EHDH Estate Planning

Estate Plans Can Protect against Exploitation

Financial exploitation is far more common than most people think, especially of the elderly. There are several types of individuals more at risk for exploitation, according to a recent article from mondaq titled “How An Estate Plan Can Protect Against Financial Exploitation.” These include someone with a cognitive impairment, in poor physical health, who is isolated or has a learning disability.

Exploiters share common characteristics as well. They are often people with mental health illness, substance abusers or those who are financially dependent on the person they are exploiting.

There are warning signs of financial abuse, including:

• Changes in patterns of spending, transfers, or withdrawals from accounts
• Isolation from friends and family
• Unexplainable financial activity
• An inability to pay for routine bills and expenses
• Sudden changes to estate planning documents, beneficiary designations, or the addition of joint owners to accounts or property titles

One way to avoid financial exploitation is with an estate plan prepared in advance with an eye to protection. Instead of relying on a durable power of attorney, a funded revocable trust may provide more robust protection. A revocable trust-based plan includes safeguards like co-trustees and a requirement for independent party consent to any trustee change or amendment.

A support system is also important to protect a person if someone is attempting to exploit them. Estate planning attorneys team up with financial advisors, CPAs and other professionals to create a plan to avoid or end elder abuse. Other steps to be taken include:

• Consolidating accounts with a trusted financial advisor, so all assets are easily observed
• Have a family member or trusted person receive copies of account statements
• Consider a credit freeze to avoid any possibility of being coerced into opening new credit card accounts or taking out loans.
• Establishing a budget and sharing information with advisors and a trusted person, so any spending anomalies are easy flagged.

Elder financial abuse is an all-too common occurrence but taking proactive steps to safeguard the vulnerable family member is a good strategy to deter or thwart anyone intent on taking advantage of a loved one.

Reference: mondaq (Sep. 23, 2022) “How An Estate Plan Can Protect Against Financial Exploitation.”

What Is the Purpose of a Guardian?

The most frequently asked questions about guardianship concern when it’s needed, how the process works and is there a way to avoid it. The idea of guardianship may feel troubling if you’ve never known anyone who needed a guardian, says a recent article “Guardian process can be lengthy, difficult” from The News-Enterprise.

Simply put, guardianship is a court proceeding restricting or removing the right of a person to manage their own financial, legal and medical affairs.

Guardianship is not exclusive to elderly individuals, as it is often used to protect adults and older children with disabilities. Guardianship is mainly needed when the person is unable to manage their own finances, incapable of understanding the scope and consequences of making their own medical decisions or is at risk of exploitation due to diminished capacity.

The process for obtaining guardianship for another person is complicated and takes at least several months before a guardianship order is entered into the legal record.

The first step is for the person who seeks guardianship for another person to file a petition with the District Court in the county where the impaired person lives. The person who files the petition is known as the petitioner and the person who needs the guardianship is known as the respondent. The petitioner is usually a family member but may also be a concerned person or an institution, like a nursing facility.

The petition is often paired with a request for emergency guardianship pending a trial. If the court doesn’t order the emergency order immediately, a short trial may be needed to get an emergency order. The court then sets a trial date and issues an order for an evaluation.

Different states have different requirements, which is why the help of an experienced estate planning attorney is needed. In some states, reports from three independent team members are needed: a healthcare professional, which is typically the respondent’s primary care physician; a mental health professional and a social worker, often from Adult Protective Services.

Each person from the team must conduct an independent evaluation and submit a separate report to the court with their findings and a recommendation. In some states, the guardianship moves to a trial, while in other states the trial is held in front of a judge.

If the guardianship is granted, by trial or by the judge, a guardian is appointed to make decisions for the person and a conservator is named. The conservator is in charge of the person’s finances. Both the guardian and conservator are required to file reports with the court concerning their actions on behalf of the respondent throughout the duration of their roles.

How can guardianship be avoided? It’s far simpler and less costly for the family to work with an estate planning attorney to have Durable Powers of Attorney and Health Care Power of Attorney documents created in advance of any incapacity. Paired with fully funded revocable living trusts, the family can have complete control over their loved one without court intervention.

