Share

Minneapolis and St. Paul MN Estate Planning Blog

Monday, April 20, 2015

Will or Won’t? Things a Will Won’t (or Can’t) Do

Wills offer many benefits and are an important part of any estate plan, regardless of how much property you have. Your will can ensure that after death your property will be given to the loved ones you designate. If you have children, a will is necessary to designate a guardian for them. Without a will, the courts and probate laws will decide who inherits your property and who cares for your children. But there are certain things a will cannot accomplish.

A will has no effect on the distribution of certain types of property after your death. For example, if you own property in joint tenancy with another co-owner, your share of that property will automatically belong to the surviving joint tenant. Any contrary will provision would only be effective if all joint tenants died at the same time.

If you have named a beneficiary on your life insurance policy, those proceeds will not be subject to the terms of a will and will pass directly to your named beneficiary. Similarly, if you have named a beneficiary on your retirement accounts, including pension plans, individual retirement accounts (IRAs), 401(k) or 403(b) retirement plans, the money will be distributed directly to that named beneficiary when you pass on, regardless of any will provisions.

Brokerage accounts, including stocks and bonds, in which you have named a transfer-on-death (TOD) beneficiary will be transferred directly to the named beneficiary. Vehicles may also be titled with a TOD beneficiary, and would therefore transfer to your beneficiary, regardless of any provisions contained in your will. Similar to TODs, bank accounts may have a pay-on-death beneficiary named.

The will’s shortcomings are not limited to matters of inheritance. Generally, wills are not as well suited as trusts for putting conditions on a gift such as requiring someone to get married or divorced, or obtain a certain education level, as a prerequisite to inheriting a portion of your estate. A simple will cannot reduce estate taxes the way some kinds of trust plans can.

A trust, not a will, is also necessary to arrange for care for a beneficiary who has special needs. A will cannot provide for long-term care arrangements for a loved one. However, a special needs trust can provide financial support for a disabled beneficiary, without risking government disability benefits.

If you want to leave your estate to Fido, you’re out of luck in many states. Without a special pet trust, your will may not be able to provide for pets to inherit your assets. You can use your will to leave your pet to someone, and then leave money to that person in trust to help take care of your pet.

A will cannot help you avoid probate. Assets left through a will generally must be transferred through a court-supervised probate proceeding, which can take months, or longer, at significant expense to your estate. If it’s probate you want to avoid, consider establishing a living trust to hold your significant assets.

 

 


Tuesday, April 14, 2015

How to Keep Your Affluent Children From Turning Into … Well, … Brats

Congratulations are in order—you have accumulated enough wealth to be concerned about eventually passing it along to your children and grandchildren in a manner that will encourage them to lead positive and productive lives.  Like many, your objective is to allow your children to enjoy the rewards of wealth without becoming irresponsible, overindulgent or feeling entitled to anything money can buy.

When it comes to sharing one’s wealth with adult children, there are some general principles that may help you guide your children as they shape their values.  Two quotes about sharing wealth with children are an excellent starting point:

I wanted my children to have “enough money so that they would feel they could do anything, but not so much that they could do nothing.” – Warren Buffett

“It’s better to give with warm hands than with cold ones.” – Unknown

Establish Inter Vivos Trusts for Your Children, And Use Restrictions Creatively

You can establish inter vivos trusts (trusts that go into effect during your lifetime) and appoint professional trustees during your lifetime.  Consider some combination of the following restrictions on the trust funds to help your children develop into competent, capable adults:

  • Make receipt of funds dependent on employment
  • Use trust funds to match income from employment
  • Prohibit distribution of trust earnings until the child reaches a certain age (it is not unheard of to distribute trust earnings to children once they reach age 65)
  • Make attaining a certain level of education a prerequisite to distribution of trust income
  • Consider establishing a charitable trust or family foundation, with room for employment of your adult child in the foundation’s management

Consider a generation-skipping trust, so that your wealth is shared directly with grandchildren

Make Gifts or Loans During Your Lifetime—And Not Just Gifts of Money

This is the meaning behind the quotation above regarding warm hands and cold ones.  It is better, in so many ways, to give gifts during your lifetime rather than after your death.  In addition to gifts, consider making strategic, interest-free loans to your children to help them achieve certain goals without losing a lot of their own income to interest payments:

