Richmond Virginia Estate Planning, Elder Law, And Asset Protection

Estate Planning Meeting

Why Do I Need a Will?

Estate planning attorneys aren’t the only professionals to advise anyone who is a legal adult and of sound mind to have a will. Financial advisors, CPAs and other professional advisors recognize that without a will, a person places themselves and their family in an unnecessarily difficult position. A recent article titled “One document everyone should have” from the Aiken Standard explains why this document is so important and what else is needed for an estate plan. A will is a “testamentary” document, meaning it becomes operative, only when the person who makes the will (the “testator”) dies.

The process of probate can only begin upon death. Each county or jurisdiction has a probate court — in Virginia, it is the Circuit Court –where the estate assets of deceased individuals are administrated. On the date a person dies, those assets must be identified. Some assets must be used to pay debts, if there are any, and the balance is distributed either according to the directions in the will or, if there is no will or the will has been deemed to be invalid, according to the laws of the state.

All this assumes, by the way, that the decedent did not arrange for his or her assets to pass without probate, by various non-probate transfer methods. For example, there is no probate required, if there is a surviving joint owner or designated beneficiary. One of the best ways to avoind probate is with a fully-funded living trust.

When there is no will and assets are subject to probate, then such assets are passed by intestacy, which usually means they are distributed along the lines of kinship. This may not always be the desired outcome, but with no will, the law controls asset distribution.

Why is a will important?

  • It allows you to leave specific property to specific loved ones, friends, or charities.
  • It may be used to provide funeral and burial instructions, although they can also be provided in a different document, so they are available to family or friends immediately.
  • A will can direct how you want assets to be used to pay debts, any taxes and payment of estate administration expenses, which include the cost of probate, legal fees and executor fees.
  • A will can be used to minimize estate taxes, which may be levied not just by the federal government but also by the state.
  • The will names the estate’s executor and the extent of his or her powers.
  • If there are minor children, the will is used to name a guardian to raise the children.
  • If you would like to disinherit any relative, the will provides the means to doing so.

Everyone needs a will, regardless of how large or small their personal assets may be. Every adult should also have an estate plan that includes other important documents, like a Power of Attorney to name another individual to act on your behalf, if you are unable to do so because of an injury or illness. A Healthcare Directive including a Living Will are also important, so those who love you can follow your end of life care wishes.

Reference: Aiken Standard (March 13,2021) “One document everyone should have”

 

will signing

What Does ‘Per Stirpes’ in a Will Mean?

Let’s say you had six brothers and sisters. All of your siblings were beneficiaries and were still living at the time your Dad’s will was made. However, three of your brothers died before your father passed away. Who gets the money?

In that case, would the children of the deceased siblings be entitled to their fathers’ shares of their grandfather’s estate? It depends.

What if that wasn’t what the father intended when he wrote the will. Instead, the money was to be divided equally between his remaining living children. Who’s right?

Nj.com’s recent article entitled “My father died. Who will get the share meant for a dead beneficiary?” says that it really depends on how the will was written by the deceased, who’s also known as the testator.

A will may state, “I give, devise, and bequeath my residuary estate to those of my children who survive me, in equal shares, and the descendants of a deceased child of mine, to take their parent’s share per stirpes.”

Per stirpes in a will means that the share of a deceased child will pass to the children of that deceased child in equal shares, if any. However, if nothing is stated in the will, then every state has law that interprets a lapse of a will provision. These are known as “anti-lapse” statutes.

The rule of lapse in Virginia provides that a distribution in a will fails for lack of a “taker” – that is, if the person who’s supposed to get the distribution — has died. But our “anti-lapse” statute provides that *the “lapse” doesn’t happen if the person who was supposed inherit was the grandparent, or the descendant of the grandparent, of the one who died. It goes instead that that person’s descendants.

If you are a resident of Arizona, that state’s anti-lapse statute applies, if a beneficiary under your will predeceases you. The anti-lapse statute would apply if the predeceasing beneficiary were your grandparent, a descendant of your grandparent, or your stepchild, who have at least one child who survives you. Therefore, if the anti-lapse statute were to apply, the child who survives you would effectively take your beneficiary’s place, and inherit the gift instead of the beneficiary.

Rather than wonder, wouldn’t it best to have all that spelled out correctly in your will or trust?  Talk to an experienced estate planning attorney if you have questions about wills and per stirpes designations. Otherwise, it is a family squabble waiting to happen.

Reference: nj.com (March 25, 2021) “My father died. Who will get the share meant for a dead beneficiary?”

