Posts Tagged ‘Probate’

Do-It-Yourself Will May Not Save Costs After All

APRIL 7, 2014 VOLUME 21 NUMBER 13

From time to time we devote our weekly newsletter to a story about estate planning gone wrong — often (but not always) because of an individual’s decision to forego the help of a lawyer in drafting a will or trust. Lawyers also make mistakes, of course, but they are trained and paid to anticipate most of the kinds of issues that might arise. Untrained individuals may not have the skill or luck to foresee problems.

Consider Diane, who decided to write her own will. She bought a pre-printed will form at a bookstore, and opened up the package. In the middle of the form was a big open space with the language:

“I direct that after payment of all my just debts, my property be bequeathed in the manner following:”

Below that awkward introductory sentence, on the lines in the form, Diane wrote in:

“To my sister Mary Ann, my BigBank Checking and Savings Account, my house at 123 Poplar Street and its contents, my 2010 Dodge Truck and my Friendly Investments IRA. If Mary Anne dies before me, I leave all listed to my brother John.”

Diane completed the form properly, signed it, had it witnessed by two people and had the entire document notarized. She felt pleased that she had accomplished this task efficiently and inexpensively.

Do you already see what was wrong with Diane’s will? If you are a lawyer, you probably do — but you might not if you are not a lawyer.

Three years later Mary Ann died — before her sister, and before Diane’s will could leave anything to her. In fact, Mary Ann left her own home and bank account to Diane. Diane took the $120,000 she inherited from her sister and opened a new brokerage account at Friendly Investments (the same brokerage house where her IRA was located). Then, two years after Mary Ann’s death, Diane died.

Diane’s brother John did survive her. So did the two daughters of her other, deceased brother Jim. So who inherits what?

Those are essentially the facts of a recent Florida Supreme Court case, Aldrich v. Basile, (March 27, 2014), except that we have changed the names and a few of the details. In that case, the probate judge decided that Diane intended to leave everything to her brother John, and ordered that her nieces would receive nothing. The Court of Appeals ruled that Diane had died without a complete will, and that her nieces would receive a share of the undesignated part of her estate — the home and account she had inherited from her sister. The Florida Supreme Court had to decide between those two views, and ultimately sided with the Court of Appeals. Diane died “partially intestate” and the unspecified part of her estate would pass to her living brother and her late brother’s children. Her nieces received a share — a small share, to be sure — of her estate.

Now you can more easily see what was wrong with Diane’s will. She did not include a “residuary clause” providing for assets not listed in her will. If she had added a few short words to the end of the dispositive language she could have provided for distribution of “all the remaining assets I might own” or something similar.

Perhaps Diane actually did want to leave her inheritance to all of her relatives, and the failure to provide for it was not oversight but intentional. Well, there are more facts in the Florida case that we haven’t shared with you yet. After Mary Ann’s death, Diane grabbed a note pad (ironically, with the pre-printed heading “Just a Note”) and wrote out her additional instructions: “I reiterate that all my worldly possessions pass to my brother” John. She signed it, dated it, had it witnessed by one person (John’s daughter) and put it in the envelope with her will. Her wishes were pretty clear: she wanted to leave everything to John. That wasn’t what happened, however.

Diane’s will would actually have worked in Arizona. Unlike Florida, Arizona recognizes “holographic” (handwritten) wills even when they are not properly witnessed. Her “Just a Note” note would probably have been treated as an amendment or codicil to her will, and would probably have been admitted in Arizona probate court.

What is the lesson to be learned from Diane’s story (and case)? Even if you think your estate is small, and you want a “simple” will, you should see a lawyer. As we said at the beginning of Diane’s story, we’re trained and paid to think of how things might go wrong, or at least change, if circumstances change, and we’re familiar with the rules for wills, trusts and probate proceedings. Ultimately, Diane’s estate would have saved a lot of legal fees for the very modest cost of a lawyer at the outset — and what she wanted could actually have happened.

Joint Tenancy with Right of Survivorship, or Community Property?

MARCH 24, 2014 VOLUME 21 NUMBER 12

Which is better? How should we take title to our house? How about our brokerage account?

These questions are really common in our practice. The answer is actually pretty straightforward, but we do need to lay a little groundwork.

Arizona is a community property state. That means that property held by a husband and/or wife is presumed to belong to them as a community. That presumption does not apply if the property existed before the marriage, or was received by a gift or inheritance. There are special rules for property you owned in a non-community property state before you moved here. It’s also possible for a married couple to enter into an agreement that changes the nature of community property, but those agreements are relatively rare.

Historically, there was one great disadvantage to community property ownership, and one great advantage. That is, there was one advantage and one disadvantage if you assume that the couple would never get divorced. If you have substantial separate property and are considering turning it into jointly-held property, is that advisable? That question is beyond our short essay today, and the answer depends on your comfort level with your spouse and marriage. We’re not particularly accomplished marital counselors, and we don’t have any facts for your personal situation.

But assuming you and your spouse live together more-or-less-happily until  one of you dies, here are the competing considerations to holding property as community property:

Advantage: Income taxes. Upon the death of one spouse, property held as community property takes on a new “basis” for calculating future capital gains. If you have stock that you bought at $1,000 and that you now sell for $10,000 (congratulations!), you have “recognized” $9,000 of gain and will pay income taxes based on that amount. But if you held that property in joint tenancy with your late spouse, it got a step-up in basis to his or her date-of-death value; assuming the stock was worth $10,000 on that day, your income tax is only on $4,500 of the total gain. But if you had held that stock as community property with your late spouse, there would be no capital gains tax on the sale at all.