These documents cannot be prepared after a person is incapacitated, so a pro-active approach must be taken long before they are needed.

Reference: The News-Enterprise (Sep. 24, 2022) “Guardian process can be lengthy, difficult”

Why Do You Need an Estate Plan?

Everyone benefits from having an estate plan. If you own property, investments, or anything of value, you need an estate plan. If you have family or dependents, you need an estate plan. Estate planning directs how assets are directed, if you become incapacitated or when you die.

The checklist for creating an estate plan includes a will, powers of attorney and assigning beneficiary account designations. Using an estate planning lawyer ensures that your plan meets all legal requirements, according to the article “What is estate planning? A strategy to safeguard your family and your finances, and ensure your plans for them get carried out as you wish” from Business Insider.

In this usage, “estate” means the things you own. An estate plan inventories everything, including your home, cars, bank accounts, life insurance policies, retirement accounts and personal possessions. It outlines in writing exactly what you want to happen with your property. It also directs who you want to handle your affairs during life and after death and who you want to inherit your assets.

Why does estate planning matter? If you die without a will, your assets may get tied up in probate, where the court oversees the distribution of your estate according to your state’s laws. Without a will and the tax planning part of estate planning, your estate may shrink and your heirs receive less.

The will is just the start of a comprehensive estate plan. It details where you want your assets to go and names an executor who will oversee your estate. If you have minor children, the will is where you name a guardian to raise your children.

A durable power of attorney designates a person to act on your behalf for legal and financial matters if you become incapacitated. Without it, family members will not be able to file tax returns, collect government benefits, manage investments and handle any financial transactions. They’ll need to go to court and have a judge appoint someone to manage these and other tasks. It’s far easier and less expensive to have this document in place than to get the courts involved.

A health care power of attorney is your opportunity to name someone to make medical decisions on your behalf if you become incapacitated. This includes choosing doctors, deciding what tests to run and whether you want to have surgery or certain treatments.

You’ll want a living will to ensure your wishes for end-of-life decisions are followed. A living will also relieves your loved one of the enormous burden of determining “what Mom would have wanted” if you become terminally ill, enter the late stages of dementia, are seriously injured, in a coma, or near the end of your life. What extreme measures do you want to be taken to prolong your life? What would you not want to be done to maintain your life?

Beneficiary designations are the forms to be completed when you open a retirement account or purchase a life insurance policy. Beneficiary designations override any instructions for these accounts set out in your will, so its very important to review and update them regularly.

Trusts are used to take assets out of your probate estate. A trust is created by an estate planning attorney and upon death, assets are distributed according to the directions of the trust. If you own a lot of assets, trusts are a useful tool to avoid estate and inheritance taxes.

Digital asset protection trusts are a way to legally transfer domain names, social media accounts and other digital assets to heirs upon your death. Emails, text messages, cloud-based storage accounts, websites and social media accounts all need to be inventoried and a plan needs to be in place to protect these assets.

Reference: Business Insider (Sep. 22, 2022) “What is estate planning? A strategy to safeguard your family and your finances, and ensure your plans for them get carried out as you wish”

How Does Probate Court Work?

Probate court is where wills are examined to be sure they have been prepared according to the laws of the state and according to the wishes of the person who has died. It is also the jurisdiction where the executor is approved, their activities are approved and all debts are paid and assets are distributed properly. According to a recent article from Investopedia “What is Probate Court?,” this is also where the court determines how to distribute the decedent’s assets if there is no will.

Probate courts handle matters like estates, guardianships and wills. Estate planning lawyers often manage probate matters and navigate the courts to avoid unnecessary complications. The probate court process begins when the estate planning attorney files a petition for probate, the will and a copy of the death certificate.

The probate court process is completed when the executor completes all required tasks, provides a full accounting statement to the court and the court approves the statement.

