Bailey and Holliman Estate Planning Law Firm

Wednesday, April 11, 2012

Whitney Houston's Estate Plan Illustrates Use of Testamentary Trust

Whitney Houston's tragic death provides an example of how a trust that takes effect upon death can work as part of an estate plan. But Houston's estate plan has some surprising aspects as well, including why she used such a trust.

The late singer's will leaves everything to her 19-year-old daughter, Bobbi Kristina, but Kristina can't access her mother’s estimated $20 million fortune right away because it is in a trust.

According to   news reports  , Houston's will sets up what is known as a “testamentary trust” for her daughter. A testamentary trust is a trust created by a will. The will names a trustee and specifies what property will be put in the trust. Such a trust has no power or effect until the will of the donor is probated (processed through the legal system). Although a testamentary trust does not avoid the need for probate and becomes a public document because it is a part of the will, it can be useful in accomplishing other estate planning goals, such as providing for a child or reducing estate taxes in certain circumstances.

The person creating the trust may want to prevent a beneficiary who is a child or young adult from inheriting a large amount of money before he or she can handle it. One option is to pay the beneficiary in stages when the beneficiary reaches a certain age or achieves a specific goal.

This is what Whitney Houston's trust does.  It reportedly allows Houston’s daughter to receive a 10 percent payout when she turns 21, another one-sixth when she turns 25, and the remainder of the trust's assets when she turns 30. In this type of trust, the trustee usually has the discretion to distribute trust funds to the child at any time prior to attaining these ages, if needed for education or other reasons.

Will Never Updated

Now to the surprising parts of Houston's estate plan.  First, as Forbes magazine columnists note, Houston could have accomplished the same goals through a "living trust," which would have kept the provisions of the trust private because it would pass outside of probate. Second, Houston was relying on a will that was created in 1993, when she was married to Bobby Brown, and it apparently was never updated, even after she and Brown divorced in 2007.  The will names Brown as the suggested guardian for Bobbi Kristina.  Although Bobbi Kristina is no longer a minor, Brown could still gain control of Kristina through a conservatorship, as was done in the case of Britney Spears.  Finally, the will provided that if Houston had no living children at the time of her death, her fortune would be split between Brown and several family members.

Perhaps all this is what Houston wanted, even after her divorce from Brown, but that should have been made clear in an updated will.  As it stands, it appears that Houston simply neglected to do something elder law attorneys (and this site) urge all clients to do: update their estate plan after a divorce or other major life change. 

Trusts -- either testamentary or living -- can be set up for many different purposes. To decide if a trust is right for you, consult an elder law attorney. We can be reached at (205) 663-0281.

Wednesday, April 04, 2012

Understanding the Importance and Implications of Guardianships and Conservatorships

Often in estate planning, attorneys present the idea of guardianship and/or conservatorship as a bad thing - something to be avoided. In a perfect world, we could move through our lives from cradle to grave without such things as guardianships and conservatorships. But in order to achieve this perfect world, we have to do advance planning to provide for our own care if we become impaired or incapacitated, and we need trustworthy, responsible and financially astute family members who are willing and able to assist us. For some people, these "perfect world" conditions do exist. However, for many others, they do not.

Increasingly, attorneys run into the following situations:

1. Seniors come to us, often brought by their children or children-in-law, when mental incapacity has set in, and although they appear to have willing and able family members who can take care of them, assist with making personal care and living decisions, or manage their finances, the seniors do not have the necessary delegation documents in place to empower these helpers as their agents.
2. Seniors have documents in place, but the people named are dead or no longer available, willing or appropriate to serve.
3. The people who the senior trusted and anticipated would be appropriate have become exploitive and abusive to them.
4. Seniors have been conned into paying for, or agreeing to pay for, fraudulent products and/or services.

Elder abuse in its many forms - including fraud by unscrupulous "vendors," financial exploitation, and physical or emotional abuse by "friends" and relatives - is a huge problem in the United States. The topic is being exposed in the 21st century much like child abuse and spousal abuse came into public view and began to receive legislative solutions during the late 20th century.

