UTMA AND UGMA ACCOUNTS: SMART SAVINGS PLAN OR TRAP FOR THE UNWARY?
When working with clients who have minor children, we spend a lot of time discussing the kids: their individual personalities, the values the clients are trying to instill, and concerns for their future. We do our best to craft an estate plan that will secure the children’s financial future. This usually involves planning both from a financial perspective (making sure there is enough money for future expenses, especially if something happened to the clients), with the help of the clients’ financial advisors, and from a legal standpoint (ensuring the children will have access to any money when and how the clients judge best).
We have seen many clients who used accounts set up under the Uniform Transfers to Minors Act, called “UTMA accounts” (also known as “UGMA accounts” under a prior version of the law), to save for their kids’ or grandkids’ future. These accounts allow an adult to immediately transfer money to a minor (a child under the age of 18), but retain control over the money until the child reaches a specified age (18 or 21, depending on the account). The problem is that, when the child reaches the stated age, the money must be turned over to him or her. All control by the parent is lost.
As you might imagine, not every 18- or 21-year-old is ready to responsibly manage thousands of dollars. In fact, many of our clients believe that the youngest age at which their children would be ready for that task is 25, and some wait as late as 35. Unfortunately, we have recently seen situations where a parent was forced, kicking and screaming, to hand over sizable UTMA or UGMA accounts to an irresponsible child.
It is always devastating to see a plan fail because the implications were not fully understood at the time it was made. Developing your own planning “team” of financial, tax, and estate planning professionals, who will work together to meet your goals, should allow you to avoid such a failure. Additionally, with proper trust planning, parents can maintain control over how a child may spend money for a much longer time, even for the life of the child, if desired. To learn more about protecting your children from themselves and others until they become responsible adults, attend one of our monthly “Truth About Estate Planning” workshops.
SENIOR DRIVING: FINDING A BALANCE BETWEEN INDEPENDENCE AND SAFETY
The number of seniors (Americans aged 65 or older) who drive is on the rise. In fact, from 1999 to 2009, statistics show a 20% increase in senior drivers. The AAA Foundation for Traffic Safety predicts that this trend will continue; seniors will make up 25% of the drivers on the road by 2025 and there will be at least 60 million senior drivers by 2030.
Although we find these figures encouraging as advocates for maintaining independence as long as possible, other senior driving statistics give us pause. For example, 95% of senior drivers take medications that could impair their driving. Yet, alarmingly, less than 33% of them admit to awareness of the potential impact of their medications. Moreover, fatality rates for older drivers are 17 times higher than those for 25- to 64-year-old drivers due to greater physical fragility.
Despite the real dangers of senior driving illuminated by these numbers, it is possible to address safety concerns while maintaining (or allowing your senior loved one to maintain) control and independence. There are many great resources to help you strike this balance. AAA has created a website with tools to help seniors assess their ability to drive, understand what might impair driving performance, and learn how to drive safer. Locally, there are several driving improvement schools for those who are still able. When the time comes to stop driving, many alternative transportation options are available from the local government, senior living communities, and in-home care providers. Please feel free to contact us for more information on local transportation resources or to attend one of our monthly Truth About Estate Planning workshops to learn more about maintaining control as you age.
PLANNING FOR YOUNG ADULT “CHILDREN”: WHAT PARENTS NEED TO KNOW
Now that graduation season is behind us, we have some important information for parents of young adults who are going off to college or starting their first job. Once your child turns 18, he or she is automatically an “adult” in the eyes of the law, no matter how immature or inexperienced. Being an adult comes with the right to manage your assets (including opening credit cards and taking out loans) and make decisions about your life (such as where to live, who to socialize with, and whether you want medical treatment). As you might imagine, this silent leap into full adulthood can cause some nasty surprises down the road.
For example, parents have no legal right to medical information for an adult child. That means that your child’s doctors don’t have to talk to you, even in an emergency situation. The same goes for anyone that your child signed a contract with, including for a credit card or an apartment lease (unless you are a co-signer).
Fortunately, your child can give you continued access to medical and financial information, and even some decision-making authority, with a few simple documents:
1. a Designation of Health Care Surrogate naming someone (usually one or both parents) to make medical decisions if he is not able;
2. a HIPAA Release designating any persons who he would like to have access to his medical records and doctors; and
3. a Power of Attorney, if he would like to name a trusted person (again usually one or both parents) to have access to and power over his finances.
