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What Does Pandemic Estate Planning Look Like?

In the pandemic, it’s a good idea to know your affairs are in order. If you already have an estate plan, it may be time to review it with an experienced estate planning attorney, especially if your family’s had a marriage, divorce, remarriage, new children or grandchildren, or other changes in personal or financial circumstances. The Pointe Vedra Recorder’s article entitled “Estate planning during a pandemic: steps to take” explains some of the most commonly used documents in an estate plan:

Will. This basic estate planning document is what you use to state how you want your assets to be distributed after your death. You name an executor to coordinate the distribution and name a guardian to take care of minor children.

Financial power of attorney: This legal document allows you to name an agent with the authority to conduct your financial affairs, if you’re unable. You let them pay your bills, write checks, make deposits and sell or purchase assets.

Living trust: This lets you leave assets to your heirs, without going the probate process. A living trust also gives you considerable flexibility in dispersing your estate. You can instruct your trustee to pass your assets to your beneficiaries immediately upon your death or set up more elaborate directions to distribute the assets over time and in amounts you specify.

Health care proxy: This is also called a health care power of attorney. It is a legal document that designates an individual to act for you, if you become incapacitated. Similar to the financial power of attorney, your agent has the power to speak with your doctors, manage your medical care and make medical decisions for you, if you can’t.

Living will: This is also known as an advance health care directive. It provides information about the types of end-of-life treatment you do or don’t want, if you become terminally ill or permanently unconscious.

These are the basics. However, there may be other things to look at, based on your specific circumstances. Consult with an experienced estate planning attorney about tax issues, titling property correctly and a host of other things that may need to be addressed to take care of your family. Pandemic estate planning may sound morbid in these tough times, but it’s a good time to get this accomplished.

Reference: Pointe Vedra (Beach, FL) Recorder (July 16, 2020) “Estate planning during a pandemic: steps to take”

 

Prince - Purple Rain

How Does the Death of Prince’s Brother Impact the Late Rock Star’s Estate?

Alfred Jackson was one of six of Prince’s siblings who were heirs to their brother’s fortune worth at least $100 million. But they sold 90% of his estate rights last year to Primary Wave, a well-funded and growing entertainment company that invests in music publishing and recording rights. Prince’s sister Tyka Nelson also struck a deal with Primary Wave, and was given cash up front as the estate proceedings drag on.

The StarTribune’s recent article entitled “Death of Prince heir complicates estate settlement even more” reports that because of these moves, about a third of Prince’s assets could wind up being controlled by parties who were not related to him—which adds to the tough job of settling the late rock star’s estate.

Just a few hours after signing with Primary Wave in August of 2019, the sixty-six-year-old Jackson succumbed to heart disease, while at his home in Kansas City. However, unlike Prince, he had signed a will. Jackson did not have a wife or children. However, in another twist, rather than leaving his estate to his siblings, he bequeathed all his assets to a friend, Raffles Van Exel, who claims to be an entertainment consultant. However, he’s best known for hanging out with Whitney Houston in her final days, as well as Michael Jackson’s family. Exel was also a creative force behind O.J. Simpson’s notorious “If I Did It” book project.

Primary Wave’s deal with Jackson is being reviewed by his own family, at least his siblings who aren’t related to Prince. They aim to contest his will.

Prince’s accidental death by fentanyl in 2016 created one of the largest and most complicated probate court proceedings in Minnesota history. That’s because the rock star failed to draft a will. The value of his estate is somewhere between $100 million to $300 million estate and is comprised of potential music royalties.

Prince’s heirs are unable to get their money from his estate until it is settled. Because the probate proceedings are dragging on, Primary Wave offered Prince’s heirs the chance to raise cash by selling their estate rights. These heirs are all approaching 60. Jackson wanted to enjoy life now, rather than wait for the process to be finalized. The siblings, by that time, may be too old, sick or dead to enjoy their inheritance.

Primary Wave tried to get at least three of Prince’s siblings — Sharon, Norrine, and John Nelson, to sell their estate rights. However, the three refused and said in a recent court filing that they are concerned that Primary Wave will use its deep pockets to their detriment. The company’s involvement would only lead to more delays and tensions, the siblings said in a letter directly to the probate judge. With the case draining their “limited resources,” the three explained that they are unable to pay legal counsel in this case and are representing themselves.