  • Interest-free loans for higher education
  • Interest-free loans for private education for grandchildren
  • Interest-free loans for home purchases

In addition to giving gifts of money or making strategic loans, there are other “gifts” you can give your children to help them learn to live with wealth.  Consider the following suggestions,:

  • Hire a professional to teach your children how to manage their money, instead of banking on your children listening to your own lessons.
  • Pay for family vacations that serve a philanthropic purpose, such as travel to Africa to deliver medical equipment to a remote town or travel to South America to help clean a national park.
  • Begin or continue a family tradition of local volunteer work with disadvantaged people in your own community to ensure that your children get firsthand knowledge of how fortunate they are to have the resources your family has accrued.

In general, experts agree that families fare better when their wealth is used to enrich their lives and to help others less fortunate.  Give your children opportunities to learn to use money in responsible ways, from as early in their lives as possible.  Show them the difference between buying a new sports car and donating the same amount of money to a program that sends food to people in need.  That isn’t to say a new sports car shouldn’t be on the shopping list – but perhaps it shouldn’t be the only thing on the shopping list.


Monday, March 23, 2015

Preventing a Will Contest & Preserving Peace in the Family

The purpose of writing a Last Will and Testament is to make sure that you – and not an anonymous probate court judge – have control over the distribution of your property after your death.  If one or more family members disputes the instructions in your will, however, then it is possible  that a probate court judge may decide how your assets will be distributed.

Protect yourself, your family members and your last wishes by taking steps to prevent a will contest after your death.  Will contests (this is the legal term used to describe a family member’s challenge to the contents of a will) can be based on one or more of these claims:

  • The will was not properly executed
  • The willmaker was under improper or undue influence from a beneficiary
  • The willmaker or another person committed fraud
  • The willmaker lacked the mental capacity to make the will

There are a number of steps that you can take to help prevent will contests based on any of those claims.  It is important to remember, though, that different states have different laws regarding wills and probate.  What is advisable in one state may be inadvisable in another, which is why the first suggestion for preventing a will contest is:

  1. Obtain qualified legal advice regarding your estate plan.  Estate planning has become a popular “do it yourself” legal task, but you should at least consider having your will reviewed – if not written – by a qualified estate planning lawyer.  Writing your will with the help of an estate planning attorney will also ensure that your will is a properly executed and valid legal document.
     
  2. Don’t delay estate planning.  Plan your estate while you are in good health – “of sound mind and body.”  If you create your will while your physical or mental health is failing, your will becomes vulnerable to claims that it is invalid due to your lack of mental capacity.
     
  3. Consider a no-contest clause.  A no-contest clause (also called an in terroreum clause) in a Last Will and Testament disinherits anyone who contests the will.  Keep in mind, though, that no-contest clauses are valid in some states but not in others.
     
  4. Consider using trusts.  Trusts are becoming more widely usedin estate planning , and are useful for various situations.  A will is a public document once it is filed in probate court, and the public nature of the document can give rise to disputes and will contests.  In contrast, a revocable living trust is a personal and private document that does not have to be filed as a public record.  Furthermore, lifetime trusts can be used to provide financially for “troublesome” beneficiaries who might otherwise spend through their inheritance.  Lifetime trusts are flexible and can link financial inheritance to the accomplishment of goals that you set forth in the trust documents.
     
  5. Write your will independently.  To avoid claims of undue influence after your death, make sure you write your will in circumstances that are clearly free from interference by family members or other beneficiaries.  Avoid having beneficiaries serve as witnesses, for example, and don’t allow beneficiaries to attend your meetings with your estate planning attorney.  This is especially important if you are under the care of a family member who is also a beneficiary.
     
  6. Be of sound mind and body.  At the time you write and sign your will, you can ask your physician to perform a physical examination and certify that you are mentally competent to execute your will.  Another option is for your attorney to ask you a series of questions before you sign your will and document that the questions were asked and answered.  It may also be a good idea to make a video recording of the process of signing your will, as another way to prove mental competency.
     
  7. Answer your family’s questions.  Consider sharing your intentions with your family and other beneficiaries.  If you explain the reasons for the decisions you made regarding bequests, you may help prevent will contests after your death.  Instead or in addition, you may write a letter to your beneficiaries that will be read at the same time your will is read.
     