Crisis Situations
Another increasingly common situation is where seniors do not have agent-delegation planning in place and end up in a medical or living condition crisis where they are putting themselves or others at risk. Loyal family members and friends are very concerned, but nobody has the power to assist once they learn what needs to be done.

Alternatively, seniors may have excellent voluntary delegation planning in place, but the seniors are noncompliant about what they now need to do for their own safety and care. For example, they may need to live in an assisted living community or nursing home, but they voluntarily check themselves out and depart. They are free to make their own decisions, even though imprudent or unsafe, so they can walk right out and put themselves in danger. If they have access to an automobile, they put the general public at risk as well.

Adult Protective Services
In emergencies, where the seniors are unwilling to cooperate and their intransigence is putting themselves or others at risk, often the first call should be to Adult Protective Services (APS). APS is a state agency, typically within the department of "human services" or "social services" of the particular state. APS generally will appoint a social worker or other staff person to investigate, perhaps with local police in order to gain access to the senior and entry into the home.

Seeking Court Protection
Whether or not Adult Protective Services gets involved, and whether or not the case is an emergency or just a situation where the senior needs help and is not willing or able to sign voluntary agent-delegation documents, the solution is often a guardianship and/or conservatorship over the senior, if he or she meets the applicable standards of incapacity. (Less commonly, where mental illness other than dementia is the apparent cause, "involuntary commitment" may be necessary to place the senior is a hospital psychiatric ward for analysis.)

Guardianship
Terminology varies from state to state, but in general, guardianship (sometimes called "guardianship of the person") applies to probate court appointment of a fiduciary ("guardian") to make decisions in regard to the protected person's personal care. The protected person may be called a "ward" under some state laws, but that term is being phased out as unfavorable. A guardian generally does not have control of the protected person's finances, although state law or the specific terms of the guardianship may authorize the guardian to hold small amounts of the protected person's funds if no conservator has been appointed and the protected person does not have a durable power of attorney.

Conservatorship
Conservatorship refers to probate court appointment of a fiduciary ("conservator") to administer the finances and assets of the protected person. In some states, conservatorship may be called "guardianship of the estate." Conservatorship is much like trusteeship, although the powers of and restrictions on the conservator are defined by statute and regulation, rather than a voluntary trust agreement or trust declaration, and are typically are much less flexible than the powers authorized for trustees. Conservatorships are also analogous to durable powers of attorney. However, one of the key differences between conservatorships, trusts and durable powers of attorney is that conservatorships are court-supervised and directly accountable to the court. It is common for conservators to be required by state law and regulations to account annually to the probate court. Such accounting needs to be accurate to the penny.

Conservatorship is also similar to a decedent's probate estate administration. Like a probate Personal Representative or Executor (except where a decedent's will waives bond), a Conservator may be required by law to obtain a probate bond through an insurance company to insure his or her fidelity to proper administration of the protected person's assets and income. The costs of the probate bond and of the administration come out of the assets of the protected person. The amount of coverage of the bond is set by the court to cover the assets under the conservator's administration, and may cost anywhere from just under $1,000 per year to considerably more. The probate judge may have the authority to waive the probate bond requirement under certain circumstances, such as where the spouse is the conservator and is the primary devisee under the protected person's will.

A conservator does not have plenary power to do whatever financial transactions he or she feels are warranted. For example, a conservator needs specific court authorization to sell real estate in most states.

Compensation of Fiduciaries
In most circumstances, the fiduciary is entitled to "reasonable compensation." Reasonable compensation often is based on a list of criteria such as the time spent, lost opportunity to do other work that the fiduciary normally does, difficulty of the work, etc. Unlike provisions under some state probate codes for Personal Representatives of decedents' estates, reasonable fees for a conservator or guardian are not related to a percentage of the value of the protected person's assets that the fiduciary manages.