Disadvantage: Probate. Until 1995, community property could not pass automatically to the surviving spouse. That meant that a probate was often required to transfer the deceased spouse’s community property interest to the surviving spouse. Since no probate was required for property held in joint tenancy (the “right of survivorship” part of joint tenancy means the surviving joint tenant receives the property without having to go through the probate process), most married couples opted for joint tenancy rather than community property.

In 1995, the Arizona legislature made the disadvantage to community property disappear — they created a concept of “community property with right of survivorship.” That means a married couple can have it all: they can get the full stepped-up basis for income tax purposes, but avoid probate, on the first spouse’s death.

Does that mean that all property should be titled as community property with right of survivorship? Almost, but not quite. There are a handful of problems that occasionally crop up and have to be considered:

  • Not every married couple intends to leave everything to one another. You can still get the full stepped-up income tax basis and leave your share of community property to someone else — your children from a prior marriage, perhaps, or another family member. In such a case it might make sense to hold the property as “community property” (with no right of survivorship) but have a will or trust to make provisions for each spouse’s share.
  • The income tax benefit does not always appear. Note that the benefit is not a direct tax savings, but only a potential savings. If you get a full stepped-up basis on property that you then hold until your own death, you haven’t really saved any tax money. But the community property benefit just might give you flexibility — you can decide to sell property after your spouse’s death on the basis of good investment advice, rather than the tax effect.
  • The option only applies (this is obvious, but we need to say it) to married couples. “Community property” is not available to anyone else. Is it available to same-sex married couples? We think so (see our articles on the subject over the last few months here, here and here), but we might turn out to be wrong about this.
  • The benefit may not even be necessary for some assets. No growth in your brokerage account? No benefit. You invest only in municipal bonds and certificates of deposit? Minimal to no benefit. But here’s the big one: most people’s biggest growth asset is their home — and there’s already a substantial ($250,000) exemption from capital gains taxes for a single (widowed) person selling their home.
  • Have you already established a trust as part of your estate plan? You may not need to go through the analysis, since the practical effect of your plan may be the same as the benefit of community property with right of survivorship — or better. Ask your estate planning attorney to review this with you.
  • There are sometimes costs to making the change. For real estate, you will need someone to prepare a deed (you can probably get it right on your own, but it makes sense to hire a professional). In addition, there are modest costs to record the new deed.
  • This only applies to Arizona property. No problem with your brokerage or bank account — they are Arizona property if you live here. Your vacation cottage in Montana, or your Mexican condo held in a land trust, are a different matter. But if your vacation cottage is in Alaska, or California, Idaho, Nevada or Wisconsin, you might be able to do something similar. Ask a local lawyer about the possibility.
  • We need to reiterate: if you have separate property and transfer it to community property with right of survivorship to take advantage of income tax benefits, you may have made a gift of half of your separate property to your spouse. Be careful, and make sure you know what you’re doing.

What’s your bottom line? Should you change everything you own from joint tenancy with right of survivorship to community property with right of survivorship? Maybe, but your home is the least urgent thing to tackle. Your brokerage account? Absolutely. Your summer cottage in another state? Check with your lawyer and ask her (or him) to find out whether the other state has community property with right of survivorship.

Note that none of this really helps you deal with retirement accounts, IRAs, 401(k) accounts, separate property you brought from another state or your complex estate planning intentions. For those, you really need to talk with your lawyer. Also, please be clear: we do not know the correct answer if you live in a state other than Arizona — talk to your local lawyer about that.

 

Can You Disinherit Your Spouse? It Depends

NOVEMBER 4, 2013 VOLUME 20 NUMBER 42

Most of us are fascinated by the lives and deaths of famous people. Their legal and financial affairs tend to be complicated, and they are sometimes messy. They may also provide some constructive information, useful to illustrate broader points applicable to many of us. One such illustration: the death and estate of the late, great country singer/songwriter James Travis Reeves — better known as Jim Reeves to his legions of fans.

The recently-decided Tennessee case isn’t actually about Jim Reeves’ estate at all. The singer died in a tragic airplane crash in 1964, leaving behind his wife Mary and a considerable collection of then-unreleased records. In the years since his death a number of “new” releases have helped maintain his legacy. In fact, two of his most famous recordings (Don Gibson’s “I Can’t Stop Loving You” and Cindy Walker’s “Distant Drums”) were released in the two years after his death.

In 1969 Reeves’ widow Mary remarried — to a former Baptist minister named Terry Davis. Mary Reeves Davis lived thirty more years, and during that time she helped maintain the public’s interest in the velvet voice of “Gentleman Jim” Reeves. In fact, in the last few years of her life the annual income from Jim Reeves’ songs and legacy was estimated at several hundreds of thousands of dollars.

When Mary Reeves Davis died in 1999, her will left $100,000 to her husband Terry Davis, and the bulk of the rest of her estate to a niece and nephew of Jim Reeves. That sets up the legal question involved, indirectly, in Jim Reeves’ “estate.” Since all of his assets, and his rights and recordings, had passed to his widow, it was his legacy that was subjected to her new husband’s challenge.

Here’s the legal question involved: can you disinherit your spouse, or significantly reduce their share of your estate? Assume (you will have to assume, because the information is not public enough for us to figure it out) that Mary Reeves Davis’ estate was substantial, and that the future rights to her late husband’s recordings will continue to produce income for decades. Could Mary Reeves Davis leave her husband of thirty years $100,000 and discharge any legal obligation she had to him?