Probate is the term used to describe the legal process of handling the estate of a recently deceased person. The role of the court is to make sure that all debts are paid and assets distributed to the correct beneficiaries as detailed in their last will and testament.

Probate has many different aspects. In addition to dealing with the decedent’s assets and debts, it includes the court managing the process and the actual distribution of assets.

Probate and probate court rules and terms vary from state to state. Some states don’t even use the term probate, but instead refer to a surrogate’s court, orphan’s court, or chancery court. Your estate planning attorney will know the laws regarding probate in the state where the will is to be probated before death if you’re having an estate plan created, or after death if you are the beneficiary or the executor.

Probate is usually necessary when property is only titled in the name of the decedent. It could include real property or cars. There are some assets which do not go through probate and pass directly to beneficiaries. A partial list includes:

• Life insurance policies with designated beneficiaries
• Pension plan distribution
• IRA or 401(k) retirement accounts with designated beneficiaries
• Assets owned by a trust
• Securities owned as Transfer on Death (TOD)
• Wages, salary, or commissions owed to the decedent (up to the set limits)
• Vehicles intended for the immediate family (this depends on state law)
• Household goods and other items intended for the immediate family (also depending upon state law).

Many people seek to avoid or at least minimize the probate process. This needs to be done in advance by an experienced estate planning attorney. They can create trusts, assign assets to the trust and designate beneficiaries for those assets. Another means of minimizing probate is to gift assets during your lifetime.

Reference: Investopedia (Sep. 21, 2022) “What is Probate Court?”

What Is a Community Property Trust?

Where you live matters for estate planning, since laws regarding estate planning are state specific. The same is true for taxes, especially for married couples, says a recent article “How Community Property Trusts Can Benefit Married Couples” from Kiplinger.

There are two different types of basic ownership law for married couples: common law and community property law. Variances can be found across states, but some general rules apply to all. If a state is not a community property state, it’s a common-law state.

Community property states have a tax advantage for assets when one spouse dies. But if you live in a common-law state, don’t worry: several states have now passed statutes allowing married couples living in a common-law state to establish a community property trust with a qualified trustee. They can gain a step-up in cost basis at each death, which previously was not allowed in common-law states.

First, let’s explain what community property means. Each member of the married couple owns one half of all the property of the couple, with full rights of ownership. All property acquired during a marriage is usually community property, with the exception of property from an inheritance or received as a gift. However, laws vary in the community property states regarding some ownership matters. For example, a spouse can identify some property as community property without the consent of the other spouse.

Under federal law, all community property (which includes both the decedent’s one-half interest in the community property and the surviving spouse’s one-half interest in the community property) gets a new basis at the death of the first spouse equal to its fair market value. The cost basis is stepped up, and assets can be sold without recognizing a capital gain.

Property in the name of the surviving spouse can receive a second step-up in basis. However, there’s no second step-up for assets placed into irrevocable trusts before the second death. This includes a trust set up to shelter assets under the lifetime estate tax exemption or to qualify assets for the unlimited marital deduction. This is often called “A-B” trust planning.

Under common law, married couples own assets together or individually. When the first spouse dies, assets in the decedent spouse’s name or in the name of a revocable trust are stepped-up. Assets owned jointly at death receive a step-up in basis on only half of the property. Assets in the surviving spouse’s name only are not stepped-up. However, when the surviving spouse dies, assets held in their name get another step-up in basis.

To date, five common-law states have passed community property trust statutes to empower a married couple to convert common-law property into community property. They include Alaska, Florida, Kentucky, South Dakota and Tennessee.

The community property trust allows married couples living in the resident state and others living in common-law states to obtain a stepped-up basis for all assets they own at the first death. Those who live in common-law states not permitting this trust solution can still execute a community property trust in a community property state. However, they will first need to appoint a qualified trustee in the state.

For this to work, the trusts need to be prepared properly by an experienced estate planning attorney, who will also be able to advise the couple whether there are any other means of achieving these and other tax planning goals.