We are currently offering a “back to school” special: we will provide the documents listed above for a flat fee of $295 for the first child and $195 for each additional child in the same family. Call us today to get in before summer is over!
(ADULT) ADOPTION SERIES – PART 1
When people think about adoption, images of a young child in need often come to mind. Yet, Florida law contemplates a broader vision. Under Florida Statute § 63.042(1) “[a]ny person, a minor or an adult, may be adopted.” The recent Florida case Dennis v. Kline demonstrates the complications that may arise when an estate plan allows adopted children to become beneficiaries, but fails to address whether “adopted children” includes adopted adults.
Thomas Dennis initially created a trust in 1989 to benefit his five children and their descendants. Unfortunately, two of Mr. Dennis’ children, a son and a daughter, were unable to have children of their own. After the son adopted an infant, Mr. Dennis amended his trust to specifically include “legally adopted persons” as descendants who would receive benefits under the trust.
Many years later and more than a decade after Mr. Dennis’ death, his childless daughter, Dianna, adopted her “godchild”: a twenty-seven-year-old woman whose (still living) biological parents were Dianna’s close friends. Dianna’s objective in adopting the godchild was for her to benefit under Mr. Dennis’ trust.
Harriet, another of Mr. Dennis’ daughters, objected to allowing the godchild to be a beneficiary because, despite the trust language including “adopted persons,” she felt her father never intended the trust to benefit adopted adults – only adopted children, such as the infant adopted by her brother. A contentious lawsuit ensued over how Mr. Dennis would have felt about adult adoption, a topic he never discussed with his children nor, more importantly, the lawyer who changed his trust.
In the end, the court held that the godchild was eligible to be a beneficiary of the trust. The court reasoned that, because Florida law expressly allowed adult adoption at the time Mr. Dennis amended his trust, we can all assume he knew the law of Florida and intended to allow adult adoption, since he did not specify otherwise. (I wonder what Mr. Dennis would have to say about that if he was still around!)
This case shows how the issue of adult adoption can cause costly and hurtful litigation between family members if you leave the issue unaddressed in your estate plan, as Mr. Dennis did. To learn more about preventing unnecessary litigation over your “true wishes” through comprehensive estate planning, you are welcome to attend one of our monthly “Truth About Estate Planning” workshops.
FAILURE TO UPDATE YOUR ESTATE PLAN: THE UNEXPECTED BLESSING
Sometimes blessings occur when we least expect them, but a lack of planning for such blessings can have unpleasant results. In the recent case of Maher v. Iglikova, a Florida court dealt with the ramifications of an unexpected blessing: the discovery of a previously unknown child.
Mr. Maher executed a will in 2001, but unfortunately disappeared in 2004 and was declared dead some years later. At the time Mr. Maher executed his will, he thought he had one child – a son. Yet, about one year after executing his will, Mr. Maher learned he had another child—a daughter – who was born in 2000. Mr. Maher confirmed that he was the girl’s father and then financially supported her. But, he never updated his will. So, after Mr. Maher’s death, a question arose: how does Florida law treat a child born before a will was signed but unknown, until afterwards? Would Florida law provide a way for the daughter to be included in the will?
The Florida legislature has tried to help people take care of children who come into their lives after a will is signed. Florida law provides that a “pretermitted child”, a child either “born” or “adopted” after a will is made, inherits not under the will but under a statute that entitles the child to share equally with any other children. Because the daughter was born before the will was made, she argued that her father’s acknowledgment of paternity and financial support legally constituted an “adoption” after the will was made, thus making her a pretermitted child entitled to share equally with the son under the statute.
Unfortunately for the daughter, the Court held that she was not a pretermitted child because Mr. Maher’s acknowledgment, financial support and even a court ruling changing her birth certificate to show Mr. Maher as her father did not amount to “adoption.” Thus, the daughter lost her claim to share equally in the estate. Worse, the daughter and son suffered collateral damages. Because Mr. Maher failed to update his will once he discovered his daughter, he left open the question of how much inheritance he intended her to have. Thus, the son and daughter ended up suing each other to resolve the question. (And the case went to trial and through an appeal—both costly prospects.)
Mr. Maher could have prevented the wasting of his estate assets and family friction merely by updating his will to clarify his wishes. If you would like to learn more about how we help our clients create estate plans, and keep them updated, you are welcome to attend one of our monthly “Truth About Estate Planning” workshops. Because adoptions can create different issues in estate planning, we will begin a series of articles on adoptions in our next newsletter.