The answer, as you might suspect, will vary significantly from state to state. In some states (not including Arizona, incidentally) a surviving spouse has the right to a minimum inheritance — if the deceased spouse’s will does not leave a sufficient amount, the surviving spouse may “elect against the will.” That means that they are entitled to a minimum share of the estate, with that minimum varying from state to state.

That’s the law in Tennessee, where Mary Reeves Davis lived and died. So did Terry Davis have the right to elect against her will, and receive a share of her estate exceeding the $100,000 bequest?

If you were reading this complicated story carefully, you will note that Mary Reeves Davis died in 1999 (on Veteran’s Day, in fact — almost exactly fourteen years ago). How could the legal question in her probate estate just be getting resolved?

Trial of the probate dispute actually was concluded two years ago, though that doesn’t help explain the long delay. Over the twelve years of litigation Terry Davis retained and discharged six sets of attorneys, with the final firing taking place just days before the long-delayed trial had been set to begin. The judge in the case allowed Mr. Davis to fire his lawyers, but refused to continue the trial any longer for him to secure new counsel. He represented himself in the 2012 trial. After losing in the probate court, he filed an appeal with the Tennessee Court of Appeals; that court’s ruling was finalized last week.

So what was the final issue, and what can we learn from it? It turns out (as it so often does) that the primary legal question was very narrow: could Terry Davis elect against his wife’s will when he had already accepted the $100,000 she bequeathed to him? The answer: no. Under Tennessee law, at least, in order to elect against the will, the surviving spouse must refuse any specific bequest in order to elect the statutory minimum to which he or she would be entitled. Oh, and Terry Davis had no legal right to be represented by a lawyer at the trial, so the judge’s refusal to grant him a continuance as his last law firm withdrew was not a legal error. Estate of Davis, October 28, 2013.

What does a Tennessee case, applying Tennessee’s very-different law, tell us about Arizona court proceedings, estate planning, or inheritance issues? Although Arizona law is very different (there is no “right of election” against a will in Arizona), there are still some valid points to take away, and the Jim Reeves music in the background of this case helps make those points more memorable.

Yes, you can disinherit a spouse. Under Arizona law, regardless of what the will says there is a minimum amount to which the spouse is entitled, however. That amount, though it varies slightly depending on other circumstances, is usually $37,000 (a figure, by the way, that has been unchanged for decades). Even that magnanimity is limited, however. If the spouse receives any other property — by operation of joint tenancy titling, or by a trust, or by beneficiary designations — that can reduce the amount to which the spouse is entitled.

Tennessee law is more protective of spouses, though it turned out that Mary Reeves Davis’ surviving husband did not get more of her probate estate than her will provided. There was testimony, however (and the probate court found), that Terry Davis had transferred more than $250,000 from Mary Reeves Davis’ accounts just before her death. That did not help his claim of entitlement to maintenance from her estate under Tennessee law. But the bottom line is clear: if you want to disinherit your spouse, you will have an easier time doing so under Arizona law.

Why is that so? Are Arizona legislators anti-family? Hardly. Arizona, as you may recall, is a “community property” state. That means that there is an assumption that half of the assets owned by a couple already belong to the surviving spouse, and so the minimum protection provided by probate laws makes more sense. It doesn’t, however, help figure out how to deal with the division when the deceased spouse had substantial separate property (like an inheritance, or separate property brought into Arizona and maintained as separate property) and the surviving spouse has few resources. That complicated problem is material for another day — and an Arizona case as illustration.

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.

Upon Death of a Loved One, Some Things to Address

APRIL 8, 2013 VOLUME 20 NUMBER 14
More than three years ago we wrote about what you need to do when a family member dies. Our focus was on the immediate things that need to be dealt with: securing the house, taking care of pets, forwarding the mail. We thought we would get back to things that needed to be dealt with in the week or two after death, but we never managed to get back to the topic. Let’s look at some of the follow-up items now.

To make it a little easier for you, we have prepared a checklist. It is not intended to be exhaustive (though we think it is pretty thorough), and not every item will be applicable in every case. Sometimes you may need to make adjustments — such as when your family member had a living trust, and no probate proceeding will be necessary, or if you have been responsible for managing their bill-paying for several years before the death. Still, we think it will help you organize the papers, questions and information you need to properly take care of the legal and financial issues that will arise.

A couple more caveats:

  • Please remember that we live and practice in Arizona. This checklist may not be accurate, or as useful, if you live somewhere else, or your family member died somewhere else.
  • Several items on our checklist encourage you to collect information of various kinds. In most cases, that’s so that your visit to our offices will be more productive. Sometimes it is to help you answer questions from heirs, creditors or others as you get more deeply into administering your loved one’s estate. If you do collect forms, mailings, etc., keep them in a central place for several years after you have concluded the estate administration.
  • Where we indicate that you should keep track of your time and expenditures, we really mean that you should — and from the very beginning of your work. Even if you have no intention of charging a fee, we strongly recommend that you keep track.
  • If you are not the person who will be in charge of the decedent’s estate, that does not prevent you from printing out the checklist, monitoring progress by the person who is in charge, and figuring out how you can be helpful.

How quickly do you need to get to the lawyer’s office to review what needs to be done? Usually it is not the most pressing issue, but you should expect to make an appointment within about two to four weeks. If you are the surviving spouse, it probably can wait longer. If you are in town for a short time you might well want to meet right away, at least briefly. But here’s another reality: when you call, you may be looking at a two-week wait before an appointment. That gives us time to schedule you, and to get a questionnaire out to you to help with the collection of information. Usually nothing can be done for a week or two anyway. So don’t wait two weeks to call for an appointment, and then expect it to be immediate.