Imposing Minimum Restrictions
For a guardian and/or conservator of an adult, the probate code generally imposes a standard that the protected person's rights are to be removed to the minimum degree necessary to protect him or her. This is because the removal of personal rights and liberty by the court is analogous to a civil form of imprisonment. Where a protected person is capable of making some kinds of decisions safely and prudently in regard to his or her living conditions, care, or finances, the theory is that his or her rights to make such decisions should be preserved as long as possible. On a practical level, keeping seniors involved in their care and financial decisions also helps to keep them engaged with life, reality, and higher mental functions, so this legal construct is very consistent with practical experience in caregiving for seniors who are in a process of deteriorating mental capacity. There is a growing movement nationwide to maximize decision-making by adults who are under guardianship and/or conservatorship.

Maximizing the decision-making by protected persons can make it more difficult for the fiduciary, since he or she is not able to make unilateral decisions where the protected person retains decision-making power. How this works out in practice depends very much on the personalities of the protected person and fiduciary. When circumstances are such that retained decision-making by the protected person unduly hampers the process of making or implementing needed decisions, the fiduciary can file to obtain guidance or an order of the court.

Conclusion
Although attorneys correctly advise clients to plan to avoid unnecessary guardianship and conservatorship, there are many situations where guardianship and/or conservatorship are appropriate and very beneficial. Court supervision in difficult cases can be beneficial to impose financial accountability and to bring about sound decisions for the care of a protected person. Examples are where the protected person is unwilling to comply with doctor's orders or other considerations that are important for the safety of the protected person and others. Under modern guardianship and conservatorship theory, courts impose the minimum restrictions on protected persons that are needed to accomplish the personal safety and prudent financial management that are the goals of these court-supervised protective measures. 

If you have any questions or would like to discuss issues raised in this newsletter in more detail, please feel free to contact our office. (205) 663-0281

Monday, March 26, 2012

Is My Will Still Valid If I Move to Another State?

Among all the changes you must make when you move to a new state -- driver's license, voter registration -- don't forget your will. While your will should still be valid in the new state, there may be differences in the new state's laws that may make certain provisions of the will invalid. In addition, moving is a good excuse to consult an attorney to make sure your estate plan in general is up to date.

Property laws can vary from state to state. It is especially important to have your estate plan reviewed if you move from a common law state to a community property state (Arizona, California, Idaho, New Mexico, Louisiana, Washington, Nevada, Texas, Wisconsin, and Alaska) or vice versa. In a common law state each spouse's property is owned individually, while in a community property state, property acquired during the marriage is considered community property. In addition, states may have different rules about when co-owned property may pass to the surviving owner and when it may pass under the will.

Other things to consider are whether there is any language you can add to the will to make it easier to probate in the new state and whether your executor still makes sense based on your new location. Other pieces of your estate plan may need updating as well. For example, the state may have different rules for powers of attorney or health care directives.

We always suggest a review of your documents by a qualified estate planning attorney licensed in your new state of residence. If you need help locating an attorney, give us a call and we can help you find a qualified professional in the area. (205) 663-0281.

Tuesday, March 06, 2012

Romney Wants to Raise Age of Medicare Eligibility. Good Idea?

Republican presidential candidate Mitt Romney has announced his support for raising the age of Medicare eligibility from 65 to 67. However, research suggests that such a move would increase out-of-pocket costs for younger seniors and raise health care costs overall.

Making baby boomers wait two more years before they’re covered by the highly popular Medicare program would indeed save the federal government $5.7 billion in 2014, according to a study by the Kaiser Family Foundation. But at the same time, Kaiser says the change would mean that 65- and 66-year-olds, their employers, other Medicare enrollees, and states would have to cough up an extra $11.4 billion. It’s robbing Peter to pay Paul, except in this case Peter would pay double what Paul would get out of the deal.

The Kaiser study projects that the change would raise premiums by about 3 percent both for all other Medicare beneficiaries and for those covered by private insurance. Medicare premiums would go up because the program would lose its healthiest beneficiaries – 65- and 66-year-olds. At the same time, private insurers would suddenly get an influx of older beneficiaries, driving up their premiums as well. And this assumes the survival of the health reform law, which requires insurers to cover applicants despite preexisting conditions. If the law is repealed, as Romney and other GOP candidates recommend, large numbers of 65- and 66-year-olds would be uninsurable.

