We Answer Some Frequently Asked Questions About Estate Planning
- Page 1
I am embarrassed about not having done my planning yet or my family situation. how sensitive is your firm to this problem?
We have many clients that have come to us later to start doing their planning. It is an easy thing to put off! In addition we have people with tough family dynamics or financial issues. We assure you, that we have seen it all and promise there is no judgment from anyone here at the firm.
Should I leave everything equally to my children?
Typically people feel they should leave everything equally to their children. While that is a personal decision, it is not required and sometimes not recommended. Sometimes it does not make sense if there is a child with a disability or a big age difference between kids.
Can I transfer out-of-state properties into my revocable living trust?
Yes, you can. You will need to take title or change title on out of state properties in the name of your trust to eliminate the need of opening a probate wherever your real properties are located.
Who Should Have a Revocable Living Trust?
Whether you are young or old, rich or poor married or single, if you owned titled assets such as a house and want your loved ones to avoid court interference at your death or incapacity, consider a revocable living trust. A trust allows you to bring all of your assets together under one plan.
What is a Durable Power of Attorney and when do I need one?
These allow you to appoint someone you know and trust to make your personal health care and financial decisions even when you cannot. If you are incapacitated without these legal documents, then you and your family will be involved in a probate proceeding known as a guardianship and conservatorship. This is the court proceeding where a judge determines who should make these decisions for you under the ongoing supervision of the court.
What are Beneficiary Designations?
You may avoid probate on the transfer of some assets at your death through the use of beneficiary designations. Laws regarding what assets may be transferred without probate (non-probate transfer laws) vary from state to state. Some common examples include life insurance death benefits and bank accounts.
What does Intestacy mean?
If you die without even a Will (intestate), the legislature of your state has already determined who will inherit your assets and when they will inherit them. You may not agree with the “default” plan your state has for you and your loved ones, but roughly 70 percent of Americans currently use it by default and not by design.
What is a Will?
Sometimes called an Advance Medical Directive, a living will allows you to state your wishes in advance regarding what types of medical life support measures you prefer to have, or have withheld/withdrawn if you are in a terminal condition (without reasonable hope of recovery) and cannot express your wishes yourself. Oftentimes a living will is executed along with a Durable Power of Attorney for Health care, which gives someone legal authority to make your health care decisions when you are unable to do so yourself.
What is Joint Tenancy with Rights of Survivorship?
(in some states "Tenancy by the Entirety" when between spouses)
This is the most common form of asset ownership between spouses. Joint tenancy (or TBE) has the advantage of avoiding probate at the death of the first spouse. However, the surviving spouse should not add the names of other relatives to their assets. Doing so may subject their assets to loss through the debts, bankruptcies, divorces and/or lawsuits of any additional joint tenants. Joint tenancy planning also may result in unnecessary death taxes on the estate of a married couple.
Advice on Wills: Should Each Child Get the Same?
*This article originally appeared on Investopedia.com. Laura K. Meier. Esq. was interviewed and contributed to this article.*
So when does it make sense to leave each of your children the same inheritance, and when does a different arrangement make more sense? And how might each choice affect sibling harmony and whether your wishes are carried out as you intended?
When to Do Equal Amounts
If there are three children, each will get one-third of the remaining estate after both parents have passed away.
“It makes sense for each child to get the same inheritance when each child has similar needs and is similarly situated in life, each child has received similar support in the past from their parents, and each child is mentally and emotionally capable and responsible,” says Laura K. Meier, an estate planning attorney in Newport Beach, Calif., and the author of “Good Parents Worry, Great Parents Plan – Wills, Trusts, and Estate Planning for Families of Young Children.”
For example, if your children have all completed college (with you paying their tuition) and no longer rely on you for financial assistance; if no child has a handicap or serious illness; and if all have demonstrated that they’re responsible with money, it’s logical to divide your assets evenly among them.
If your bequests include real estate and other tangible assets, you will need to determine the dollar value of each asset and figure what makes the most sense to leave to each child. Consider the common situation where children are scattered across the country. “If one child always loved the primary house in Connecticut and still lives nearby, it could make sense to bequeath it to him or her,” says Eric Meermann, a certified financial planner and portfolio manager with Palisades Hudson Financial Group in Scarsdale, NY. Another child, who lives in Florida, could inherit the beach house in Boca. “Any differences in the values of the properties could be made up in cash or other assets,” he says.
There are also less pleasant reasons to leave an equal inheritance, even if you feel one or more of your children don’t deserve it: Doing so can help avoid the costs of conflict, both emotional and financial. Merely from a litigation standpoint, the best way to decide is to weigh the likelihood of a child dragging an estate through litigation, says Philip Ruce, an estate planning attorney with Stone Arch Law Office in Minneapolis. A lawsuit “is financially and emotionally draining for your family and for your estate,” he says, and will “cause some of your assets to end up in a different place than you had hoped – in lawyers’ pockets.”
