUMBER 26

Do you have strong feelings about being an organ donor? It is a topic that too often goes undiscussed while preparing your estate plan. That’s one time to consider whether you want to be an organ donor — particularly if you have meant to address it but haven’t gotten around to the topic.

You probably remember the last trip you took to update your driver’s license, but maybe you cannot remember if you ever registered to be an organ donor. Or perhaps, you’re a registered donor, but have not had a conversation with your friends and family about your decision to donate. Maybe you feel strongly that you do not want to donate your organs. In each of those circumstances, it is important to make your wishes clear and to talk with your family and your attorney about the topic.

The National Conference of Commissioners on Uniform State Laws adopted The Uniform Anatomical Gift Act in 1968 and went on to revise the Act most recently in 2006.  Arizona is one among over forty states that adopted the newer version of the Act. Arizona Revised Statutes §§36-841 (and the 20-or-so following statutory sections), lays out the groundwork for making an organ donation in the state. Arizona is unique in that it is one state where a donor may register and select what specific organs he or she wishes to donate.

But how do you become an organ donor in Arizona? If you are 18 years or older, you can become a donor by registering with Donate Arizona, or including written instructions in your will. Additionally, you can include language in your power of attorney that authorizes your Agent to consent to donation. Even if you never register, you can still become a donor if you include language in your will or power of attorney providing your agent with authorization to donate on your behalf. It is never too late to sit down and make your wishes clear.

Kris Patterson, with the Donor Network of Arizona, encourages people to do three important things if they wish to donate: register with a local network; talk to your family and friends about your desire to become a donor; and let your doctors determine whether you are a good candidate to donate.  She explained that people frequently assume that they are too old to donate, or rule out registering to become a donor because they have a bad heart or bum hip. When it comes down to it, there is no litmus test that identifies whose organs can be used.

The Act lists people in order of priority who may provide consent upon your death to become (or not become) a donor. The person who you appoint as your Agent under your power of attorney is first in line. If you do not appoint an Agent, the Act provides that a family member, a guardian, or friend, and in certain cases, even a domestic partner can share your decisions about organ donation with medical personnel after your death. As a last resort, you can always include instructions about organ donation in your will.

So, take a moment to think, have you made a decisions about organ donation? If so, does your family know? Have you been thinking about making an appointment to update your old will or power of attorney? If so, when you come in to see us, let’s talk about organ donation and make sure that your documents reflect your decisions.

Executive summary:

Want to make sure you are an organ donor? If you are an Arizona resident, do these three things:

  1. Fill out the Arizona donor registration form. Include any special provisions (like approval or refusal for individual organs, preference for transplant over research or the reverse, or anything else you feel strongly about).
  2. Include a provision authorizing organ donation in your health care power of attorney.
  3. Talk with your family — especially the agent on your health care power of attorney AND any family member who might not approve of organ donation.

Want to make sure you are NOT an organ donor? Do these two things:

  1. Make your wishes clear in your health care power of attorney (and maybe in your will as well).
  2. Talk with your family — especially the agent on your health care power of attorney AND any family member you think might really want to approve organ donation.

 

 

Estate Planning Issues For People With Pets

MAY 27, 2013 VOLUME 20 NUMBER 21
Does anyone else remember reading “Rhubarb,” a 1946 novel by H. Allen Smith? The basic story: an eccentric millionaire leaves his entire fortune to a stray cat (the eponymous Rhubarb). Among the assets in the cat’s inheritance is a baseball team (the fictional New York Loons). Hilarity ensues. The novel was even made into a movie in 1951 (starring Ray Milland as the cat’s financial manager).

Why does this all-but-forgotten novel (and the movie, which may actually be better than the book) come to mind now? Because of the growing popularity of “pet trusts,” and as an opportunity to discuss how one might plan for taking care of the pets who survive the owner’s death. We are NOT planning on a discussion about what it might mean if “Rhubarb” was the only child-appropriate book on a grandmother’s bookshelf in, say, the late 1950s.

So you have two cats (Max and Chloe) and a dog (Molly), and you feel very strongly about them. You want to make sure that they are taken care of after your death — even though you recognize that you will likely outlive them. In any case, you would almost certainly have other pets, and you know that they will be very important to you when you are looking at the proverbial endgame. What can you do to provide for Max, Chloe and Molly, and what should you do?