Do you need to see the lawyer who prepared the will or trust? No. It may be more comfortable and efficient, and the lawyer might have even kept the original documents (we do not usually do that at Fleming & Curti, PLC, but many law firms do). But there is no need to return to the decedent’s lawyer. It probably does make sense (in most cases) to meet with a lawyer in the community where your family member lived and died.

How long will the process take, and how much will the lawyer charge? It’s really impossible to generalize in any useful way. You might well be surprised at how little it costs. On the other hand, we regularly see family members who think there will be no need for a probate or any costly legal proceedings, only to find out that something was wrong in the estate setup, or something got changed or overlooked.

What are some of the more important points in our checklist? Here are a few we’d like to highlight:

  • Assembling a list of bank accounts, annuities, stocks, bonds, mutual funds, brokerage accounts and real estate will speed the process up immeasurably. It will likely also make it much easier for the lawyer to realistically estimate the cost and time to get the probate (or trust) administration completed. Same for creditors.
  • The funeral home will help you determine how many death certificates you will need, and how to get them ordered. You might not have visited with us yet, but here’s a practical reality: if you order them through the funeral home, you will get them faster and more cheaply. If we have to get them later it will be time consuming and more expensive. So when you’re figuring out how many you need, estimate high.
  • At some point we’re going to need names and addresses for all the heirs and beneficiaries. For some we will also need dates of birth and even Social Security numbers. You can speed the process up if you start collecting that information.
  • Forwarding the mail is critical. It needs to get done, and it is often the easiest way to get information about assets and bills.

One last point we want to make: if you had a power of attorney for the decedent, it is no longer valid. While a “durable” power of attorney survives even if the signer becomes incapacitated, no power of attorney survives the signer’s death. Do not sign checks, make credit card charges, or do anything else using the power of attorney.

Call us to discuss what needs to be done next. We will be very sorry to hear of your loss. We are here to help.

 

What Is “Elder Law”?

OCTOBER 15, 2012 VOLUME 19 NUMBER 38
At Fleming & Curti, PLC, we practice “elder law.” But what does that mean? Are all our attorneys elderly? (No) Are they all senior members of a religious group? (No) Are all our clients above a certain age? (No) Then what is the significance of the term “elder law”?

Sometimes we rebel against the term. When asked what kind of law we practice, we might say something like: “We limit our practice to guardianship, conservatorship, estate planning, probate, long-term care planning, trust administration and special needs planning.” The problem with that formulation is obvious: it seems oxymoronic to “limit” your practice to seven items — and to be complete we probably should thrown in two or three others.

No one practicing “elder law” likes the term. It is not descriptive of our clients: a significant number of the cases we handle involve children — often even toddlers — and many of our clients are middle-aged children of aging parents. It is not easy for clients to relate to: when asked what constitutes an elder or senior citizen, most of our clients immediately think of someone just a few years older than themselves.

All elder law attorneys think from time to time about better descriptions they might use. The problem with that effort, though, is that no one has come up with a better label, or even one that comes closer to describing what we do.

What do we (elder law attorneys) do? For that matter, what do we (Fleming & Curti, PLC) do? Here’s a sampling:

Guardianship and Conservatorship. In Arizona, a guardian is a court-appointed person who makes medical and placement decisions for an incapacitated adult or a minor child whose parents are not available to handle those duties. A conservator fills a similar role, but handles money; a conservator can be appointed for an adult who is unable to manage his or her finances because of a disability, or for a child. Note that there is no requirement of a finding that the child can not handle money, or that the child’s parents can not do so; a child is legally incapacitated no matter how capable he or she might be, and the child’s parents do not have any automatic right to make financial decisions for him or her (as they do for medical and placement decisions). So that means guardianship and conservatorship may be necessary for the very young, and for adults who are incapacitated — whether by dementia or by other illness or condition.

Getting a guardian and/or conservator appointed is only part of the battle. Once appointed, a guardian or conservator is answerable to the courts, and must file annual reports and accounts. It is an intensive exposure to the legal system, and very difficult to navigate without the help of counsel. Like us.

Estate Planning. We write wills, trusts, powers of attorney and other estate planning documents. Most of our clients in this area are older than, say, their mid-50s — but not because that’s who needs estate planning. Younger people (including the parents of minor children, anyone who drives a vehicle, anyone who has ever seen a doctor) also need to complete estate planning. They just tend not to until they reach an age where they see the value. As one of our clients wisely said: “the two kinds of people you hate to deal with are doctors and lawyers — and when you get older you spend a lot of time with both.”

Older people may have more complicated estate plans. They may have larger tax concerns (because they have had time to acquire more assets). They may have others (children with disabilities, spouses with failing abilities, long-time friends they have helped over the years) who rely on them and need their consideration. They also may feel somewhat more mortal. And so they tend to be the ones who get to the lawyer’s office — and hence the estate planning business seems to be (but should not be) an issue for elders.

Long-term Care Planning. Nursing home costs will likely bankrupt most families if someone has to spend more than a few months in a care facility. Planning for how to deal with that should start early, and include (among other things) long-term care insurance. But most people don’t plan for possible institutionalization. Instead, they bravely insist that “I am never going into the nursing home.” Many of them turn out to be wrong, but most of those won’t know how wrong they were until they are, well, elderly. Most (but certainly not all) of the residents of nursing homes and assisted living facilities are elderly. So the practice of preparing people for that eventuality, and of helping spouses and children get ready to place a loved one in such a facility, has come to be thought of as “elder” law.