Reference: Kiplinger (Sep. 18, 2022) “How Community Property Trusts Can Benefit Married Couples”

No Inheritance Tax for King Charles III

British citizens must pay a standard 40% on any part of an estate valued at more than about £325,000 pounds—about $374,000, says the article “No, King Charles III won’t pay any inheritance tax on his massive gain” from National Public Radio. There are exceptions, such as money left to a charity or a spouse.

An agreement was reached between the government and the monarchy in 1993 stating that assets passing from a sovereign to their successor aren’t subject to the inheritance tax. The exemption was part of a broader tax deal when then-Prime Minister John Major stated the danger of the monarch “being salami-sliced away by capital taxation through generations” would change the nature of the English monarchy.

Around that time, both Queen Elizabeth II and Charles agreed to pay a personal income tax after reaching out to the government to ask how they might voluntarily pay taxes. Prime Minister Major said the queen would pay taxes in the same way as every other taxpayer, but a hereditary monarchy required a special arrangement for an inheritance tax.

In addition to becoming King, Charles inherits two properties that generate millions in income annually: the Duchy of Lancaster and the Duchy of Cornwall, which transfers from Charles to Prince William. These two portfolios stand apart from the queen’s personal fortune, estimated in the hundreds of millions of dollars.

The Duchy of Lancaster includes prime real estate in London, ten castles, vast farmlands and an airfield. The monarchy forcibly seized most of the land hundreds of years ago. The Duchy of Cornwall includes assets of about $1.2 billion, and $26.4 million in distributable surplus for the financial year ending March 31, 2022.

However, that’s not all. The Sovereign also receives millions annually through an annual grant from the Crown Estate, a massive property portfolio including much of Regent Street of London. It belongs to the reigning monarch but isn’t their private property.

The complex holdings and secrecy surrounding the monarchy’s wealth is complicated. Their identities and livelihoods are intertwined with official, state-supported roles.

At a time when England is facing an energy crisis, soaring food prices and challenges to the health care system, this kind of private wealth under the name of royalty is coming under scrutiny. With both a new king and a new prime minister, it will be interesting to see whether the new King will maintain the old ways or look towards the future.

Reference: National Public Radio (Sep. 15, 2022) “No, King Charles III won’t pay any inheritance tax on his massive gain”

Ask Mom if She has a Will

The family was baffled. Not only was the will out of date, but it was also unsigned and the person named as executor had died a decade before their mother died. Grandchildren born after the will was created were not mentioned and personal possessions left to some people in the will had been given away years ago.

This scenario, as described in the article “Mom, Do You Have a Will?” from Next Avenue, is not unusual because many older adults and their children are equally reticent to discuss death. It’s a hard topic to address, but without these conversations, how can you make sure the transition after they pass is smooth?

Who needs a will? Pretty much everyone does. If your parents don’t have a will, here are some talking points to remind them of why it matters:

• If you are part of a blended family, estate planning avoids either a full or partial disinheritance of a surviving spouse or their children.
• If there are minor children or adult children with special needs, a will is used to appoint guardians. With no will, the court makes decisions about who raises children or cares for a special needs individual.
• If yours is a fighting family (you know who you are), and if you want certain things to go to certain people, there needs to be an updated will.

Single people need a plan for their assets, especially if they are in a committed relationship but not married. Many state inheritance laws make no provision for a domestic partner. If a relationship is recognized before a loved one dies the remaining partner can access their right to property or benefits.

When someone dies without a will or a living trust, known as intestate succession, assets may be distributed according to rules set out in state law, which vary state to state and may not be what they would have wanted.

When asked if there is a will, some may say they are prepared. However, as in the example, this may or may not be true. Their will may be old, no longer relevant to their situation or may not have been signed.

Clarifying the status of an older adult’s will is important to a smoother transition of assets and needs to be addressed when they are of sound mind and able to make their own decision about their estates.

When preparing to have a discussion with someone who is active and healthy, the conversation is easier. Ask if they have a will and what their wishes are after they have passed. You can explain how these steps are essential to creating their legacy and protect their family from estate taxes and expensive court oversight.