THE OTHER PERSONAL REPRESENTATIVE:GRANTING ACCESS TO YOUR HEALTH INFORMATION
You may know that one of the necessary steps in estate planning is to name a “personal representative” (Florida’s term for “executor”) to settle your affairs after you pass away. But did you know that you should also name your trusted family members and other helpers as your “personal representatives” under the Health Insurance Portability and Accountability Act of 1996 (HIPAA)?
HIPAA was put into place to protect the personal health information given to and generated by health care professionals. It is the reason that you have to sign all those forms at the doctor’s office about the privacy of your medical records and who may have access to them. Although we agree that keeping our medical information private is an important goal, we also often see unintended consequences of HIPAA.
For example, one of our team members has a sister who has become very ill. Her physical state has rendered her incapable of making the decisions and taking the actions necessary to care for herself. Her family wants to help, but unfortunately she did not authorize any of them to access her health information and now is in no condition to share the details or grant access. This means that the family cannot talk to her doctors and therefore does not know enough about her illness or treatment needs to know how to help her.
As we often say, this stressful situation could have been avoided with proper planning. HIPAA allows you to give your loved ones access to all of your doctors, medical records, and other health information when they need it by appointing them as your “personal representatives” in writing. We believe that everyone should have this document as a lifetime planning tool and include it in all of our flat-fee will and trust packages. If you would like to learn more about comprehensive planning, you are welcome to attend one of our monthly Truth About Estate Planning workshops.
RELATIONSHIP SERIES – PART 3
Our Relationships Series previously has covered the unique estate planning challenges faced by blended families and by same-sex and other unmarried couples. Today we will address another group that is in dire need of proper planning: families with children under the age of 18.
In Florida, as in other states, the law recognizes children as vulnerable members of society and therefore limits their legal rights and responsibilities until they reach the age of “majority,” or adulthood, on their 18th birthday. For example, a child who is not yet 18, called a “minor” in legalese, cannot own property or sign contracts. Instead, he must rely on his parent(s) to make decisions regarding his person (i.e. where he will live and go to school, what medical treatment he will receive) and his property (i.e. what to do with any assets he may receive).
As parents, we exercise these rights as a matter of course while raising our children. We are able to do so without any legal process or reporting because we are the “natural guardians” of our minor kids. But what would happen to your minor child if you were no longer alive or otherwise unable to take care of him?
When there is no natural guardian available, a court must authorize someone (a “guardian”) to step into your shoes and make decisions about your child’s person and property until he turns 18. If you do not plan properly, the court will decide who the guardian will be based on who steps forward, and who the law prefers, rather than your wishes.
Even if you do have a plan that expresses who you want to be guardian(s) of your minor child, it may not fully protect him. In the short term, your sudden unavailability, even if temporary (i.e. unconscious after a car accident), may lead to your child being taken into foster care. In the long term, your plan may result in your child getting complete freedom and a big check at the age of 18 rather than receiving continued guidance.
If you would like to learn more about planning to protect your family, you are welcome to attend one of our monthly Truth About Estate Planning workshops. The October 7th workshop will be specifically tailored for families with minor children.
THE LATEST DO-IT-YOURSELF NIGHTMARE
We are constantly warning clients and friends alike of the dangers of do-it-yourself estate planning. The odds are just too high that a fill-in-the-blanks estate plan will fail. We hate to say we told you so, but here it is straight from the pen of Justice Pariente of the Florida Supreme Court:
“I therefore take this opportunity to highlight a cautionary tale of the potential dangers of utilizing pre-printed forms and drafting a will without legal assistance. As this case illustrates, that decision can ultimately result in the frustration of the testator’s intent, in addition to the payment of extensive attorney’s fees — the precise results the testator sought to avoid in the first place.”
The case that Justice Pariente is referring to is Aldrich v. Basile, where the Court recently was asked to interpret a do-it-yourself will. Ann Aldrich wrote her will on an “E-Z Legal Form.” Ann’s big mistake was that her will gave away specific assets (i.e. my gold watch to my sister) but it did not contain a residuary clause. A residuary clause basically says “here is what to do with any asset I did not specifically mention.”
Ann’s will may have given away all of her assets at the time she made it, but she later inherited more assets from her sister. She did not update her will to include the new assets, but instead expressed her intent in a separate handwritten note that “all” of her worldly possessions should go to her brother. Unfortunately for Ann and her brother, this note was not a valid way for Ann to update her will or direct what to do with the assets not specifically given away. Further, the will itself, without a residuary clause, was not sufficient to “effectively dispose of” any assets not specified.