Kaiser found that 3.3 million people ages 65 and 66 would pay more out of pocket for health care if they were no longer eligible for Medicare. This prompted the group Strengthen Social Security to calculate that increasing the eligibility age would consume up to 45 percent of a middle-class senior’s Social Security check.

Raising Medicare’s eligibility age is a “savings” our society cannot afford; it would effectively amount to a tax on all health insureds, especially 65- and 66-year-olds.

Thursday, February 09, 2012

A Letter of Instruction Can Spare Your Heirs Great Stress

While it is important to have an updated estate plan, there is a lot of information that your heirs should know that doesn't necessarily fit into a will, trust or other components of an estate plan. The solution is a letter of instruction, which can provide your heirs with guidance if you die or become incapacitated.

A letter of instruction is a legally non-binding document that gives your heirs information crucial to helping them tie up your affairs. Without such a letter, it can be easy for heirs to miss important items or become overwhelmed trying to sort through all the documents you left behind. The following are some items that can be included in a letter:

• A list of people to contact when you die and a list of beneficiaries of your estate plan
• The location of important documents, such as your will, insurance policies, financial statements, deeds, and birth certificate
• A list of assets, such as bank accounts, investment accounts, insurance policies, real estate holdings, and military benefits
• Passwords and PIN numbers for online accounts
• The location of any safe deposit boxes
• A list of contact information for lawyers, financial planners, brokers, tax preparers, and insurance agents
• A list of credit card accounts and other debts
• A list of organizations that you belong to that should be notified in the event of your death (for example, professional organizations or boards)
• Instructions for a funeral or memorial service
• Instructions for distribution of sentimental personal items
• A personal message to family members

Once the letter is written, be sure to store it in an easily accessible place and to tell your family about it. You should check it once a year to make sure it stays up-to-date.

Tuesday, January 24, 2012

When Should You Update Your Estate Plan?

Once you've created an estate plan, it is important to keep it up to date. You will need to revisit your plan after certain key life events.

Marriage

Whether it is your first or a later marriage, you will need to update your estate plan after you get married. A spouse does not automatically become your heir once you get married. Depending on state law, your spouse may get one-third to one-half of your estate, and the rest will go to other relatives. You need a will to spell out how much you wish your spouse to get.

Your estate plan will get more complicated if your marriage is not your first. You and your new spouse need to figure out where each of you wants your assets to go when you die. If you have children from a previous marriage, this can be a difficult discussion. There is no guarantee that if you leave your assets to your new spouse, he or she will provide for your children after you are gone. There are a number of options to ensure your children are provided for, including creating a trust for your children, making your children beneficiaries of life insurance policies, or giving your children joint ownership of property.

Even if you don't have children, there may be family heirlooms or mementos that you want to keep in your family.

Children

Once you have children, it is important to name a guardian for your children in your will. If you don't name someone to act as guardian, the court will choose the guardian. Because the court doesn't know your kids like you do, the person they choose may not be ideal. In addition to naming a guardian, you may also want to set up a trust for your children so that your assets are set aside for your children when they get older.

Similarly, when your children reach adulthood, you will want to update your plan to reflect the changes. They will no longer need a guardian, and they may not need a trust. You may even want your children to act as executors or hold a power of attorney.

Divorce or Death of a Spouse

If you get divorced or your spouse dies, you will need to revisit your entire estate plan. It is likely that your spouse is named in some capacity in your estate plan -- for example, as beneficiary, executor, or power of attorney. If you have a trust, you will need to make sure your spouse is no longer a trustee or beneficiary of the trust. You will also need to change the beneficiary on your retirement plans and insurance policies.

Increase or Decrease in Assets

One part of estate planning is estate tax planning. When your estate is small, you don't usually have to worry about estate taxes because only estates over a certain amount, depending on current state and federal law, are subject to estate taxes. As your estate grows, you may want to create a plan that minimizes your estate taxes. If you have a plan that focuses on tax planning, but you experience a decrease in assets, you may want to change your plan to focus on other things.