There are a number of mechanisms our clients consider for dealing with their pets. In roughly increasing order of complexity, they include:

Identifying who will take custody of the pets. Probably the most common arrangement we see is something like this: “I direct that any pets I may own at the time of my death should be given to my brother Dave, who has promised that he will care for them.” Please make sure Dave knows he is identified in this way, and you probably should have a backup choice (just like you do for guardianship of your minor children, and for identifying your trustee).

Involving a pet-oriented non-profit. Some organizations offer placement programs for pets after the owner’s death. You might want to make specific reference to a program you are familiar with, and include a donation to allow the organization to effectively make a placement for an elderly, ill or special-needs pet (remember that your pet’s condition is likely to decline between now and your death).

Providing for a stipend. We frequently see one of two variations here. Either “I leave the sum of $x,000 to my sister Diana, on condition that she takes custody of all of my pets and agrees to care for them” or “I leave the sum of $x,000 to my veterinarian Dr. Whisperer, who has agreed to use some or all of those funds to help arrange for placement of my beloved Max, Chloe and Molly (and any other pets I may own at the time of my death) in suitable homes.” Again, make sure your intended recipient is aware of the arrangement and willing to take it on, and plan for a backup (Dr. W is planning on selling his veterinary practice within the next five years, you know).

Making more elaborate arrangements for pets. Occasionally we have clients who have given a lot of thought to what their pets’ lives will look like after the client’s death. We have drafted a number of specific arrangements, from giving directions about the kind of care (food, grooming, living arrangements) to providing a home for the person who keeps the pets. These arrangements do not quite rise to the next level of complexity, since they are not formal “pet trusts” — but they can be as tailor-made and as complicated as the client’s needs and imagination.

Pet trusts. This is a topic of considerable interest in recent years, though it has been (in our experience) much more talked about than implemented. Pet trusts have actually been around for centuries (look for the legal term “honorary trusts”), but local laws have often made them unenforceable. In the last two decades or so, many jurisdictions have formally approved the idea: Rhubarb would be proud.

But a pet trust is a much more complicated and expensive thing to create — and administer — than the other, less formal arrangements. For that reason most of our clients, though they may be intrigued by the idea, opt instead to use one of the more casual approaches described above. That said, if you feel strongly that care of your pet is one of the most important items your estate plan needs to consider, you should be thinking about a pet trust.

Will a pet trust work in Arizona? Yes (here’s the Arizona statute allowing pet trusts). If you don’t live in Arizona, ask your local attorney about the concept. And be advised: pet trusts are subject to some oversight that is different from other trusts. For instance: the amount you leave to a pet trust can be reduced if a court thinks it’s excessive (that’s what happened with Trouble, Leona Helmsley’s dog).

Can you get a pet trust on the internet? After all, your situation can not be unique — millions of people with beloved pets must be thinking about the same thing. Our answer: yes, you can get a straightforward pet trust from the internet, and it will probably be legal in Arizona. But it will not be integrated into your estate plan, and might in fact directly conflict. It may affect the other distributions you intend to make. If your pet is going to be your sole beneficiary it might work better — but then there are the problems of trust administration, and your pet’s trustee will probably end up paying more in legal fees than if you developed a relationship with a lawyer during your life (and customized your pet’s trust to the terms you really want to cover).

What about the possibility that Molly, Max and Chloe might not survive you? Whatever arrangements you make for pets should probably be generic — rather than providing for those three pets by name, you probably want to include any pets you might have at death. And don’t forget: your pet desert tortoise and parrot might very well outlive you — and they therefore might require more careful planning.

Is there anything else you should do? Yes, at least one thing. Let the person who will be taking care of the pets know about their job, and let the person who will be handling the rest of your estate know, too. Immediate care of your pets is one of the most important things your family will need to deal with upon your death or incapacity.

Where can you get more information? We quite liked this common-sense analysis from the Humane Society of the United States.

We hope this helps. Please give our regards to Molly, Max and Chloe.

Some Questions We’re Being Asked a Lot Lately

APRIL 29, 2013 VOLUME 20 NUMBER 17
You probably have read that Congress has made big changes to the estate tax system. More accurately, Congress has made “permanent” the big (but piecemeal and temporary) changes introduced over the past decade. We hear a lot of questions from our clients about what those changes mean. Here are some of the more common questions we get asked:

Should I revoke the living trust I signed a few years ago? The answer is almost certainly no, but it might require some explanation.