Trust Administration. While creating and funding a living trust may avoid the probate process, that is not the same as saying that your (successor) trustee will not need any contact with lawyers or accountants. In fact, your trustee will probably need both. But even your trustee will probably be elderly by the time you die. Odds are that you will be, too. So this tends to look like a legal problem involving the elderly, though plenty of trustees are younger and a lot of people sign trusts when they are younger, too.

Probate. Some people don’t plan for probate avoidance, either because they didn’t get around to it or because they consciously engaged in a cost/benefit analysis and decided it wasn’t worth the expense (to them, at the time). Whatever. Probate administration, like trust administration, is an area of practice that often — but not always — involves people who are elderly.

Special Needs Trusts and Planning. This one has the most tenuous link to the elderly. The beneficiaries of most special needs trusts are young — often infants or toddlers. Even the parents of special needs trust beneficiaries may be young — perhaps even in their 20s. So how does this become an “elder law” issue? It’s simple: the government programs and rules that are involved in special needs trust planning, establishment and administration are the same programs and rules involved in long-term care for the elderly. But saying “I’m an elder and special needs lawyer” just doesn’t trip lightly off the tongue, and it begins to sound like we are trying to describe our own circumstances, not those of the people we strive to help.

So that’s what we do as “elder law” attorneys. Is that all we do? No, we also have a few other areas we might work in — like guardianship of minors, advance directive preparation and interpretation, or recovering from abuse, neglect or exploitation. But that’s the bulk of our work.

Feel free to come up with a better, shorter, more user-friendly term. We’ve been working on it for years, but we are confident that there is a good answer out there. Somewhere.

We Suggest Two Positive Things About Probate — But Not Too Vigorously

SEPTEMBER 24, 2012 VOLUME 19 NUMBER 36
Two weeks ago we wrote about why you might want to plan your estate with an eye toward avoiding probate. We hope you concluded, with us, that the probate process may not be as onerous as one would believe based on its bad reputation. We concluded with a promise that we would next try to identify any reason you might actually want to be sure that your estate “goes through” probate.

Then life (in the form of a family visit and a trip to the fantastic ruins at Chaco Culture National Historic Park) intervened, and we missed getting back to you on this topic. We do hope no readers are inconvenienced by what we are sure was growing dramatic tension.

We’re back and ready to address the positives about probate. “It isn’t as bad as you think” simply is not enough to recommend the probate process, and so we need to lay out all the affirmatively good things that can happen by virtue of having your (or a family member’s) estate subjected to probate. We think we will be brief.

We can think of two positive things arising from the probate process. Others might quibble (and in fact we hope they do — comments are solicited below) and insist that we have overlooked a third, or even a fourth. But the truth is that there are not many affirmatively good things flowing from a probate proceeding. Here are our two:

1. Creditor protection. If your estate goes through the probate process, there is a formal mechanism for giving notice to creditors and giving them a short time — in Arizona, four months — in which to perfect their claims. At least in theory (there are some exceptions) that means you can cut off unknown creditors fairly quickly after a death, and their claims do not linger to be asserted against heirs months or even years later. This feature of probate is often particularly attractive to doctors, lawyers, architects — any professional who might conceivably be sued for malpractice.

This “benefit” is often illusory, however. In Arizona, and in a growing number of other states, you can give creditors notice (by a combination of mailing and publishing in local newspapers) and cut off claims not made within the same four-month period even if no probate has been filed. Check with your local attorney to see if your state has a similar provision.

2. Judicial finality. What we mean by this is that, particularly in contentious family situations, the person administering your estate might actually benefit from the knowledge that once a probate judge has decreed that everything was done correctly, unhappy heirs are cut off from pursuing additional legal proceedings.

This, too, is somewhat illusory. Suppose you choose to establish a living trust to avoid the probate process, and your successor trustee wishes she had access to the courts to make sure her siblings don’t threaten to act for months or years after your estate has been settled. Well, your successor trustee can choose to submit your trust to the probate court’s review, just as if there had been a formal probate proceeding.

In our experience, family members tend to overestimate their ability to get along with siblings and others affected by the handling of your estate. It might be that your daughter, whom you have named as successor trustee, chooses not to seek probate court approval — and later regrets it when your son challenges everything she did months or even years later. But, as we say, this is a fairly faint recommendation for a decision to force your estate through the probate court.

So how do the pluses and minuses stack up, and what do we think you should do about it? Here’s the executive summary:

There are very few cases in which administration of an estate will not be simpler and less expensive if a living trust is established — and fully funded — rather than requiring that the estate go through the probate court and process. Though there are some theoretical benefits to probate, they tend not to be too compelling in individual cases. But the real test is a cost-benefit analysis: will your family save enough (cost and hassle) from your decision to establish a living trust to justify the increased expenditure by you, right now?

As part of that analysis, how likely is it that the estate plan you create today will be the one in place when you die? In making this calculation, remember that most people really do need to revisit their estate planning documents about every five years, or even more frequently.

As you review this material, please remember two things:

  1. We live and practice in Arizona. Not every state has the same relatively simple probate process, but in some states probate is even simpler and less expensive. That means that the cost-benefit analysis we describe has to be made in your state, preferably in consultation with an estate planning attorney familiar with your state’s law and practices.
  2. Reasonable minds can and do differ. Few things generate the heat and passion among estate planning attorneys (we tend to be a pretty mild bunch) that you can get from the “do you need a living trust” question. We’ll post pretty much any response we see from other practitioners or regular folk, but ultimately you need to talk to a local attorney and get the straight scoop from her or him before making a final decision.