 

Estate Planning Lessons from Celebrity Nightmares

Another celebrity messes up his estate plan. The dispute over Larry King’s estate will shine a harsh spotlight on what happens when an elderly person makes major changes late in life to his or her estate plan, especially when the person has become physically weakened and possibly mentally affected, due to aging and illness. A recent article from The National Law Journal, “Larry King Will Contest—Key Takeaways,” examines lessons to be learned from the Larry King will contest.

A handwritten will is most likely to be probated. King’s handwritten will was witnessed by two individuals and may rise to the standards of California’s rules for probate. California was likely King’s residence at the time of his death. However, even if King’s won’t satisfy one section of California estate law referring to probate, it appears to satisfy another addressing requirements for a holographic will.

Holographic will requirements vary from state to state, but it is generally a will that is handwritten by the testator and may or may not need to be witnessed.

The battle over the will is just a starting point. Most of King’s assets were in funded revocable trusts and will be conveyed through the trusts. He did not seek to revoke or amend the trusts before he died. News reports claim that the probate estate to be conveyed by the will is only $2 million, compared to non-probate assets estimated at $50 million—$144 million, depending upon the source. Legal title is critical in estate planning: King may have thought he was changing his whole estate with his hand-written changes to his will. He should have had a qualified estate planning attorney change his trusts.

Passing assets through trusts has the advantage of keeping the assets out of probate and maintaining privacy for the family. The trust does not become a matter of public record and there is no inventory of assets to be filed with the court.

Any pre- or post-nuptial agreements will have an impact on how King’s assets will be distributed. This is an issue for anyone who marries as often as King did. Apparently, he did not have a prenuptial agreement with his 7th wife, Shawn Southwick King. They were married for 22 years and separated in 2019. While Larry had filed for divorce, the couple had not reached a financial settlement. California is a community property state, so Southwick will have a legal claim to 50% of the assets the couple acquired during their long marriage, regardless of the will.

It is yet unclear whether there was a post-nuptial agreement. There are reports that the couple separated in 2010 after tabloid reports of a relationship between King and Southwick’s sister, and that there was a post-nuptial agreement declaring all of King’s $144 million assets to be community property. Southwick filed for divorce in 2010, and King sought to have the post-nup nullified. They reconciled for a few years and King was reported to have updated his estate plan in 2015.

The claim of undue influence on the will may not be easy to sustain. Southwick is claiming that Larry King Jr., King’s oldest son, exerted undue influence on his father to change the will. They were not close for most of Larry Jr.’s life, but in the later years of his life, King made a transfer of $250,000 to his son. Southwick wishes to have those transfers set aside on the basis of undue influence. She claims that when King executed his handwritten will, he was highly susceptible to outside influences and had questionable mental capacity.

Expect this will contest to continue for a while, with the possibility that the probate court dispute extends to other litigation between King’s last wife and his oldest son.

Reference: The National Law Review (March 15, 2021) “Larry King Will Contest—Key Takeaways”

Why Is Family of a Texas Governor Fighting over His Estate?

Dolph Briscoe Jr. was an Uvalde, Texas rancher and businessman and was the 41st Governor of Texas between 1973 and 1979. His oldest child, Janey Briscoe Marmion, established the foundation with her father to honor her only child, Kate, who died in 2008 at the age of 20.  An expensive family feud is shaping up in Probate Court. Why are they fighting?  Money, of course.

(Former U.S. House Speaker and FDR’s vice president John Nance Garner — descended from the Virginia Nance’s — was also from Uvalde. Oh. And so is Matthew McConaughey, but I digress.)

The Uvalde Leader-News’ recent article entitled “Briscoe family lawsuit targets Marmion’s will” reports that Marmion’s original will filed in 2011 directed her assets to be placed in a revocable trust.

The foundation was to have received income from half of her wealth for 22 years. The rest was directed to the children of her brother Chip Briscoe and those of her sister Cele Carpenter of Dallas.

However, a second will executed by Marmion in 2014 and admitted to probate in the County Court in December 2018— a month and a day after her death—calls for three trusts, including two child’s trusts created by her father and a generation-skipping trust (GST). A GST is a type of trust agreement in which the contributed assets are transferred to the grantor’s grandchildren, “skipping” the next generation (the grantor’s children).

Marmion created the Janey Marmion Briscoe GST Trust, dated November 1, 2012, in which she gave a third of her assets to the foundation and the other two-thirds to be divided equally between Chip Briscoe’s sons.