When a person is seriously ill, this is admittedly a harder conversation. Acknowledge the difficulty and let them know they can stop the discussion if necessary. It may take more than a few conversations to get to everything. Discuss these issues with respect and empathy. Offer ideas and options and steer clear of any ultimatums.

Talk with an estate planning attorney who will explain what you need for your specific family. Find someone who focuses on estate planning and not six other areas of the law. They will have seen this situation before and will know how to manage both the law and the people. Find someone who doesn’t see this as a one-time fill-in-the blanks transaction, but as a relationship based on trust.

Reference: Next Avenue (Sep. 14, 2022) “Mom, Do You Have a Will?”

Can a Trust Be Created to Protect a Pet?

For one woman in the middle of preparing for a no-contest divorce, the idea of a pet trust was a novel one. She was estranged from her sister and didn’t want her ex-husband to gain custody of her seven horses, three cats and five dogs if she died or became incapacitated. Who would care for her beloved animals?

The solution, as described in the article “Create a Pet Estate Plan for Your Fur Family” from AARP, was to form a pet trust, a legally sanctioned arrangement providing for the care and maintenance of companion animals in the event of a person’s disability or death.

Creating a pet trust and establishing a long-term plan requires state-specific paperwork and funding mechanisms, which are different from leaving property and assets to human family members. An experienced estate planning attorney is needed to ensure that the protections in place will work.

Shelters nationally are seeing a big increase in animals being surrendered because of COVID or people who are simply not able to take care of their pets. Suddenly, a companion pet accustomed to being near its human owner 24/7 is left alone in a shelter cage.

When pet parents have not made plans for their pets, more often than not these pets end up in shelters. However, not all animal shelters are no-kill shelters. In 2021, data from Best Friends Animal Society shows an increase in the number of pets euthanized in shelters for the first time in five years.

For pet owners who can’t identify a caregiver for their companions, the best option may be to find an animal sanctuary or a shelter providing perpetual care.

The woman described above had a pet trust created and funded it with a long-term care and life insurance policy. The trust was designed with a board of three trustees to check and balance one another to determine how the money will be allocated and what will happen to her assets. Her horse property could be sold, or a long-term student or trainer could be brought in to run her barn.

It is not legally possible to leave money directly to an animal, so setting up a trust with one trustee or a board is the best way to ensure that care will be given until the animals themselves pass away.

The stand-alone pet trust (which is a living trust) exists from the moment it is created. A dedicated bank account may be set up in the name of the pet trust or it could be named as the beneficiary of a life insurance or retirement plan.

A pet trust can also be set up within a larger trust, like a drawer within a dresser. The trust won’t kick in until death. These plans prevent the type of delays typical with probate but is problematic if the person becomes incapacitated.

If a trust is created as part of another trust, there can still be delays in accessing the month, if the pet trust is getting money from the larger trust.

With costlier animals likes horses and exotic birds, any delay in funding could be catastrophic.

How long will your pet live? A parrot could live for 80 years, which would need an endowment to invest assets and earn income over decades. A long-living pet also needs a succession of caregivers, as a tortoise with a 150 year lifespan will outlive more than one caregiver.

Reference: AARP (Sep. 14, 2022) “Create a Pet Estate Plan for Your Fur Family”

Inflation Reduction Act Puts Prescription Drug Relief in Sight for Seniors

The goal for the Inflation Reduction Act of 2022 (IRA 2022) is to slow inflation, a great benefit to low-income seniors and those living on a fixed income, says a recent article titled “How the Inflation Reduction Act Impacts Retirees” from U.S. News & World Report. But there’s more for seniors.

The bill will help tackle health care costs for seniors, which have skyrocketed in recent years. So many of these provisions don’t go into effect for a few years, but something in the near future is better than nothing.