Trusts (and here we generally mean revocable living trusts) have been useful for the past few decades, and help address a number of concerns. They can make it easier for you to avoid the necessity of probate of your estate. They can provide more efficient and clear-cut management of your assets if you become incapacitated. They can spell out any limitations on your heirs’ access to your estate after your death. And (especially for married couples) they can help minimize estate taxes — or at least they have traditionally been useful for that purpose.

The federal government’s change in estate tax limits means that very, very, few estates of decedents will pay any estate tax whatsoever. But does that mean that your trust will no longer be helpful?

Even though your estate will likely not be subject to any estate taxes, the other benefits provided by your living trust will continue to be available. Probate avoidance is still easier with a trust. So is protection of your assets in the event you become incapacitated. So is control over your children’s inheritance.

If you had not already created a living trust, the recent changes in tax law might make it less compelling for you to sign a trust today. But if you have already created your trust, there is little likelihood that you will be better off by revoking it. The only real downside to creating a trust (in most, nearly all cases) is the cost (our fees) and the difficulty of transferring assets into the trust (the “funding” process). You’ve already incurred both of those, so it probably makes little sense to undo your trust now.

Do my spouse and I still need a two-trust arrangement? It has been common in Arizona (and other community property states) for a husband and wife to create a single, joint trust that divides into two trusts upon the first death. Those trusts are sometimes called “survivors” and “decedents” trusts, or “family” and “marital”, or more simply A and B trusts. Many practitioners think they are outmoded now — and they might be right.

The recent tax law changes make permanent the concept of “portability” of the estate tax exemption. That means that when one spouse dies, the surviving spouse gets to keep the deceased spouse’s $5 million estate tax exemption (it’s actually even better than that, since the $5 million figure is indexed for inflation and has already risen to $5.25 million). No fancy trusts are necessary to allow a combined estate of up to $10.5 million (or more) to completely escape federal estate tax.

For a number of reasons, though, some lawyers favor keeping the two-trust split in place. There might be a state estate tax to consider (there isn’t in Arizona, but perhaps you have property in another state where there is an estate tax). There is still the generation-skipping tax issue, if you are putting money in trust for your children (which we favor) or leaving money directly to grandchildren.

This issue takes a lot of individualized consideration. The answer may depend not only on the size of your estate, but also who you intend to leave your money to and whether you will be leaving it in trust. Suffice it to say that married couples with combined estates of well under the $5 million threshold probably don’t need the two-trust arrangement, while couples worth more than twice the $5 million figure likely do. But even those generalizations are uncertain — your mileage definitely might vary. Talk to your lawyer.

What if my spouse died several years ago, and an irrevocable trust was set up — do I still need to keep it going? It might well turn out that you don’t, but you may not have control over the question.

For couples worth more than a few hundred thousand dollars a decade ago, the division into two trusts was commonplace. If one spouse has already died the division might well have already taken place. If so, the irrevocable trust files separate tax returns, has its own EIN (Employer Identification Number — the trust’s equivalent of a Social Security Number) and has requirements that some form of accounting information is provided to the ultimate beneficiaries. Would it be advisable (or even possible) to terminate that trust?

It might, particularly if the total value of the irrevocable trust and the living spouse’s own estate does not exceed $5 million. Recent changes in Arizona law might make it easier to terminate the trust and save the cost and hassle of administering it. But it is not always easy to terminate the irrevocable trust, and there may be some costs associated with doing so. Talk to your lawyer. You might find yourself discussing merger, termination or “decanting” of the irrevocable trust.

Are these changes really permanent, or will we be revisiting everything again in two years? This really looks permanent — or at least permanent for the next decade or two. Can Congress revisit the estate tax? Yes, of course. Have they done so over the past fifteen years? Yes, repeatedly. Is there any move afoot to make further changes? Yes, some politicians talk about eliminating the estate tax altogether. But even with all that said, there is little indication that any serious changes are going to be discussed in the next few years. And even if Congress significantly lowered the estate tax limit, the result would be that the tax could affect a handful more than the half-percent (or so) of people who now need to worry about estate taxes.

How To “Fund” Your Revocable Living Trust

APRIL 15, 2013 VOLUME 20 NUMBER 15
We keep bumping into versions of the same story:

“Mom and dad created a revocable living trust. They wanted to avoid probate, and my sister lives in a group home because she is developmentally disabled. The trust named me as trustee, and my sister’s share goes into a special needs trust. Problem is, they named the kids as beneficiaries on their IRAs, and the house wasn’t transferred into the trust. Is that going to cause any difficulties?”