When to Do Different Amounts
Leaving each child an equal piece of the pie doesn’t always feel right. Perhaps one of your offspring is acting as your caregiver, and you want to reward him or her for that devotion or make compensation for lost time and wages, says Candice N. Aiston, an estate planning attorney with Aiston Law in Portland, Ore.
Or perhaps you’ve given one child considerably more money during your lifetime than you’ve given to another: say, $50,000 for a wedding, grad school or a down payment on a house. In this scenario, if you would otherwise leave your two children equal inheritances of $200,000 apiece, you would instead leave $175,000 to the child you previously gifted money to and $225,000 to the child you didn’t. This distribution follows the equitable, not equal guideline.
If you have a child who cannot care for him or herself, you may want to leave most of your estate to provide for that child’s care through a special needs trust, Aiston says. A disabled child may need income support to meet basic living expenses and funds to pay for ongoing medical needs. Siblings will likely understand such a situation and not be offended by receiving less money, but it’s still a good idea to let them know your plans, so there are no surprises after your death.
You might also decide to bequest disparate amounts when you have a blended family, and one child can expect to continue receiving support from another parent; when you run a family business and one child has a larger ownership share than another; or when one child is financially irresponsible, has an addiction you don’t want to support or otherwise doesn’t deserve or can’t be trusted with a windfall.
Aiston says the overall guideline should be promotion of family harmony. “It is unbelievable how many families fall apart after the parents die because of how the estate is divided up,” she says.
Could a Child Sue for More?
If you decide not to divide your assets equally among your children, understand that you’re putting your plans and your children at risk of going through a lawsuit. How significant is this risk, and how likely is it that the result will be a different division of assets than the one you desired?
“Children can always sue, but there generally needs to be a valid basis for a will contest,” says Jeffrey R. Gottlieb, an estate planning attorney in Palatine, Ill. With careful estate planning, however, you can mitigate any challenge. The first step is to draft your will with the assistance of an estate planning attorney, while you’re of sound mind and memory, and without undue influence from one of your children.
“Undue influence” means that one of your other children believes – or at least thinks it can be proved in court – that you were manipulated during the process of creating your will. As a result, that child contends, you expressed wishes that you otherwise wouldn’t have or that weren’t really what you wanted.You won’t be there to defend yourself against such a claim so you need to make sure no one can successfully argue it.
“Lack of capacity,” another way a will can be challenged, means that you didn’t understand what you were doing when you created or changed your will, perhaps because of your age or because a physical or mental illness had deteriorated your ability to make sound decisions. A child could also try to argue that your will isn’t valid because of fraud or because your signature wasn’t witnessed.
There are ways to minimize the chances of a less-favored child contesting your will in court, and ways to minimize their chances of winning if he or she does. “A no-contest clause paired with at least some nominal gift can create a disincentive to challenge,” Gottlieb says. The no-contest, or non-contestability clause, is, basically, language in your will stating that any inheritor who takes your will to court forfeits any bequests. That’s where the nominal gift comes in – for the clause to be effective, your child has to have something to lose. You’ll need to leave the less-favored child enough that he or she likely has more to gain by keeping quiet than by going to court.
It’s an unpalatable option, to be sure, but it might mean the best chance of keeping your will intact. The enforceability of these clauses varies by state, however, so check your state’s laws before considering this option.
Estate-planning experts say other ways to avoid challenges to your will include:
- using a trust to provide structure for a child who might not be able to manage an inheritance responsibly on his or her own
- having your doctor be a witness when you sign your will to invalidate claims of lack of capacity
- excluding all children from the will-writing process to invalidate claims of undue influence
- discussing your will with each child to avoid surprises and explain your reasoning
A lawsuit of this type is always most likely to end in a settlement, Ruce says. “That settlement will in some way vary your estate plan because funds will likely end up in a different place or with a different person than you had hoped.”
The Bottom Line
“The most important thing to remember when dividing up an inheritance is that it is your money, and you have a right to do with it what you choose,” Ruce says. That said, an equal inheritance makes the most sense when any gifts or financial support you’ve given your children throughout your life have been minimal or substantially equal, and when there isn’t a situation where one child has provided most of the custodial care for an aging parent.
“When there is actual or perceived inequality,” Ruce says, “the likelihood of someone looking for legal remedies increases substantially.” You have to decide how significant that risk is given your children’s temperaments and their relationships with each other, and whether any risk in leaving an unequal inheritance is worth what you’re trying to accomplish.
If you have questions about your will or trust, and how to best leave money to your children, we invite you to call your Newport Beach Family Trust Attorneys at 949.718.0420.
This article originally appeared on Investopedia.com and is authored by Amy Fontinelle.