  8. Keep your will dust-free.  Once your Last Will and Testament and other estate planning documents are complete, don’t just file and forget them.  Review your will with an attorney at least once a year and make any necessary changes in a timely manner.
     

Monday, March 16, 2015

Estate Planning: Leaving Assets to a ‘Troubled’ Heir

If you have a child who is addicted to drugs or alcohol, or who is financially irresponsible, you already know the heartbreak associated with trying to help that child make healthy decisions.  Perhaps your other adult children are living independent lives, but this child still turns to you to bail him out – either figuratively or literally – of trouble.

If these are your circumstances, you are probably already worrying about how to continue to help your child once you are gone.  You predict that your child will misuse any lump sum of money left to him or her via your will.  You don’t want to completely cut this child out of your estate plan, but at the same time, you don’t want to enable destructive behavior or throw good money after bad.

Trusts are an estate planning tool you can use to provide an inheritance to a worrisome heir while maintaining control over how, when, where, and why the heir accesses the funds.  This type of trust is sometimes called a spendthrift trust.  

As with all trusts, you designate a trustee who controls the funds that will be left to the heir.  This trustee can be an independent third party (there are companies that specialize in this type of work) or a member of the family.  It is often wise to opt for a third party as a trustee, to prevent accusations among family members about favoritism.

The trust can specify the exact circumstances under which money will be disbursed to the heir.  Or, more simply, the trust can specify that the trustee has complete and sole discretion to disburse funds when the heir applies for money.  Most parents in these circumstances discover that they wish to impose their own incentives and restrictions, rather than rely on the judgment of an unknown third party.

The types of conditions or incentives that can be used with a trust include:

  • Drug or alcohol testing before funds are released
  • Payments directly to landlords, colleges, etc., rather than payment to the heir
  • Disbursement of a specified lump sum if the heir graduates from university or keeps the same job for a certain time period
  • Payment only to a drug or alcohol rehab center if the child is in an active period of addiction
  • Disbursement of a lump sum if the child remains drug free
  • Payments that match the child’s earned income

If you are considering writing this type of complex trust, it is advisable to seek assistance from a qualified and experienced estate planning attorney who can help you devise a plan that best accomplishes your wishes with respect to your child.
 


Monday, March 9, 2015

Protecting Your Legacy with Estate Tax Planning

 

You spend your whole life building your legacy but sadly, that is not always enough. Without careful estate tax planning, much of it could be lost to taxes or misdirected. While a will or living trust is essential for dividing your estate as you wish, an estate tax plan ensures you pass on as much of your legacy as possible.

Understanding estate tax laws

For the past decade, estate tax laws have been a sort of political football with significant changes occurring every few years.  The good news is that the 2013 tax act made the basic $5 million estate tax exemption “permanent,” but at a higher rate of 40%, though the law continues to adjust the exemption level for inflation. With this adjustment the 2015 exclusion $5.43 million ($10.86 million per married couple). The law also retained exclusion “portability” which means that if one spouse dies in 2014 or 2015, the surviving spouse may pass on the unused portion of the deceased spouse’s exclusion. This portability is not automatic, however. The unused portion needs to be transferred by the executor to the surviving spouse, and a special tax return must be filed within nine months. The surviving spouse does not have to pay estate taxes at this time, they only become due after both spouses have died.

Optimizing your estate plan

One way to maximize the amount you can pass on is through annual gifting while you are alive. An individual is allowed to give $14,000 each year to another individual, tax-free. If you give more than that, it will reduce your basic lifetime exclusion. So, if you give a child $50,000 this year, your basic $5.43 million exclusion will be reduced by $36,000 at the time of your death. You can gift as much as your full $5.43 million exclusion before incurring taxes, although doing so would “exhaust” your estate tax exemption at death. Gift taxes are paid by the giver, not the recipient.

An experienced estate tax planning attorney can help minimize potential gift and estate taxes by:

  • Identifying taxable assets
  • Transforming your wishes into a will or living trust
  • Keeping you apprised of federal and state tax law changes
  • Establishing an annual gifting plan
  • Creating family and charitable trusts
  • Setting up IRA charitable rollovers
  • Setting up 529 education savings plans
  • Helping you create a succession plan for your family business

It’s never pleasant to consider the end of your life, but planning for it will help ensure that the things you care about are cared for. It is one of the greatest gifts you can give your loved ones.


