May 21

Wait, Wait, I Can’t Die — I Don’t Have A Will Yet! (Part Two)

(This is the second installment in a two-part series discussing the use of simple wills.)

If you have ultimately decided that you want to have a will, your next step is to make an appointment with an estate planning attorney to help you design an estate plan that is suitable for your needs and circumstances.

But, before you reach for the phone to make that call, a little planning of your own will make the meeting more efficient (and probably less costly).

A Little More Conversation

Having a frank discussion with your spouse about your overall estate planning objectives is a good idea. Spouses needn’t be in agreement on everything because each spouse can make different provisions in his or her separate will. However, having some basic understanding and agreement on the major concepts will make the job easier for all concerned.

Some fundamental questions should be considered before meeting with an attorney:

1. What is your basic desire for the distribution of your estate? Most clients intend to benefit their children, if they have any, but you can also consider making bequests to friends, other family members, charitable gifts, or a combination of any of them.

2. If you have children, do you wish for them to share equally in your estate or do you have reasons to treat them differently? You have no obligation to treat your children equally, although, more often than not, that is how parents choose to treat their children (often from the fear of appearing to favor one child over another). Yet, some children may have greater needs than others, particularly if they are grown and you already have been able to develop some sense as to the career or financial path on which each child’s life seems to be taking them. One child could have medical issues where he needs a greater portion of your estate to pay for their medical expenses. Or, where there is a disparity in age between the eldest and youngest, you may wish to have more funds available to pay for the youngest child’s education.

3. If your children are not old enough to inherit your estate yet, do you have someone whom you would like to manage those monies for their benefit until they are old enough to receive them? (Monies can be set aside in a trust or in a custodianship until the children reach an age where they can be responsible enough to manage their own money. Or, if not placed in a trust or custodianship, a guardian of the child’s estate can be appointed by the court to manage the inheritance until the child becomes an adult. Trusts, custodianships and guardianships are outside the scope of this post and will have to be the subject of a future article.) In any case, you will need to select someone who can manage those funds until the child(ren) is/are older. That person can be another family member, a friend, or a professional fiduciary.

4. If your children are adults with children of their own, do you wish to benefit your grandchildren with direct gifts to them? Or do you prefer to leave your estate to your children and allow them to make the decisions about how to benefit your grandchildren? The former approach makes certain that the grandchildren receive a specific gift whereas the latter approach builds in greater flexibility for your children, yet is reliant upon your children passing along some of their own inheritance to your grandchildren.

5. If you want to benefit a charity with some or all of your assets, which charitable organization do you wish to benefit with that gift? Is your gift-giving faith based? Is it designed to fund medical research or some other work that will improve the world for future generations? Do you want to benefit a national charity, or do you prefer to be charitable closer to home in your own community? There are no right or wrong answers as most any charity would stand to benefit from a cash bequest. But, in selecting a charity, choose the one whose programs and ideals are most consistent with your own.

Just What Do You Own?

It is easy to think that, if asked, you can quickly list out all of the assets that you own. But, after a meeting with your attorney in which many new concepts may have been introduced to you, it can be easy to overlook an asset or two. So, while you have some free time before your meeting, pencil out a list of all of your assets. Be sure to include all real estate, any securities or other investments, any partnership or limited liability company interests, any business(es) which you may own, any promissory notes or other debts owed to you, bank accounts, cars, valuable antiques and jewelry, and cash.

It is important for the attorney to gain an understanding of the net value of your estate to determine what type of estate plan will be best suited for your needs. With the “fiscal cliff deal” reached between Congress, in 2013, each person can now transfer a combined total of $5.25 million during their lifetime (by gift) and at death. Therefore, knowing the amount of the equity (fair market value less any debt) in each of your assets will assist the attorney in assessing whether your estate needs a more sophisticated plan to avoid estate taxes, or, because your estate is small enough that it is unlikely to be taxed at your death, your estate’s gift-giving plan can be designed without any regard to taxes.

Be Well Represented

If your estate plan does not utilize a trust, it is quite possible that your estate will need to be probated. In the probate process, an individual (known as the “personal representative” or “executor”) is charged with the responsibility of managing that process. You should give thought to whom you would select for that task. Many clients nominate one of their children, but it can also be a trusted friend, or a professional fiduciary. Whomever you select, it should be someone who has reasonable arithmetic skills and who is accustomed to (or at least not intimidated by) working with an attorney.

If you have minor children, you should give thought to whom to nominate to serve as their guardian should you die before they become adults. There should be a guardian of their person and a guardian of their estate. The guardian of their person will most likely be the person with whom the children will live, while the guardian of their estate would be the person charged with managing their finances while they remain a minor. These positions can be filled by the same individual, or you can nominate different persons to serve in each capacity.

Burial Plans

You will assist your family by clearly stating any preferences which you may have regarding your desires for the disposition of your remains upon death. If you would like to be cremated, that should be stated in your will, along with any special instructions as to what you would like done with your ashes. If you have any prepaid burial arrangements, you should provide a copy of the contract to the lawyer.