Carpenter’s three children filed suit in Dallas and in Uvalde County last year challenging the validity of the 2014 will and contesting the probate.

Their complaint alleges that Marmion intended to include the three as beneficiaries, in addition to Chip’s two sons, and that the situation creates a disproportionate inheritance in favor of the Briscoe men.

The amount in question is more than $500 million, since the former Texas governor’s estate was estimated by Forbes to be worth as much as $1.3 billion in 2015. Governor Briscoe died in Uvalde in 2010 at the age of 87.

Reference: Uvalde (TX) Leader-News (March 11, 2021) “Briscoe family lawsuit targets Marmion’s will”

 

Where did the money go?

If My Estate Is the Beneficiary of My IRA, How Is It Taxed?

The named beneficiary of an IRA can have important tax consequences, says nj.com’s recent article entitled “How is tax paid when an estate is the beneficiary of an IRA?”

If an estate is named the beneficiary of an IRA, or if there’s no designated beneficiary, the estate is usually designated beneficiary by default. In that case, the IRA must be paid to the estate. As a result, the account owner’s will or the state law (if there was no will and the owner died intestate) would determine who’d inherit the IRA.

An individual retirement account or “IRA” is a tax-advantaged account that people can use to save and invest for retirement. Sometimes, it makes sense to name an estate as beneficiary, but not always. Consult an estate lawyer about naming your retirement plan beneficiaries.

There are several types of IRAs—Traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs. Each one of these has its own distinct rules regarding eligibility, taxation and withdrawals. However, with any, if you withdraw money from an IRA before age 59½, you’re usually subject to an early-withdrawal penalty of 10%.

A designated beneficiary is an individual who inherits the balance of an individual retirement account (IRA) or after the death of the asset’s owner.

However, if a “non-individual” is the beneficiary of an IRA, the funds must be distributed within five years, if the account owner died before his/her required beginning date for distributions, which was changed to age 72 last year when Congress passed the SECURE Act.

If the owner dies after his/her required beginning date, the account must then be distributed over his/her remaining single life expectancy.

The income tax on these distributions is payable by the estate. A compressed tax bracket is used.

As such, the highest tax rate of 37% is paid on this income when total income of the estate reaches $12,950.

For individuals, the 37% tax bracket isn’t reached until income is above $518,400 or $622,050 if filing as married.

Therefore, you can see why it’s not wise to leave your IRA to your estate. It’s not tax-efficient and generally should often be avoided. But check with an attorney to determine this for your particular case and family structure.

Reference: nj.com (Feb. 26, 2021) “How is tax paid when an estate is the beneficiary of an IRA?”

 

Sound Like a Broken Record in Estate Planning?

After a year like the last, estate planning attorneys may sound like a broken record, repeating their message over and over again: No matter your age, wealth, or familial structure, you should have a last will and testament, powers of attorney and a health care proxy.

Everyone needs these documents, to protect wealth, children, spouses, family and yourself.

Wealth Advisor’s recent article entitled “2020 Concludes With Intestate Celebrity Estates” says that the execution of legal documents does have a financial cost. This can keep some people from talking to an experienced estate planning attorney. Others say they are simply too busy to take care of the matter, so they delay. There are other people don’t want to talk about issues of sickness and mortality because they just can’t bring themselves to think about these important estate planning documents.

It doesn’t matter who you are, these types of issues are seen with all kinds of people. Recently, we’ve learned that several celebrities died intestate or without a last will and testament. For example, Argentinian soccer great Diego Armando Maradona died in November at the age of 60. He had a fortune including real estate, financial assets and jewelry, but his life was filled with drama. Diego fathered eight children from six different partners but signed no last will and testament. Fighting among his many heirs is expected, especially with his large estate. Diego said publicly that he wanted to donate his entire estate and not leave his children anything. However, he died of a heart attack before putting this plan in place. Therefore his next-of-kin, not the charities, received his assets.

Another notable person who died intestate recently is former Zappos CEO Tony Hsieh, who died at age 46. His estate is valued at $840 million. Hsieh was survived by his two brothers and his parents. He recently purchased eight houses in Park City, Utah, so this purchase of real estate across state lines will make the administration of his estate even more complicated without a last will and testament or a trust.

Finally, actor Chadwick Boseman died intestate at age 43, after a long battle with colon cancer. His wife, Simone Ledward, petitioned the California courts to be named the administrator of his estate. The couple married in early 2020. As a result, she was qualified to administer and receive from his estate. He had no children, so under California probate law, she gets the entire estate.