The terms of Primary Wave’s deals with Tyka Nelson and Alfred Jackson are private. However, the company has been asserting its rights in Prince’s probate case. A 2019 court filing said that the company says it “stands in the shoes” of the two heirs.

Reference: StarTribune (February 22, 2020) “Death of Prince heir complicates estate settlement even more”

Key Terms: Estate Planning Lawyer, Wills, Intestacy, Probate Court, Inheritance, Asset Protection, Will Contest, Probate Attorney

Probate Court

Be Aware of Probate

Probate is the legal process that happens after a person dies. The court accepts the deceased’s last will, and then the executor can carry out the instructions for the deceased’s estate. However, first he or she must pay any debts and sell assets before distributing any remaining property to the heirs.

If the deceased doesn’t have a will, the probate court will appoint an administrator to manage the probate process, and the court will supervise the process. The Million Acres article entitled asks, “Probate Explained: What Is Probate, and How Does It Work?”

When the will is proven to be legal, the probate judge will grant the executor legal rights to carry out the instructions in the will.

When there’s no will, the probate process can be complicated, because there’s no paper trail that shows what assets belong to what heirs. Tracking down heirs can also be challenging, especially if there’s no surviving spouse and the next of kin is located in a different state or outside the U.S.

Many executors will partner with a probate attorney to help them through the probate process, as well as to assist in filing the required paperwork, notifying creditors, filing taxes and distributing assets. The deceased’s assets must first be located and then formally appraised to determine their value.  Creditors must also be notified after death within a specified period of time.

After the creditors, taxes and fees have been paid on behalf of the estate, any leftover money or assets are distributed to the heirs.

The probate process can be lengthy. Things that can lengthen the process include the state when the deceased was a resident, whether there is a will and whether it is contested by the heirs. The more detailed the will, the simpler the probate process.

The probate process can be expensive, because of court filing fees, creditor notice fees, appraisal fees, tax preparation and filing fees and attorney fees. All of these fees are subtracted from the proceeds of the estate.

Estate planning with a qualified estate planning or elder law attorney involves taking the proper actions to avoid probate. This can reduce the burden for the surviving heir(s) and reduce costs, fees and taxes. Ask your attorney about some of the steps you can take before death to avoid probate.

Reference: Million Acres (Jan. 17, 2020) “Probate Explained: What Is Probate, and How Does It Work?”

Suggested Key Terms: Probate Court, Elder Law Attorney, Estate Planning Attorney, Probate Attorney, Will, Executor, Personal Representative

Credit Card Debts after Death

Does My Mom Have to Pay My Dad’s Credit Card Debt after He Dies?

When a family is grieving after the death of a loved one, the last thing any of them wants to deal with is unpaid debts and debt collectors.

nj.com’s recent article asks “Is mom liable for my dead father’s credit card debt?” The answer: generally, any unpaid debts are paid from the deceased person’s estate.

In many states, family members, including the surviving spouse, typically aren’t required to pay the debts from their own assets, unless they co-signed on the account or loan.

All the stuff that a person owns at the time of death, including everything from money in the bank to their possessions to debts they owe, is called an estate. When the deceased person has debt, the executor of the estate will go through the probate process.

During the probate process, all the deceased’s debts are paid off from the estate’s assets. Some assets—like retirement accounts, IRAs and life insurance proceeds—aren’t included in the probate process. As a result, these accounts may not be available to pay creditors. Other assets can be sold to pay off outstanding debts.

A relative or the estate executor will typically notify any lenders, like credit card companies, when that person passes away. The credit card company will then contact the executor about any balances due. Note: the creditor can’t add any additional fees, while the estate is being settled.

If there’s not enough money in the estate to cover credit card balances, the card issuer may have no recourse. The executor and the heirs aren’t responsible for these debts. Unlike some debts, like a mortgage or a car loan, most credit card debt isn’t secured. Therefore, the credit card company may need to write off that debt as a loss.

You should start learning about the probate process in your state to have the best defense for dealing with creditors and debt collectors.