Is It Important to Avoid Probate? Why, or Why Not?

SEPTEMBER 10, 2012 VOLUME 19 NUMBER 35
Earlier this year we wrote about how to avoid probate. We told you at the time that we might later address whether to avoid probate. This week we’re going to tackle that topic.

You might be thinking something like: “‘whether to avoid probate’? Isn’t that foolish? Of course I want to avoid probate.” There is simply no question that the whole process of probate (by which we mean the court proceeding required to transfer a decedent’s assets to his or her family or the beneficiaries named in a will) has gotten a bad name. Our purpose here is not to try to rehabilitate the public image of probate, but to give you some of the details about how the process works. Armed with that, you can decide how bad probate really is, and how badly you want to try to avoid it for your estate.

First, a handful of generalizations. Please note that they are generalizations, not absolute truths:

  1. Probate is not as bad as it was a half-century ago. When Norman Dacey published “How to Avoid Probate!” in the mid-1960s, the negative image of the probate process was already widespread. His book galvanized opposition, and popularized the notion of revocable living trusts as an efficient probate avoidance tool. It also woke up the legal establishment; within a decade, a number of states (including Arizona) had adopted the Uniform Probate Code, which had been crafted to simplify the process. Even states which did not adopt the Uniform Probate Code drew a lot of the ideas and processes from it. The result: in most (but not all) states probate has gotten much, much simpler.
  2. Relatively few deaths result in a probate proceeding being filed. For example, the Tucson area probably sees about 10,000 deaths a year (extrapolating from U.S. Census data for Arizona, which reported 46,000 deaths in 2008). Yet only about 1,300 probates were filed in Tucson last year — and that number includes cases where a trust was filed for review, interpretation or supervision. We predict that similar numbers — about 10% of deaths leading to a probate proceeding — will apply in other jurisdictions, too.
  3. Avoiding the probate process does not, by itself, have any effect on taxes and does not prevent family fights. As to the former, there are no income taxes due upon receipt of an inheritance regardless of whether it comes through probate or not. Estate (or inheritance) taxes are a different animal; there is no estate tax in Arizona, and no federal estate tax (in 2012) on an estate of less than $5.12 million. But the value calculation is not based on probate estates — it is applied to trusts, joint tenancy, beneficiary designations and anything else the decedent owned or had control of just before death.
  4. There is tremendous state-to-state variation. There are a number of states in which one item or another from the list below would completely change your analysis. DO NOT use this guide to judge whether you want to avoid probate in California, in Texas, in Ohio — in fact, in any state other than Arizona. Ask your local lawyer about your state. Feel free to share this article and go over the list, but do not be the least bit surprised if his or her answer is completely different, based on your state’s laws. (Incidentally, if you, gentle reader, are an attorney practicing in a different state — please feel free to comment about how, precisely, you would adjust our advice for your state. We’d be happy to include such comments on our website, along with your contact information. We won’t vouch for your accuracy, but you do know your state law way better than we do.)

Let’s get started. We propose to set up a series of the most common objections to probate, and then explain how seriously you should consider those objections.

Probate is expensive. It does cost something to go through the probate process. There are filing fees, publications of notice in local newspapers, and lawyer’s fees. They can be substantial. But one thing about the Uniform Probate Code: it moved states from a fixed percentage of the value of the estate to a “reasonable” fee. In general terms, that has meant average fees about 1/3 of what they were under the old fixed-fee schedules. Still more than some people want to pay, but much less than they have heard about. Did you read that some celebrity’s estate paid 40% of its value in fees and taxes? Well, we bet that (a) most of that was taxes and (b) there was a will contest. If your competence is going to be challenged, avoiding probate may not reduce that cost. If your estate pays taxes, avoiding probate will not change that.

It is also important to remember that avoiding probate does not mean avoiding lawyers — and costs — altogether. Resolving the division and distribution of a living trust (a popular probate-avoidance device) will cost some money. It will probably be considerably less than the probate cost, but it won’t be $0. And accountants are still likely to be involved (there are, after all, the same number of tax returns to file either way).

Probate means public disclosure of private matters. Not any more. Or at least, not in Arizona. No inventory has to be filed in the probate court (a copy gets sent directly to beneficiaries, but it need not be filed in court). No formal accounting is required (assuming, of course, that no one objects to the administration of the estate). Anything with confidential information can be filed in a sealed envelope with the court. In short, the only thing publicly available is likely to be the text of your will itself (plus, of course, the fact of your death). That may be enough of a violation of privacy that you want to avoid the process, but for most people that’s not terribly invasive.

It takes a long time to go through the probate process. It can, but it doesn’t have to. Most probates can be closed once a four-month waiting period is completed. Given ordinary delays in getting things filed, that usually means the probate process is wrapping up at about six months after filing. Of course there are exceptions. We have decades-old probates hanging around in our office. We once took over a probate that had languished for over forty years. It happens. But it is not inherent in the probate process. PS: we closed that 40+-year-old probate with two phone calls and one court filing. It took about two more weeks. We apologized to the now-elderly heirs for an unconscionable delay. They said they had wondered why they’d never gotten their small inheritances. But they had never called to ask the prior lawyer what was taking so long — it wasn’t until the lawyer’s death that that particular sad little file got closed up.

Probate proceedings are easy (easier?) to contest. This one is correct, although not (for most people) a very big deal. If you have disinherited a spouse or child, you might want to consider a living trust. Your will isn’t literally easier to contest than your trust — the same principles apply in both cases. But probate does mean that there’s already a court file, and a letter has to be sent out to the disinherited heir (which might invite a contest that they otherwise wouldn’t get around to filing).