These recent deaths of three celebrities, none of whom were elderly, show the need for individuals of all ages, backgrounds and wealth to address their estate plans and not put it off.

Reference: Wealth Advisor (Jan. 19, 2020) “2020 Concludes With Intestate Celebrity Estates”

 

donors

Estate and Gift Tax Planning Strategies for 2021

The uncertainty surrounding the election and possibility of changes to the estate and gift tax laws led many families to make substantial wealth transfers in 2020, especially as the historically high gift and generation-skipping transfer (GST) tax exemptions were so advantageous. This recent article from Financial Advisor, “No More Gift Tax Exemption? Additional Planning Strategies To Consider for 2021,” discusses the options that are still available for 2021.

Gifting is Still a Good Strategy. Even if you used your gift and GST tax exemptions, you may still make additional gifts outright or in trust using the 2021 inflation adjusted amount. The gift and GST tax exemptions are indexed for inflation, so this year the exemptions went from $11.58 million in 2020 to $11.7 million for 2021. Annual exclusion gifts allow individuals to make gifts up to $15,000 per person, and $30,000 for married couples, which do not count towards the gift and estate tax exemptions.

Direct payments for medical and tuition payment are still good options that won’t deplete the annual exclusion or gift and GST tax exemption. Just be sure to make the payment directly to the qualified educational institution or medical provider.

Grantor Retained Annuity Trusts (GRATS) still work. A GRAT is a special type of irrevocable trust. The grantor makes a gift of property in trust, retaining the right to an annual payment (annuity) from the trust for a specified amount of time. They can be used for a number of different assets, including assets expected to appreciate significantly. Check with your estate planning attorney to be sure this is a good option for you. If the grantor dies within the annuity term, the entire value of the trust generally will be included in the estate, as if it had never been created.

Sale to Grantor Trust. This strategy takes advantage of the differences between the income and transfer tax treatment of irrevocable trusts. The goal is to transfer anticipated appreciated assets at a reduced gift tax cost. In return for the transfer of property, the trust gives the grantor a note, which carries a market rate of interest and usually requires a balloon payment of principal at the end of the note’s term. In most cases, when the trust is a grantor trust, the grantor and the trust are treated as the same taxpayer for income tax purposes, but as two separate entities for transfer tax purposes. Because of this, neither the sale nor the note payments trigger income taxation.

Intra-Family Loans. These loans can be made at lower rates than by commercial lenders without the loan being deemed a gift. This lets an individual help their family members financially, without triggering additional gift tax. Wealth may be shifted, if the loan assets are invested by the borrower and earn a higher return than the required interest rate. Interest is to be paid within the family, and not to a third-party lender.

The intra-family loan establishes both a bona fide creditor relationship and the payment of interest. Family loans can be financially advantageous and emotionally tricky, so navigate with care. Your estate planning attorney will create the proper documents and all parties need to be clear on the details.

These strategies will work best when integrated into your estate plan. Discuss with your estate planning attorney to ensure that they will align with your long-term goals, as well as your tax planning.

Reference: Financial Advisor (Feb. 24, 2021) “No More Gift Tax Exemption? Additional Planning Strategies To Consider for 2021”

Suggested Key Terms: Gift and Generation-Skipping Transfer, GST, Tax Exemptions, Annual Exclusion, Grantor Retained Annuity Trusts, GRATS, Estate Planning Attorney, Irrevocable Trusts, Sale To Grantor, Intra-Family Loans

If I Move to a New State, Do I Need to Update My Estate Plan?

Friends asked me this week, do you need to update your estate plan if you move to a new state. So that conversation that inspired this blog. The U.S. Constitution requires states to give “full faith and credit” to the laws of other states. As a result, your will, trust, power of attorney, and health care proxy executed in one state should be honored in every other state.

Although that’s the way it should work, the practical realities are different and depend on the document, says Wealth Advisor’s recent article entitled “Moving to a New State? Be Sure to Update Your Estate Plan.”

Your last will should still be legally valid in the new state. However, the new state may have different probate laws that make certain provisions of the will invalid. This can also happen with revocable trusts, but less frequently.

However, it’s not as common with powers of attorney and health care directives. These estate planning documents should be honored from state to state, but sometimes banks, medical professionals, and financial and health care institutions will refuse to accept the documents and forms. They may have their own, as is the case frequently with banks.

You should also know that the execution requirements of your estate planning documents may be different, depending on the state.