Monday, February 23, 2015

Is There Anyway a Disinherited Child Could Receive an Inheritance From an Estate?

If your estate plan and related documents are properly and carefully drafted, it is highly unlikely that the court will disregard your wishes and award the excluded child an inheritance.  As unlikely as it may be, there are certain situations where this child could end up receiving an inheritance depending upon a variety of factors.

To understand how a disinherited child could benefit, you must understand how assets pass after death.  How a particular asset passes at death depends upon the type of asset and how it is titled. For example, a jointly titled asset will pass to the surviving joint owner regardless of what a will or a trust says. So, in the unlikely event that the disinherited child was a joint owner, that child would still inherit the asset because of how it was titled.

Similarly, if you left that disinherited child as a named beneficiary on a life insurance policy or retirement plan asset, such as an IRA or 401k, that child would still receive some of the benefits as the named beneficiary even if your will stated they were to take nothing. Another way such a "disinherited" child might receive a benefit is if all other named beneficiaries died before you.

So, assume you have three children and you wish to disinherit one of them and you state you want all of your assets to go to the other two, and if they are not alive, then to their descendants.  If those other two children die before you and do not have any descendants, there may be a provision that in such a case your "heirs at law" are to take your entire estate and that would include the child you intended to disinherit.

If you wish to disinherit a child, all of these issues can be addressed with proper and careful drafting by a qualified estate planning lawyer.  


Monday, February 16, 2015

Executors Fees

An executor's fee is the amount charged by the person who has been appointed as the executor of the probate estate for handling all of the necessary steps in the probate administration. Therefore, if you have been appointed an executor of someone’s estate, you might be entitled to a fee for your services.  This fee could be based upon a variety of factors and some of those factors may be dependent upon state, or even local, law.

General Duties of an Executor

  1. Securing the decedent's home (changing locks, etc.)
  2. Identifying and collecting all bank accounts, investment accounts, stocks, bonds and mutual funds
  3. Having all real estate appraised; having all tangible personal property appraised
  4. Paying all of the decedent’s debts and final expenses
  5. Making sure all income and estate tax returns are prepared, filed and any taxes paid
  6. Collecting all life insurance proceeds and retirement account assets
  7. Accounting for all actions; and making distributions of the estate to the beneficiaries or heirs.

This list is not all-inclusive and depending upon the particular estate more, or less, steps may be needed.

As you can see, there is a lot of work (and legal liability) involved in being the executor of an estate.  Typically the executor would keep track of his or her time and a reasonable hourly rate would be used. Other times, an executor could charge based upon some percent of the value of the estate assets. What an executor may charge, and how an executor can charge, may be governed by state law or even a local court's rules. You also asked whether the deceased can make you agree not to take a fee. The decedent can put in his or her will that the executor should serve without compensation but the named executor is not obligated to take the job. He or she could simply decline to serve. If no one will serve without taking a fee, and if the decedents will states the executor must serve without a fee, a petition could be filed with the court asking them to approve a fee even if the will says otherwise. Notice should be given to all interested parties such as all beneficiaries.

If you have been appointed an executor or have any other probate or estate planning issues, contact us for a consultation today.


Monday, February 9, 2015

Problems with Using Joint Accounts as a Vehicle for Inheritance

When deciding who will inherit your assets after you die, it is important to consider that you might outlive the beneficiary you choose.  If you have added someone to your financial accounts to ensure that he or she receives this asset after you die, you might be concerned about what will happen should you outlive this person.

What happens to a joint asset in this situation depends upon the specific circumstances. For example, if a co-owner that was meant to inherit dies first, the account will automatically become the property of the other co-owners and will not be included in the decedent’s estate.  However, whether it is somehow included in this person’s taxable estate, and is therefore subject to state death tax, also depends on state law. Assuming the other co-owners were the only ones to contribute to this account, and that the decedent did not put any of his or her money into the account, there may be state laws that provide that these funds are not taxed.  The other co-owners might have to sign an affidavit to that effect and submit it to the state department of revenue with the tax return. Also, if the decedent’s estate was large enough to require the filing of a federal estate tax return ($5,340,000 in 2014) the same thing may be needed in order to exclude this money from his or her taxable estate. You would generally state that this person’s name was placed on the account for convenience, and that the money was contributed by the other co-owners.

