Archive for Trusts
PRECATORY LANGUAGE: THE DANGER OF UNLIMITED DISCRETION
Wording in a will or trust which allows a named person to decide where your property and money should go after your death (instead of you making that decision ahead of time) is called “precatory” language. An example is the recent Florida case of Cody v. Cody, where Earler Martin’s will left his home, and the rest of his estate, to one of his three stepsons, “to divide between [himself and his brothers], as he sees fit and proper.” Earler’s wish was probably that the inheriting stepson, Buford, divide up the home and other property equally between himself and his brothers. However, the words he chose to express that desire defeated that intent.
Buford’s brothers challenged the way Buford was handling the estate, asserting that there should be a division into three equal shares. The court disagreed, stating that the language in Earler’s will left it entirely up to Buford to decide how to divide Earler’s property, including the discretion to make no division and keep all the property himself.
The bottom line is that wills and trusts must be carefully drafted to ensure that they carry out your wishes. You can allow your trusted helpers some flexibility and discretion in taking care of your loved ones after you are gone, but it must be done the right way. If you are interested in learning more about safely building flexibility into your estate plan, you are welcome to attend one of our monthly “Truth About Estate Planning” workshops.
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.
(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.
ESTATE PLANNING FOR SAME-SEX COUPLES IN 2014
The Heckerling Institute on Estate Planning, held every January, is the nation’s leading conference for estate planners. This year’s most-discussed topic was big changes in planning for same-sex couples.
The discourse focused on last year’s major decision of United States v. Windsor. In Windsor, the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA) which defined “marriage” and “spouse” for federal purposes as only applicable to heterosexual couples. The result is that a marriage between any two persons now will be recognized under federal law if it is recognized under the law of the state where it occurred.
The practical result is that same-sex married couples now have access to federal estate and tax planning tools. This includes use of the marital deduction, portability, disclaimers, joint income tax returns, grantor trusts, spousal rollover of qualified retirement accounts, joint ownership of property, split gifting to maximize annual gift tax exemption, marriage settlement agreements, and GST transfer planning (i.e., reverse QTIP).
On the other hand, same-sex married couples will feel the impact of the “Marriage Penalty” on their tax rates, mortgage interest deductions, and more, just like heterosexual married couples.
Although the Windsor decision has clearly brought about significant change, it did not invalidate DOMA as a whole. Instead, it left intact Section 2 of DOMA, which allows the states, U.S. territories, and Indian Tribes to refuse to recognize same-sex marriages performed in other states, territories, or tribes. As a result, the lack of uniformity of laws among the states will continue to create issues for same-sex couples to navigate with the assistance of tax and estate planning professionals.
The focus at Heckerling was on the tax and financial implications of these new laws. Stay tuned for our “Relationship Series” where we will focus on the more personal and human side of planning in different relationships.
MORE ESTATE PLANNING LESSONS FROM DOWNTON ABBEY
My wife is a big fan of Downton Abbey, so at least once each season we are obligated to reference this hit PBS series in our newsletter. We have already written about general estate planning issues raised in the early seasons of the show. Fortunately, the opening episode of Season 4 provided a wealth of interesting new material.
Season 3 ended with Matthew Crawley tragically killed in a car accident. The 36-year-old heir to the Abbey left a wife, Lady Mary, and baby boy behind. Season 4 opened with the family still grieving and thinking that Matthew died without a will. England’s intestacy laws at the time recognized only male heirs, so the baby was believed to now be the 50% owner of Downton Abbey. The family was seen arguing over who could best represent the baby’s interests. Then Lord Grantham discovers a letter hidden in one of Matthew’s books that turns out to be a hand written will, leaving his entire estate to Lady Mary. A legal opinion confirms that the will is valid.
1. As we’ve written before no one is “too young” to create a thoughtful estate plan. Matthew was only 36, but had a wife and baby, and was heir to a large estate. He needed a comprehensive plan.
2. Don’t rely on chance. Leaving your will hidden in a book is not a good idea. Make sure that the location of your estate plan documents is known to your trusted family members and helpers. Also, don’t rely on a last-minute handwritten will to be valid. Unlike early 20th Century England, Matthew’s will would not have been valid in 21st Century Florida. Without 2 disinterested witnesses and a notary, Matthew’s letter would have no legal effect. Knowing his intentions, but not having them carried out would be all the more frustrating.
As you watch Downton Abbey, enjoy the fading grandeur of the British aristocracy and the secrets and machinations of the characters who live both upstairs and downstairs. But do learn from the characters’ mistakes, especially when it comes to estate planning. To learn more about modern day estate planning, attend our next “Truth About Estate Planning” workshop.