Why isn’t this a big deal for most people? Because most people don’t deviate very much — or even at all — from what would have happened if they did not sign a will or trust. If you don’t leave anything to your long-lost cousin in Colorado, she doesn’t have any basis for contesting your will OR your trust — because she wouldn’t inherit even if you were batty as a bedbug (is that the right metaphor?). If you had no will or trust your estate would go to your spouse and kids in some proportion. Your goofy cousin will never get any part of your estate (unless you die without spouse, children, siblings, nieces, nephews, parents, grandparents, uncles or aunts), so a will contest is pretty much a theoretical idea for most of our clients.

If you own real estate in more than one state, the cost and trouble of probate will be magnified. Yup. And we can’t tell you how hard or expensive it will be to handle the probate in the other state. You’re a good candidate for a living trust. Note, however, that we’re going to have to go to the expense of getting that other state’s real estate transferred into your trust, and that’s going to increase the cost of creating the trust in the first place.

So what does it all mean? Should you be trying to avoid probate? Probably, but maybe not if it’s very expensive to do so, or you aren’t too worried about your heirs incurring some additional costs, or you haven’t decided exactly what you want to do. If you decide probate avoidance isn’t too important we won’t call you foolish or misguided.

But are there any positives about probate? Any reason to want to have your estate go through the probate court? Well, we’re well beyond our usual self-imposed word limit for this week, so we’re going to leave you with that question as a cliffhanger. But we can promise that next week, when we answer it, our weekly newsletter will be shorter.

Some Persistent Myths About Probate Exploded

JULY 2, 2012 VOLUME 19 NUMBER 25
It’s a slow week (with the Fourth of July holiday breaking it up on a Wednesday) and it’s too hot to think about actual controversies this week. So let’s take a minute to clear out some longstanding items we’ve been meaning to get around to. One thing we’ve meant to do for quite a while is to try to explode some common myths about legal issues — and particularly about the probate process. Here are some of the mistakes we most commonly hear from clients, questioners and (occasionally) professionals who have given not-so-good legal advice to our clients:

If you want to avoid probate, you should sign a will. Sorry, but that doesn’t help. Upon your death a probate proceeding will have to be initiated to transfer property owned in your (individual) name alone, with not beneficiary designation. Property that doesn’t meet that description will ordinarily not need to be subjected to probate. Signing a will does not change that answer in any particular. For that matter, merely signing a trust does not change the answer, either. The way a trust can help you avoid probate is by creating an entity which can become the owner of your property; that entity (the trust) does not “die” with you, and so assets transferred to its name should not be subject to the probate process. But it is the funding of the trust (that’s what lawyers call the process of retitling your assets to the trust’s name) that avoids probate.

There is one significant exception to the rule that everything in your name has to go through probate on your death. In most states there is some sort of simple affidavit process to bypass probate for small estates. The definition of “small” varies, though. In Arizona it is (for most purposes) $50,000; if you die with assets of over that $50,000 threshold in your name alone, with no beneficiary designation, your estate will be subjected to probate.

What do we mean by that “in your name alone, with no beneficiary designation” phrase? Only property that is not held as joint tenants with right of survivorship, community property with right of survivorship, or as POD (payable on death) or TOD (transfer on death). Be careful about those ownership options, however — avoiding probate may not be worth the problems you can create by changing ownership of property.

Probate avoidance is critically important for everyone. There are two ways in which this common belief is mistaken. First, there are a small number of circumstances in which probate may actually be beneficial. Second, for the greater majority of people who ought to be thinking of probate avoidance, the cost of implementing, managing and periodically reviewing probate avoidance plans is sometimes simply not worth incurring.

Let’s deal with the first one first. When is probate actually a good thing? There are very limited circumstances where it is a good idea — but those circumstances do sometimes appear. One is where the decedent had potential claims that might be asserted against her or his estate. A good illustration: a deceased professional (doctor, lawyer, architect, accountant, nurse) who might have an unknown malpractice claim. Filing a probate, and publishing notice of that probate in local newspapers, can help cut off those uncertain and potential claims. Note, though, that in Arizona and some other states you can actually publish notice to creditors without needing to open a probate, so that argument in favor of probate is further limited.

Here’s a better one: when you are managing the affairs of someone who has died, and you know there will be disputes about what you have done, you might prefer to have the entire process supervised by the court. That doesn’t come up very often, but sometimes it can be very beneficial to your peace of mind to know that everything you do has already been blessed by the judge who has the authority to review your administration, your bills and your proposed course of action.

Let’s deal with the other side of the coin: probate avoidance is often not worth the trouble or expense. With updated probate administration rules (like those in place in Arizona for nearly forty years now), the cost, hassle, and public disclosure associated with probate proceedings have all been dramatically reduced. The cost of preparing, funding and monitoring a probate-avoidance trust may simply be more than the cost of probate itself.

Lawyers try to talk clients out of doing probate avoidance in order to protect their future probate fees. Let’s imagine for just a moment that we lawyers are as venal as that assertion suggests. So here we are, with (say) twenty years of professional life ahead of us, and you come visit us at age 60. Which is better for us: (1) we collect, say, $2,000 from you right now in order to create a probate-avoidance trust plan, or (2) we collect $500 from you today and cross our fingers that you will die before you turn 80 so we can get another $2,500 in probate fees — for which, incidentally, we will have to do quite a lot of work. Do you begin to see just how insulted we are by this popular myth?