If you are considering adding someone to your financial accounts so that they inherit it when you die, you should contact an experienced estate planning attorney to discuss your options. 


Monday, January 26, 2015

Choosing a Guardian for Minor Children

If you are a parent and you are considering estate planning, one of the most difficult decisions you will have to make is choosing a guardian for your minor children.  It is not easy to think of anyone else, no matter how loving, raising your child. Yet, you can make a tremendous difference in your child’s life by planning ahead. 

The younger your child, the more crucial this choice is, because very young children cannot form or express their own preferences about caregivers. Yet young children are not the only ones who benefit from careful parental attention to guardianship. Children close to 18 years old will be legal adults soon, but, as you well know, may still need assistance of a parental figure after the fact.

By naming and talking about your choice of guardian, you can encourage a lifelong bond with a caring family. The nomination of guardians is a straightforward aspect of any family’s estate plan. It can be as basic or detailed as you want. You can simply name the guardian who would act if both you and your spouse were unable to or you can provide detailed guidance about your children and the sort of experiences and family environment you would like for them. Your state court, then, can give strong weight to your expressed wishes.

There are essentially four steps to this process. First, make a list of anyone you know that might be a candidate for guardian of your children.  It is important to think beyond your sisters and brothers and consider cousins, aunts and uncles, grandparents, child-care providers and business partners. You might also want to consider long-time friends and those you’ve gotten to know at parenting groups as they may share similar philosophies about child-rearing. Second, make a list of factors that are most important to you. Here are some to consider:

  • Maturity
  • Patience
  • Stamina
  • Age
  • Child-rearing philosophy
  • Presence of children in the home already
  • Interest in and relationship with your children
  • Integrity
  • Stability
  • Ability to meet the physical demands of child care
  • Presence of enough “free” time to raise children
  • Religion or spirituality
  • Marital or family status
  • Potential conflicts of interest with your children
  • Willingness to serve
  • Social and moral habits and values
  • Willingness to adopt your children

You might find that all or none of these factors are important to you or that there are others that make more sense in your particular situation.  The third step is to, match people with priorities. Use the factors you chose in step two to narrow your list of candidates to a handful.

For many families, it is as easy as it looks. For others, however, these three steps are fraught with conflict. One common source of difficulty is disagreement between spouses. But, consensus is important. Explore the disagreements to see what information about values and people is important to one another and use all of your strongest communications skills to understand each other’s position before you try to find a solution that you can both feel good about. Step four is to make it positive. For some parents, getting past this decision quickly is the best way to achieve peace of mind and happiness. For others, choosing a guardian can be the start of an intensive relationship-building process. An attorney who understands where you and your spouse fall on that spectrum can counsel you appropriately. 


Monday, January 12, 2015

What is Estate Tax Portability and How Does it Affect Me?

At the end of 2012, the entire country watched as major changes were made to income tax  laws with the adoption of the American Taxpayer Relief Act of 2012 (ATRA). The act also made significant changes in estate tax laws.

Estate Tax Portability

One important change is that the estate tax portability law is now permanent.  Estate tax portability means that the unused portion of the first-to-die spouse’s estate tax exemption passes to the surviving spouse.  The current estate tax exemption is $5.43 million ($5 million with adjustments for inflation).  This means that a married couple’s total estate tax exemption is currently $10.86 million ($10.86 million in 2015).  For example, a husband dies with $2 million in separate assets.  He has $3.43 million remaining in his estate tax exemption, which passes to his wife, giving her a total of $8.86 million in estate tax exemption.  Without portability, the husband’s remaining exemption might have been forfeited if the couple had not implemented special tax planning techniques as part of their estate plans.

How Do You Claim the Portability?

This is where married couples and estate executors can get into trouble.  The estate tax portability rule is not automatic.  In order to claim the remainder of the first-to-die spouse’s estate tax exemption, the surviving spouse or the deceased spouse’s estate executor must file an estate tax return soon after the death, usually within nine months.

If this filing deadline is missed, then the couple will not get the benefit of estate tax portability.  Missing the estate tax filing deadline can result in hundreds of thousands of unnecessary and avoidable estate taxes.