If you need help, talk to an experienced estate planning attorney.

Reference: nj.com (Jan. 15, 2020) “Is mom liable for my dead father’s credit card debt?”

Suggested Key Terms: Estate Planning Lawyer, Wills, Probate Court, Inheritance, Executor, IRA, 401(k), Pension, Life Insurance

Revocable Living Trust

Avoiding Probate with a Trust

Privacy is just one of the benefits of having a trust created as part of an estate plan. That’s because assets that are placed in a trust are no longer in the person’s name, and as a result do not need to go through probate when the person dies. An article from The Daily Sentinel asks, “When is a trust worth the cost and effort?” The article explains why a trust can be so advantageous, even when the assets are not necessarily large.

Let’s say a person owns a piece of property. They can put the property in a trust, by signing a deed that will transfer the title to the trust. That property is now owned by the trust and can only be transferred when the trustee signs a deed. Because the trust is the owner of the property, there’s no need to involve probate or the court when the original owner dies.

Establishing a trust is even more useful for those who own property in more than one state. If you own property in a state, the property must go through probate to be distributed from your estate to another person’s ownership. Therefore, if you own property in three states, your executor will need to manage three probate processes.

Privacy is often a problem when estates pass from one generation to the next. In most states, heirs and family members must be notified that you have died and that your estate is being probated. The probate process often requires the executor, or personal representative, to create a list of assets that are shared with certain family members. When the will is probated, that information is available to the public through the courts.

Family members who were not included in the will but were close enough kin to be notified of your death and your assets, may not respond well to being left out. This can create problems for the executor and heirs.

Having greater control over how and when assets are distributed is another benefit of using a trust rather than a will. Not all young adults are prepared or capable of managing large inheritances. With a trust, the inheritance can be distributed in portions: a third at age 28, a third at age 38, and a fourth at age 45, for instance. This kind of control is not always necessary, but when it is, a trust can provide the comfort of knowing that your children are less likely to be irresponsible about an inheritance.

There are other circumstances when a trust is necessary. If the family includes a member who has special needs and is receiving government benefits, an inheritance could make them ineligible for those benefits. In this circumstance, a special needs trust is created to serve their needs.

Another type of trust growing in popularity is the pet trust. Check with a local estate planning lawyer to learn if your state allows this type of trust. A pet trust allows you to set aside a certain amount of money that is only to be used for your pet’s care, by a person you name to be their caretaker. In many instances, any money left in the trust after the pet passes can be donated to a charitable organization, usually one that cares for animals.

Finally, trusts can be drafted that are permanent, or “irrevocable,” or that can be changed by the person who wants to create it, a “revocable” trust. Once an irrevocable trust is created, it cannot be changed. Trusts should be created with the help of an experienced trusts and estate planning attorney, who will know how to create the trust and what type of trust will best suit your needs.

Reference: The Daily Sentinel (Jan. 23, 2020) “When is a trust worth the cost and effort?”

Key Terms: Trust, Estate Planning Lawyer, Probate, Irrevocable, Revocable, Pet Trust, Special Needs Trust, Heirs, Beneficiaries, Estate Plan

Adding a child to the title on your home

Can I Add an Adult Daughter to the Title of a Home?

It’s surprising that the lender wouldn’t allow this 77-year-old widowed woman to add her daughter to the title of her your home, says The Ledger’s recent article “Leaving your home to a family member? Consider these options.” Typically, the mortgage lender likes to make sure that the borrower on the loan is the same as the owners on the title to the property. However, if a senior wanted to add her daughter, it’s not uncommon for a lender to allow a non-borrower spouse or child to be on the title but not on the loan. When the lender permits this, all the loan documents are signed by the borrower and a few documents would also be signed by the non-borrowing owner of the home.

In this situation where the mother closed on the loan, and the lender refused to put the daughter on the title to the home, there are a few options. One option is to do nothing but be certain sure that there’s a valid will in place with instructions that the home is to go to the daughter. When the mother passes away, the daughter would have to wait while the will is probated, then transfer the title to her name or sell the place. The probate process will increase some costs and can be a little stressful, especially if someone is grieving the loss of a family member.