There are a number of other reasons we lawyers might actually be better off if you sign the probate-avoidance trust, incidentally. In five years, when you come to see us to make changes, amending your trust will probably generate slightly more in legal fees than creating a new will would be. And we do count on seeing you in five years — no matter how well your estate plan is crafted, you should assume that it needs to be reviewed at about that time. Your interests and ours are mostly in alignment: we both want to get the right estate plan for you, at the most appropriate cost, and not opt either for more expense than you need or less coverage than you are entitled to expect.

I don’t need to do estate planning because my family knows what I want. Really? How do they know? Have you had a big family meeting where you detailed your wishes to everyone at the same time, and gotten them to agree that they understand and will follow your wishes? Did their wives, husbands, children and grandchildren all agree? (Because, you realize, one or more of your immediate family members might actually die before you do.) Did it all get reduced to writing to make sure everyone remembers the agreement twenty years down the road? If you did all that, congratulations — and you’ll be one of the few people we consult with who appreciate how much simpler it actually is for you to sign a real estate plan. We are also, incidentally, trained to probe the things you didn’t think about — like what happens if your estate is significantly larger or smaller, or if the kinds of assets you own are quite different, at your death? What happens if you loan (or have loaned) money to one or more of your children? How about naming a back-up personal representative? Did you even realize they are called “personal representative” instead of the more common — and inaccurate — “executor”? All of that, and more, is what you get when you hire a professional — like, for example, us.

So what’s your favorite probate myth? Let us know, and maybe we’ll continue the explosions after the Fourth of July holiday.

Lifetime Asset Transfers Voided Based on Agreement to Make Will

MAY 7, 2012 VOLUME 19 NUMBER 18
We have written about contracts to make (or not to revoke) a will before. The question comes up infrequently, and usually only in a handful of ways: can you and your spouse make an enforceable agreement that you will leave your respective estates to, say, your children no matter what? Yes, you can — at least in Arizona.

For John and Martha Lindford (not their real names), the question came up during their divorce proceedings. Martha wanted to make sure that the couple’s two children, John, Jr. and Paula, would receive at least a share of John’s estate when he died. When the couple negotiated a property division as part of the divorce, it included a provision that required each of them to “execute a Will leaving fifty percent (50%) of their respective estates in equal shares to the children and twenty-five percent (25%) to each other.”

Eleven years after the divorce was final they both agreed that it was time to modify their first arrangement. John and Martha both signed an amendment that eliminated the requirement that any share of each estate be left to the other, and instead provided that 75% of each ex-spouse’s estate would go to the two children. Six months after that modification, John remarried.

Five years after the second marriage John was diagnosed with cancer, and he began to seriously plan his estate. He amended signed a new will and modified his existing living trust; the new documents specifically left several business entities to his new wife, and provided that she would also receive an additional amount to bring her share of his estate up to 25% if it did not already amount to that much.

In the months after his cancer diagnosis, John also transferred several assets — the family home, several bank accounts and one of the businesses — to his second wife outright. When he died eighteen months after diagnosis, the effect had been to leave his second wife substantially more than one-quarter of his entire estate — although she had gotten a large part of that share by lifetime gifts, not in his will or the trust.

John, Jr., and Paula and first wife Martha filed a claim against John’s estate. They argued that the effect of his gifts and the terms of his will and trust violated the marital property agreement as it had been amended. His second wife acknowledged that she had gotten more than one-quarter of John’s assets, but argued that the agreement only required him to have a will leaving 75% to his children — and that lifetime transfers were not prohibited by the agreement.

After a two-day trial, an Arizona probate judge ruled that John’s actions violated the property settlement agreement with his first wife. The second wife was ordered to return all the assets she had received from John, so that a new division could be made and her share could be capped at 25%. She appealed the ruling.

The Arizona Court of Appeals agreed with the probate judge, and upheld his ruling. The appellate judges calculated that John had given about $2.5 million — amounting to more than one-third of his entire estate — to his second wife, and that he had done so in an attempt to defeat the agreement he had signed with his first wife. Estate of Lockett, April 26, 2012.

Should John’s and Martha’s original agreement, signed in the course of a divorce nearly two decades before John’s eventual death, effectively tie John’s hands indefinitely, and despite his later marriage, growth of his estate and changes in his family relationships? That question is larger than the legal question posed by his probate case. For good or ill, John and Martha had signed an agreement that compelled them each to leave three-quarters of their respective estates to their two children. That agreement might have turned out to have been unwise or constraining, but it was their agreement.

What formalities are required for such an agreement to be effective, and to bind the parties? Arizona law (and other states may have different provisions, so be careful about generalizing from Arizona’s example) requires a contract to make a will — or not to modify or revoke a will — to meet only very basic formal requirements. Paradoxically, it would seem that a contract which does not satisfy basic will formalities (e.g.: unwitnessed and not in the decedent’s handwriting) might qualify as an enforceable contract, thereby effectively creating a will.

What landmines and roadblocks might people considering such a contract (e.g.: the lawyers representing a couple in a divorce proceeding) reflect upon before signing? Well, the opinion in John’s probate case turned, among other things, on a letter he wrote before the agreement was signed. In that letter John reported that he intended to leave 75% of his “entire estate” to his first wife and children. When the second wife later argued that the agreement necessarily only covered his will and his probate estate (and therefore should exclude property he gave away before his death), both the probate judge and the appellate court pointed to his letter as proof that he meant the contract to include his entire estate. If that is true, it certainly would have been a good idea for the agreement to spell that out in more detail, and to cover the possibility of living trusts, lifetime transfers, creation of limited liability companies or family limited partnerships, and other arrangements.

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