In a recent report in The Wall Street Journal, estate planning experts expressed concern that executors of small estates may be unaware of the estate tax return filing requirement and may believe that an estate tax return is unnecessary if the deceased spouse’s assets fall under the $5.43 million exemption amount. To preserve portability, however, the estate tax return must be filed after the first spouse’s death.  Alternatively, married couples can utilize a special trust, referred to as a “credit shelter trust” or “bypass trust” to prevent forfeiture of their individual exemptions.  This planning technique must be undertaken when both spouses are still alive.

The Consequences of Failing to File an Estate Tax Return

As a simple example, consider a husband and wife who have a total of $7.5 million in assets, $6 million in a business the husband owns and the remaining $1.5 million owned by the wife.  Upon the wife’s death, the estate’s executor files a timely estate tax return and the wife’s remaining $3.93 million in estate tax exemptions passes to the husband.  When the husband dies, his entire $6 million business passes to his heirs tax free, even though his personal estate tax exemption is only $5.43 million.  If portability is not claimed, then approximately $500,000 of the husband’s business will be taxed (the current rate is 40 percent).  The husband’s heirs would be required to pay approximately $200,000 in estate taxes which could have been avoided if the wife’s estate executor had filed an estate tax return within the time limit.

Even if both spouses together have assets under the current $5.43 million exemption, it is still a good idea to file an estate tax return after the death of the first spouse.  Filing the estate tax return and preserving the portability benefit protects the surviving spouse’s heirs in the event the surviving spouse receives a windfall during his or her lifetime that raises his or her assets above the $5.43 million exemption level.


Sunday, January 11, 2015

The Blunder that Brought Down the “King of Pop’s” Estate

When relentless news coverage ensued following the death of Michael Jackson, it likely came as no surprise to his family, given his icon status and the unexpected timing and nature of his death.  However, the media attention that surrounded the administration of his estate, making it a very public and dramatic affair, was neither expected nor welcomed by his loved ones.

Despite the well-known calamity that has arisen out of this estate administration process, Jackson did take one proper measure to organize his estate– he established a trust. When utilized in the right way, a trust ensures that matters are kept private and out of the probate court. However, Jackson failed to transfer his assets into that trust. Thus, what Jackson created was essentially a “pour-over” will that was intended to place his assets into a trust following his death. Unfortunately, a will is not an ideal vehicle for passing on assets, particularly significant assets amounting to $600 million dollars. 

As a result, Jackson’s estate was forced to go through probate, where his estate and family endured an exhausting court process and torrent of public scrutiny. Ultimately, his estate was deprived of the crucial benefits of establishing the trust– privacy, decreased risk of family feuding, no waiting periods, asset protection, and avoidance of the probate court and estate taxes. In the end, Jackson’s ineffective estate planning cost an estimated $200 million in estate taxes, subjected family members to years of emotionally-draining litigation, and failed to accomplish estate planning objectives such as the disbursement of a trust fund for his children. 

This high profile case serves as a startling reminder of the grueling consequences and costs that can result from poor estate planning. The financial burdens and emotional toll could have been prevented simply through the proper construction of an estate plan. A Revocable Living Trust, when utilized correctly, ensures privacy and efficiency in handling one’s affairs, as well as minimal hardships on loved ones.


Archived Posts

2017
2016
2015
December
November
October
September
August
July
June
May
April
March
February
January
2014
December
November
October
September
August
July
June
May
April
March
February
January
2013


Mullen & Guttman PLLC has offices in Edina, MN, St. Michael, MN, & Lake Elmo, MN and provides estate planning services to individuals and families throughout Minneapolis, St. Paul, and the surrounding communities. We provide legal services in the following counties: Hennepin, Ramsey, Dakota, Anoka, Wright, Washington, Carver, Scott, Sherburne, Le Sueur, Sibley, Pierce, Isanti and Chisago.



© 2018 Mullen & Guttman PLLC | Disclaimer
6600 France Avenue S., Suite 210, Edina, MN 55435
| Phone: 612-756-7272

Services Overview | Estate Planning | Estate Planning with Wills | Trusts & Estate Planning | Probate / Estate Administration | Cabin Planning | Planning for Children | Estate Planning for LGBT/Non-Traditional Families | Special Needs Planning | Advanced Estate Planning | Estate Tax Planning | Local Counsel | About | Attorneys

FacebookGoogle+Linked-In Company

Law Firm Website Design by
Zola Creative