What To Take With You To The Appointment

You will expedite the process of preparing your estate planning documents if you take the documents describing your assets to the initial meeting with your attorney. He or she will need to see how the assets are currently titled and verify the values of any financial assets. So, be certain to take copies of documents such as deeds and appraisals to any real property, the most recent mortgage statement showing the amount of the outstanding debt, the trust deeds securing that debt, the most recent statement for any brokerage, money market, or bank accounts, copies of any promissory notes owed to you and any trust deeds which might secure the notes, copies of any partnership agreements or limited liability company operating agreements, leases, and automobile certificates of title (“pink slips”). If you have any other loans, be certain to take the note or other loan documents.

Where There’s A Will

If you are still a part of the 55% of Americans who don’t have a will, and you are tired of waking up during the night and worrying about what kind of mess you will leave behind for your family if you die without one, take that simple step of contacting an attorney to have one prepared for you.

Having a will professionally prepared is generally not a terribly difficult process. If your attorney advises that you use a simple will, the cost will also be surprisingly affordable. Incorporating trusts and other more sophisticated forms of estate planning can increase the cost, but they can also make the lives of your loved ones much easier after you are gone, and they can often save your estate from substantial estate taxes or probate costs.

Please feel free to give us a call if we can assist you in completing this important estate planning process.

May 14

Wait, Wait, I Can’t Die — I Don’t Have A Will Yet! (Part One)

This is the first of a two-part series on the use of wills.

Have you awakened during the night and worried about the fact that you don’t have a will yet? If so, you are not alone. A study conducted a few years ago found that 55% of all adult Americans do not have a will. Apparently, misery still loves company.

Do I Really Need A Will?

Why do you even need to have a will? Contrary to what many people believe — that, if you don’t have a will, your property will automatically be transferred (“escheat”) at your death to the State (what sounds like it would probably be a good idea right now to help balance California’s upside down budget) — in most cases, your property will simply be transferred to your family members. But, it may not be the family members that you want to benefit from your property. Or it may not be in the percentages that you desire. Or maybe you don’t want everyone in your family to share in your estate, preferring instead to leave it to one or two special family members.

What Is A Will?

A will is simply a legally enforceable directive that you create which states how your property is to be distributed at the time of your death. You can specify that family members or friends will benefit from your property at your death. Or, you can forego giving anything to family or friends and give all of your estate to your church, the ASPCA (American Society for the Prevention of Cruelty to Animals), or some other charitable organization.

In your will, you can create a laundry list of specific bequests by which you parse out every pot and pan, or other piece of personal property, to a lengthy list of recipients. Or you can simply state that you leave your entire estate to one or more individuals. Or any combination of these two types of bequests. The types of provisions to bequeath your property are only limited by your imagination.

And a will can be more than merely a directive for the distribution of your property at death. It can be used to nominate someone to serve as the guardian of your underage children in the event that you should die before your children become adults. Or it can be used to state whether you want special burial arrangements or, perhaps, that you wish to be cremated.

A Perhaps Ill-Advised Use of Your Will

A will can even be used to diss that family member that you never had the courage to tell off during your lifetime. Really! Most good lawyers will usually discourage a client from using a will to do that, but it can certainly be done. Imagine something like this: “I intentionally fail to make any provision for my daughter, Lucy, for the reason that she has completely ignored me since she completed her college studies at my expense. So, Lucy, while your brother and sister each enjoy their millions of dollars in inheritance, think about all of the times that you could have visited me in the nursing home, but didn’t do so.”

A standard disinheritance clause does the same thing yet doesn’t make you look quite so petty after your death.

Can My Spouse And I Save Money and Create a Joint Will?

I can’t recall a single occasion in which I have recommended to a married couple that they create a joint will. I think that most of my professional colleagues would usually agree. Doing so can raise the suggestion that there was a contract made between the spouses to make specific reciprocal provisions in their wills which can lead to litigation if one spouse decides to later create a separate will with different provisions that don’t benefit the other spouse.

Separate wills also permit spouses to address the different issues or circumstances that they may each have, such as dealing with children from a prior marriage, or the distribution of a spouse’s separate property.

And simple wills are usually sufficiently inexpensive that there isn’t much of a cost savings if a couple were to create a joint will.

Who Handles Your Probate?

If you use a simple will to provide for the distribution of your estate, chances are good that your will will have to be probated. (The advantages of avoiding probate, and how to do it, will have to be the subject of a future article.) In your will, you can nominate the person whom you would like to manage the probate administration process on your behalf. That person is called an “executor”, or a “personal representative”. You can nominate your child, another family member, a friend, or, if you have a sizeable estate, you can nominate the trust department of your bank. And, if you fail to nominate anyone, the probate court can appoint anyone who seeks the appointment, or even the local county’s Public Administrator.

Do I Really Need An Attorney to Prepare My Will?

Does an attorney have to prepare my will? In a word, “no.” But, I also don’t recommend that you extract a decayed tooth by yourself or that you stitch up a deep wound on your own. Sometimes, it makes sense to consult with a professional and have him or her do the work for you.