The end result was that Ann’s heirs under Florida’s intestacy statute (the State’s default will) shared in the property that Ann wanted to go solely to her brother. Even though it seemed clear what Ann really wanted, she didn’t express it in a legally enforceable way, so the Court had to follow the terms of the will. As the Court explained, the will was not ambiguous (which would have allowed them to consider Ann’s intent) – it was just missing some critical words!
The internet may provide data, information, and knowledge. But it does not, and cannot, provide legal advice. Please don’t do estate planning without first obtaining creative, wise, and experienced legal advice. The parties in the Aldrich case were fighting over an $87,000.00 bank account. The legal fees most certainly wiped out the bulk of that inheritance. Don’t let that happen to you or your loved ones.
RELATIONSHIP SERIES – PART 2
Scenario No.1 – Single Mom with Kids Marries Single Dad with Kids
Although this type of “stepfamily” is becoming more and more common, it comes with significant hurdles to overcome. If you are part of a blended family like this, you are probably well aware of the psychological obstacles. The marriage will bring changes: most likely a new home and new routines and maybe even a new job or school, new town, or new roommate. All of this change puts stress on both the couple and their children, who may feel a sense of loss over having to share their biological parent not only with the new spouse but also with their new “step” siblings.
However, many blended families don’t know that they face unique estate planning obstacles as well. The most likely estate plan for a married couple is matching wills which say: “I leave everything to my spouse and thereafter equally to my children.” We generally call these “I love you” wills, but, as we have written before, they can send the opposite message to children in blended families.
What many people don’t understand is that a will is only effective to transfer assets once. For example, we’ll look at a fictitious blended family, Bill and Mary Sample, who have the estate plan described above. When Bill dies before Mary, all of his property legally passes to Mary and the “thereafter” clause in his will is null and void. Not only do Bill’s kids not get anything at the time he passes away, Mary is then free to leave all of her property, including everything she inherited from Bill, to her children (or her next spouse, etc.). Imagine how Bill’s children will feel when someone else inherits their father’s home and prized possessions! Unfortunately, this happens all too often.
In order to ensure that each member of your family receives what you want them to have, and to prevent fighting, name-calling, and litigation among your children and the “evil” stepparent or stepsiblings, a revocable living trust should be considered. By leaving assets in trust, you can provide for both your spouse and your children and even explain why and how you want to take care of each. A clear expression of your wishes can go a long way toward preventing WWIII!
If you would like to learn more about revocable living trust planning, you are welcome to attend one of our monthly Truth About Estate Planning workshops.
Movies About Estate and Legacy Planning: Nebraska
One of 2014‘s Academy Award nominees for Best Picture, Nebraska, touches on some estate and legacy planning issues.
An elderly alcoholic with dementia, Woody Grant, portrayed by Bruce Dern, is convinced he has won a $1million sweepstakes (in a magazine sales promotion) and wants to travel from his home in Billings, Montana to Lincoln, Nebraska to collect his winnings. His wife and 2 sons know this is a scam and that he is delusional. Nevertheless, after Woody sets out on foot several times the youngest son agrees to take his dad to Lincoln.
The director, Alexander Payne, has tackled estate planning issues before in his movie “The Descendants”. His movies are usually bleak and set in Nebraska. This one has an eerie bleakness and is also shot in black and white, during winter. Nevertheless, the well-written – well-acted film delivers strong performances by Dern (Best Actor nominee) and June Squibb (Best Supporting Actress nominee) as his ascerbic, wise-cracking wife, which make the movie actually enjoyable to watch. The bonding of father and son on their road trip is the key to the story, as they stop in Woody’s hometown of Hawthorne, Nebraska, where his son learns more about his dad’s past in a couple of days then he had in the previous 30+ years.
The true sadness is that Woody never shared his hopes and dreams with his sons. The reason he wanted to receive the $1 million dollar sweepstakes was to leave his boys something. He felt he had failed because he had nothing material to leave them, and therefore his life didn’t matter. The two sons enjoyed the antics of their father and loved him regardless of material wealth. The youngest son actually sold his car, so that his dad could drive back through his hometown in a pick-up truck waving and pretending he had won the prize!
(He did win the prize…the love of his family.) Living Matters.