Other eventual benefits to seniors:

• Medicare may negotiate the prices on prescription drugs
• A cap on out-of-pocket costs for Medicare enrollees at $2,000
• A dramatic cost-reduction on co-pays for insulin for Medicare recipients
• No cost vaccines for Medicare Part D beneficiaries

Under current law, Medicare is banned from negotiating drug prices and is forced to pay market prices. When this law goes into effect, Medicare will be able to negotiate with the pharmaceutical companies and some drug prices should drop.

One caveat: the negotiated prices will be phased in over time. Pharmaceutical companies have a strong presence in Washington. Powerful lobbyists weren’t giving the store away. In 2026, Medicare may negotiate the price for the 10 most expensive drugs, in 2027, the 15 most expensive drugs and in 2029, the 20 most expensive drugs.

Some drugs have put severe cost pressures on Medicare Part D, so the government’s ability to negotiate prices will be impactful.

Rising health care and prescription prices are especially challenging to retirees living on a fixed income. Another big benefit of the new law is limiting the out-of-pocket responsibility to retirees for prescription drugs. However, it will be three years before this goes into effect, starting in 2025.

This aspect of the bill will be especially beneficial to Medicare Part D beneficiaries who take expensive drugs for cancer or multiple sclerosis. According to the Kaiser Family Foundation, an estimated 1.4 million Medicare Part D enrollees spend well over $2,000 in out-of-pocket costs for prescription drugs in 2020.

No-cost vaccines will be a boon to retirees, who will be able to get the shingles vaccine, the annual flu shot and other vaccines at no cost.

Enactment of the provisions is still several years away, but the future looks brighter for Medicare beneficiaries, a good thing in the face of inflation and rising costs for everything from apples to zucchini.

Reference: U.S. News & World Report (Sep. 15, 2022) “How the Inflation Reduction Act Impacts Retirees”

Patagonia Founder Chouinard Gives Company to Planet Earth

Talk about leaving a giant climate-conscious legacy—no billionaire is ever likely to top the recent move by Yvon Chouinard, founder of Patagonia, who has given his company to a non-profit organization and specifically developed trust to help combat climate change. In a recent article from People, the article titled “Patagonia Founder Gives Away the $3 Billion Company: ‘Earth Is Now Our Only Shareholder” reveals the thinking behind his succession plan.

Chouinard, 83, began his career as a craftsman, creating climbing gear for friends before entering the apparel industry with Patagonia. The company mission to prevent global warming and ecological destruction was expressed through the creation of eco-friendly clothing and an annual donation of 1% sales to like-minded non-profits. It earned B Corp certification and garnered California benefit corporation status.

One option for Chouinard was to sell Patagonia and donate all the money, Chouinard explained.   However, there were concerns about a new owner failing to maintain the core values or to keep the team of company employees around the world employed. Relationships with suppliers might have also been put at risk. The idea of going public would have been a disaster for the company and its mission.

Instead, Chouinard created a unique path for the company, which has always been how Patagonia has operated.

Instead of extracting value from nature and transforming it into wealth for investors, the wealth from Patagonia will be used to protect the source of all wealth—the earth.

The succession plan is a unique one. All the voting stock previously owned by the family has been transferred to the newly formed Patagonia Purpose Trust. The trust will ensure that the company’s visions and morals—to run sustainable businesses and give away profits—will continue.

Here’s one for the billionaires who like to crow about their generosity—Chouinard, his wife and two adult children will not receive any tax benefits. Instead, they will pay roughly $17.5 million in taxes for the gift. The family will operate the trust going forward.

All of the non-voting stock, which makes up 98% of the company’s worth, has been given to the Holdfast Collective, a non-profit dedicated to fighting the environmental crisis and defending nature.

There are lessons here for billionaires who wish to leave a true legacy of caring about their impact on people and the planet. However, there’s also a smaller lesson tucked into this story. Trusts work to achieve specific goals, whether they are $3 billion or $300,000.

Inspired by Chouinard’s example? Talk with your estate planning attorney today about how trusts might enhance your estate plan.

Reference: People (Sep. 14, 2022) “Patagonia Founder Gives Away the $3 Billion Company: ‘Earth Is Now Our Only Shareholder”