A second option is for the mother to create a living trust and transfer the title of the home to the trust—she would be the owner and trustee. The mother would name her daughter as the successor beneficiary and trustee of the trust. Upon the mother’s death, the daughter would assume the role of trustee.

The next option is a transfer on death (or “TOD”) instrument. Some real estate professionals don’t like to use this document. It may not be acceptable depending on state law, but the TOD would allow the mother to record a document now that would state that upon her death the home would go to her daughter.

Finally, the mother could transfer ownership of the home to her daughter and herself with a quitclaim deed to hold the home as joint tenants with rights of survivorship. Upon mother’s death, the home would automatically become the daughter’s home. However, this type of transfer of the home might trigger the lender’s “due on sale” requirement in the mortgage. Thus, if the lender wanted to be a stickler, they could argue that the mother violated the terms of that loan and is in default.

It is also worth mentioning that there may be tax consequences for the daughter. If the mother goes with the last option and puts her daughter on the title to the property, she’s in effect gifting her half of the value of the home. This may cause tax issues in the future, because the daughter will forfeit her ability to get a stepped-up basis. However, if the daughter gets title to the home through a will, the living trust or the transfer on death instrument, she’ll inherit the home at the home’s value at or around the time of the mother’s death (the stepped-up basis). You should work with an experienced estate planning attorney to get the best advice.

Reference: The Ledger (Jan. 11, 2020) “Leaving your home to a family member? Consider these options”

Suggested Key Terms: Estate Planning Lawyer, Wills, Probate Court, Inheritance, Trustee, Revocable Living Trust, Probate Attorney, Tax Planning, Joint Tenancy with Right of Survivorship, Transfer on Death (TOD)

Inheriting a House

Inheriting a House? What You Need to Know

There are choices when someone inherits a house. However, they depend on several factors. Are there other siblings who also have inherited portions of the ownership of the house? Is there another owner who needs to be bought out? Can the heir afford to take on the responsibilities and expenses of a home? These are all questions presented in the article “What to do when inheriting a house” from The Mercury.

There’s a tax issue to consider, for starters. Property that was titled in the name of the decedent at the time of death and then inherited, receives what is called a “step-up” in basis. This means that there is no federal tax due on the appreciation in value from the time the person purchased the home to the time that the person died.

Let’s say the person bought the home for $100,000 and it’s now worth $300,000. The federal government will not tax the $200,000 difference between the original value and the DOD (Day of Death) value of the home. If the heir obtains an appraisal shortly after the death of the home owner and then moves in or if you already live there and the house is transferred into your name, the “clock” starts running again for another tax break, which is an additional $250,000 exclusion from capital gains on resale after you have lived there for two years.

This all assumes that any other beneficiaries have been satisfied as to the ownership of the house. A good elder law estate attorney will be able to help with the details, including the transfer of title.

Another issue: is there a mortgage on the house? If so, the new owner may need to satisfy the lender and refinance. If the heir has enough money to meet monthly payments, a strong credit rating to be able to get a mortgage and enough income to maintain the home, then it should be a relatively simple transaction.

Have the home inspected before moving in. Is the house in good shape? If repairs need to be done, are they budget-friendly, or will they make the inheritance too expensive to be financially viable?

Property maintenance is another consideration. If the estate can carry costs associated with the property until the property is sold and if the estate can pay for repairs, upgrades and maintenance so the house can be sold for a good price, then that is a reasonable approach to take. If there are other beneficiaries, they should all part of a discussion about how much money is worth investing in the house and what the return on investment will be.

Finally, if the language of the will says “equally to my three children” or language similar to that and one sibling wants to buy out the other two, then an agreement on the value of the house and a plan for working out timing of the sale will need to be created. An estate planning elder law attorney will be able to help create a family settlement agreement that will include an informal accounting, whereby all of the heirs receive their fair share of the inheritance and all sign off that they have agreed to the transaction.

Reference: The Mercury (Jan. 15, 2020) “What to do when inheriting a house”

Suggested Key Terms: Inheritance, Step-Up in Basis, Family Settlement Agreement, Estate Planning Attorney, Elder Lawyer, Mortgage, Valuation, Appraisal

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