Many stationery stores sell a preprinted will in which you fill in the blanks. Or you can buy a package of legal documents from one of O.J. Simpson’s criminal defense attorneys who advertises them on television. However, in California, if a will is not formally witnessed, there are strict rules about mixing handwritten provisions with preprinted language in a will. Is it worth it to risk having your will later be determined to be invalid just to save a few hundred dollars? Such a result would completely frustrate your testamentary intentions.

And an experienced estate planner will most likely provide you with options that you didn’t even know were available to you. In most cases, a professional will earn their keep.

Most everyone will benefit from having a will. They tend to discourage arguments between family members after you are gone and they make certain that your property will be given to just the right person(s) upon your death. Simple wills are usually very modestly priced (as compared with more sophisticated forms of estate plans). Do your family a favor and make an appointment today with an experienced estate planning attorney to discuss creating a personalized estate plan.

In the next installment, we will examine what types of issues you will need to consider before you pay a visit to your estate planning attorney to prepare your will.

March 19

Two Heads Are Not Always Better Than One

In my estate planning practice, I have frequently had clients who wanted to designate one of their children to serve as their fiduciary, but were afraid that they would hurt the feelings of the other child or children who weren’t nominated. For example, in the instance of a living trust, the clients would want to name one child as successor trustee, but were afraid that, in doing so, they would create the appearance of favoring that one child and thought that that might create dissension among their children after their deaths.

Often, such clients will ask to nominate several or all of their children as co-trustees. Almost invariably, I discourage them from doing that. While I also don’t wish to see any distrust or dissension among siblings after the parents are gone, there are problems that creating co-trustees or other co-fiduciaries can create.

Inconvenience

Often, when dealing with a bank, or while undertaking some other financial transaction or sale of real property on behalf of the trust, the bank or escrow will want to have all of the trustees sign the transaction documents. Where the children who are co-trustees live in different states, this can lead to delays and inconvenience in having to circulate the documents among all of the children for their signatures.

Confusion and Possible Litigation

More importantly, however, having co-trustees can lead to confusion. For example, when dealing with third parties, those third parties can never be sure if they need only deal with one of the co-fiduciaries, or if they need to have both of their agreement. And where two co-trustees cannot agree on whether to take a proposed course of action, that may lead to litigation in the probate court to try to obtain court approval for the intended action, or to prevent the other trustee from taking the proposed action.

Liability for a Co-Fiduciary’s Fraudulent Conduct

Worse yet, the breach of fiduciary duties by one of the trustees can be imputed under some circumstances to the other trustee, which can create serious legal consequences for the innocent trustee.

I am familiar with a current probate administration in Southern California where the decedents named two of their children to be co-executors. During the course of the estate’s administration, the daughter, who worked for some accountants and was thought to have greater financial experience, handled most of the estate’s affairs while the son stood back and allowed her to do so. Unfortunately for the son, however, during the months that the estate’s administration was being handled by the daughter, and unbeknownst to the son, the daughter misappropriated substantial amounts of money from the probate estate’s accounts. Many creditors, including taxing agencies, were not being paid. Moreover, in the midst of the estate’s administration, the daughter quit her position as co-executor and moved to a distant location. She refused to communicate with her brother to transmit to him even simple documents about the estate’s financial condition.

At the time that the son was required to report to the court on the financial condition of the estate, he had to disclose that his sister had misappropriated the estate’s monies. The court then surcharged both the sister and the brother over $140,000, which requires them to repay the estate the stolen funds so that the creditors can be paid off and to permit a distribution of the remaining assets to the other beneficiaries. Applying California Probate Code Section 9631(b)(2), the court reasoned that the brother had improperly delegated the administration of the estate to his co-executor sister. The court didn’t care that the brother had received none of the monies misappropriated from the estate by his sister. They were both liable as co-executors.

I surmise that the court’s decision in that case has now created some real dissension between these siblings, something that the parents probably wanted to avoid and what they could never have conceived with their decision to make their children co-executors.

What Parents Should Do

So, what should parents of multiple children do in nominating an executor or trustee in their estate plan? They should select the child that they believe will do the best job in serving as the fiduciary, whether as an executor or as a trustee. A fiduciary needn’t have any special fiduciary training; however, I do recommend to my clients that they consider naming the child who is most accustomed to working under rules and regulations, or the child who is accustomed to maintaining books of account in their professional or personal life. And, if there is any question about a child’s honesty or integrity, or if a child is having serious financial troubles of his own, then that child should usually always be avoided.

And, then the parents should talk with their children and tell their children that they have made a decision to select the one child as the fiduciary and to give that child their vote of confidence to the other children. If the parents truly believe that naming one child as the fiduciary will create dissension with the other siblings, then the parents should consider naming another family member or a friend. Or perhaps their trusted accountant. Or they can name a private professional fiduciary or a bank’s trust department as the fiduciary.

While the parents’ concerns about maintaining sibling harmony after their own deaths is admirable, those parents should consider other alternatives instead of naming two or more of their children co-fiduciaries because that can be a recipe for a real disaster.