In a word: yes. Two kinds of difficulties, in fact:

  1. Not transferring assets to the trust (like the house) means that the probate avoidance value of the trust is lost altogether. Probably we will have to file a probate proceeding to transfer the house to the trust — and then it can be distributed properly. The good news is that those assets they DID transfer into the trust won’t be subject to the probate proceeding. The bad news: there will still have to be a probate proceeding. Your parents failed in their goal to avoid probate.
  2. The IRA beneficiary designations create a different difficulty. The other kids will get their shares of the IRA just fine, even though your parents didn’t use the trust. But your sister’s share will go outright to her, and will cause her to lose her eligibility for at least some public benefits — and we will probably have to have a court proceeding (in Arizona, a conservatorship) to get you or someone else authority to handle her inherited IRA. Plus we may have to have a related court proceeding to set up a special needs trust (we can’t use the one that your parents created) to receive those funds — and if we do, that trust will get paid back to the state when your sister dies. In other words, your parents also failed in their goal to provide protection for your sister’s inheritance.

How did this happen? Didn’t the creation of the trust address both kinds of problems?

No. Creation of the trust was one thing. Funding of the trust is another.

“Funding” is the term lawyers usually use to describe all the different kinds of things that have to be done to get assets titled in the name of a revocable living trust. It is an essential part of the process, and usually is part of the job taken on by the lawyer who drafted the trust. Not every lawyer agrees, but we at Fleming & Curti, PLC, feel that we have not completed our job unless we have at least initiated the process of getting assets transferred to the trust. The practical effect: even after you sign your estate planning documents, you may still be working with our office for weeks or months to get the “funding” done.

Some assets are fairly easy. The house title (at least for Arizona properties) is easy for us to prepare. If there is out-of-state real property, we may need to involve a lawyer from the state where the property is — but even that is usually a fairly modest cost.A lawyer in, say, Indiana might transfer Indiana property to the Arizona trust at a low cost, hoping that we will return the favor the next time she has an Arizona property to transfer into an Indiana trust (we probably will).

Other assets can be more complicated. Your bank, credit union or brokerage house may resist changing accounts into the trust’s name. Some may flat out refuse. Some will appear to have done it right, but then later decide that the title hasn’t actually been changed at all (and they may not tell us).

Then there are the assets that get changed after the trust is signed. If you have refinanced your home mortgage, or purchased a certificate of deposit from a new financial institution, or talked to your “personal banker” about accounts, you might well have signed new title documents. You often will not even realize that that is what you were doing — no one ever says: “you know, if you sign this document it might just mess up your trust funding — you should talk with your estate planning attorney first.” We wish they would say just that.

Some assets get overlooked. Did you remember that you inherited a 5/24 interest in some oil and gas rights in Texas? Did you tell us about the small bank account you kept in your hometown bank when you moved to Arizona 23 years ago? Did you even remember that you had a life insurance policy from your time in the military at the end of World War II?

Then there are the beneficiary designations. Life insurance, IRAs and other retirement accounts and annuities almost always have them. Bank and brokerage accounts and, in Arizona and a handful of other states, even real estate can have them. Our clients are forever tinkering with them — you go to a seminar, or listen to the bank manager explain the value of annuities, or talk to a tax preparer who assures you that lawyers are overpriced, and then the beneficiary designation gets disconnected from the rest of your estate plan.

Don’t panic. (“Towel Day,” incidentally, is May 25 — go ahead and look it up. We’ll wait.) The problem might not be insoluble.

It would be best, of course, if we could get things right while you’re still alive. Haven’t met with your lawyer in five years? Make an appointment, gather up all the statements, titles and beneficiary designations you can, and sit down to review the funding of your trust. Not every beneficiary designation should name the trust in every situation. Not every account will actually be held the way you believe it is, or the way your lawyer believes it should be.

Even if you don’t get it straightened out while you’re still alive, there may be things your heirs can do. In Arizona, up to a total of $50,000 (that may be changing to $75,000 in a few months, incidentally) can be collected into your trust without having to do a full-blown probate. Up to $75,000 of real property (soon to be $100,000) can be collected in a simplified probate proceeding, too. There are rules and limitations, but many problems of failure to fund trusts can be taken care of through those provisions of law. Not in Arizona? We don’t know for sure (we don’t practice in your state), but there are similar rules in most, perhaps all, states.

Thank goodness your lawyer is such a nice person, and the staff is so pleasant. That makes it easier to follow up, even after you’ve already signed your revocable living trust.

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