For example, there are some states that require witnesses on durable powers of attorney, and others that do not. A state that requires witnesses may not allow a power of attorney without witnesses to be used to convey real estate, even though the document is perfectly valid in the state where it was drafted and signed.

With health care proxies, other states may use different terms for the document, such as “durable power of attorney for health care” or “advance directive.”

When you move to a different state, it’s also a smart move to consult with an experienced estate planning attorney to make certain that your estate plan in general is up to date. There are also other changes in circumstances—like a change in income or marital status—that can also have an impact on your estate plan. Moreover, there may be practical changes you may want to make. For example, you may want to change your trustee or agent under a power of attorney based on which family members will be closer in proximity.

For all these reasons, when you move out of state it’s wise to have an experienced estate planning attorney in your new home state review your estate planning documents.

Reference: Wealth Advisor (Jan. 26, 2021) “Moving to a New State? Be Sure to Update Your Estate Plan”

What are the Benefits of a Donor Advised Fund?

Many Americans are feeling grateful these days, and with good reason. It’s a hard time for many, but if you are financially able, making charitable donations will help you make a difference for others during uncertain times. There are many options when making donations, and the recent article “Choosing Charity: How Donor-Advised Funds Benefit Your Contributions” from Texas’ Fort Worth Magazine explains your choices.

Donor Advised Funds (“DAFs”) can be opened for varying amounts, that are set by the sponsoring organizations. Smaller community foundations would welcome a DAF for $5,000, for instance. DAFs can be funded with cash or other assets, but once the donation is made, the asset no longer belongs to you. However, you may be able to decide when donations are distributed, and which charities receive funding. There are no required distribution dates, so the funds could go unused for a long time, while you receive the tax write-off right away.

You may also determine the investments within the fund, level of risk and overall investment strategy.

Another good reason to use DAFs: the sponsoring organization becomes the donor of record. Therefore, DAFs are an excellent way to make anonymous contributions.

There are also DAFs that involve active involvement from an advisor, if that is of value to you.

Why is now a great time to use a Donor-Advised Fund?

Some investors have highly appreciated assets that could lead to a significant tax liability, if they were sold right now. DAF offers an alternative—rather than sell the assets and pay taxes, putting them into a DAF can achieve the following:

  • You receive a tax deduction,
  • There are no capital gains taxes, and
  • Your chosen the charity that fully benefits from the funds.

The pandemic has left many people facing uncertainty. Therefore, now isn’t the right time for everyone to open their wallets and a DAF. However, if you are charitably-minded and in a financial position to benefit from a DAF, it is a win-win situation for all concerned.

Reference: Fort Worth Magazine (Feb. 3, 2021) “Choosing Charity: How Donor-Advised Funds Benefit Your Contributions”

 

Choosing your advisors

Should I Create Estate Plan Myself?

US News & World Report’s recent article entitled “Do-It-Yourself Estate Planning Mistakes” provides some issues that do-it-yourself estate planners might encounter and why it is best to consult an experienced estate planning attorney.

What are the Right Questions to Ask?  Some say completing a simple and straightforward form—like a beneficiary designation for your IRA— is one thing, but what about tax consequences, probate law, new legislation and court procedures? Are you ready to take these on? The trick is that you may not know what you don’t know. And I’m here to tell you, even a ‘simple’ beneficiary form presents legal issues which can seriously impact — or mess up –your plan.  That’s why it’s money well-spent to employ the services of an experienced estate planning attorney.

Is My Situation Complex? Likewise, you may have property and assets all over the country (or world) that require expert advice. You must be certain that your planning, tax planning and financial planning all work together because they’re all interrelated. If you only work on one of these areas at a time, you may create complications in another area and unintentionally increase your expenses or taxes. It can also create headaches and expense for your heirs. If you have a child with special needs, a blended family, or want to control how and where a beneficiary spends your money, a cookie cutter approach won’t do. Instead, you should see an experienced estate planning attorney.

What are the Probate Laws in My State? Estate planning laws and taxes are different in each state.  Your state will have different rules and legal procedures for creating and administering an estate. There are many different state laws that govern inheritance taxes. There are 17 states plus DC that tax your estate, inheritance or both, and the tax laws can affect your situation when planning. Eleven states plus DC have only an inheritance tax. One state taxes both inheritances and estates.

If you mess up your estate planning documents, if could cause significant problems for your family. You best bet is to work with an experienced estate planning attorney in your state.

Reference: US News & World Report (Dec. 18, 2020) “Do-It-Yourself Estate Planning Mistakes”

 

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