Other

Other reasons to have your estate plan updated could include:

• You move to another state
• Federal or state estate tax laws have changed
• A guardian, executor, or trustee is no longer able to serve
• You wish to change your beneficiaries
• It has been more than 5 years since the plan has been reviewed by an attorne

Contact us to review or update your plan.

Thursday, December 08, 2011

What Should a Good Estate Plan Include?

Thursday, December 08, 2011

Raising the Medicare Eligibility Age Would Simply Drive Up Health Care Costs for Everyone

Raising the Medicare Eligibility Age Would Simply Drive Up Health Care Costs for Everyone

Thursday, November 17, 2011

House Democrats Start Debate Over Extending Estate Tax

November 17, 2011

House Democrats plan to introduce a bill Thursday to extend and overhaul the estate tax beyond 2012 in the opening salvo of what is likely to be a long and politically-charged debate next year.

A favored target of Republicans, the tax on inherited wealth already promises to be one of the most controversial elements of the tax code up for renewal at the end of next year. Six Republican presidential candidates, including all of the front-runners, have said they would repeal the tax.

But the legislation by Rep. Jim McDermott (D., Wash.), a veteran member of the House Ways and Means Committee, proposes to extend the current reach of the estate tax by reducing the amount of the estate exempted from the tax to $1 million from $5 million and raising the tax rate to 55% from 35%, bringing it back to pre-Bush era levels.

"I'm not against people making money in this country, but I do think they have a responsibility to give some of it back," especially at a time of a deep federal budget deficit, McDermott said in an interview this week.

While Democrats acknowledge they will face stiff resistance from Republicans, McDermott said taxpayers need to know Congress is not ignoring the issue until the last minute. In a deal brokered with President Barack Obama last December, Congress reinstated the estate tax for this year and next, after letting it lapse for one year in 2010. While the estate tax is slated to revert back to 2001 levels after next year, Republicans in Congress have already introduced legislation to repeal it again.

"It really is a question of clarity," for both families and planners, McDermott said. "The question is how to bring fairness into it."

Under McDermott's proposal, co-sponsored by Rep. Charles Rangel (D., N.Y.), the exemption for married couples would drop to $2 million from $10 million.

Spouses could still claim the remainder of their partner's exemption if some remains unused after death, as they can now. The rate and $1 million exemption would be adjusted for inflation, beginning at the 2000 level.

The bill, slated to be introduced Thursday, would also unify the estate and gift taxes. That means a taxpayer would only have a single exemption of $1 million for their estate and most gifts. The legislation also includes several provisions from Obama's last budget proposal to end targeted estate tax breaks.

Republicans, often led by Sen. Jon Kyl (R., Ariz.) have pushed hard in previous years to repeal the tax, whose rates and exemption levels have varied wildly over the last decade.

Wednesday, October 26, 2011

Veterans' Compensation Cost of Living Adjustment Act of 2011

Veterans' Compensation Cost-of-Living Adjustment Act of 2011

Posted in [Veterans Aid & Attendance]

The first cost-of-living adjustment since 2008 has recently been made, bringing a 3.6% increase in benefits.

The cost-of-living adjustments are based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers ("CPI-W").  A cost-of-living adjustment effective for December of the current year is equal to the percentage increase (if any) in the average CPI-W for the third quarter of the current year over the average for the third quarter of the last year in which a cost-of-living adjustment became effective.  If there is an increase, it must be rounded to the nearest tenth of one percent.  If there is no increase, or if the rounded increase is zero, there is no cost-of-living adjustment.

The senate unanimously passed S. 864: Veterans' Compensation Cost-of-Living Adjustment Act of 2011, effective on December 1, 2011, for benefits to be payable in January of 2012.  The Act outlined the following pension increases:

Single Veteran: $1,703
Married Veteran: $2,019
Surviving Spouse of a Veteran:                                                                                                                                                                               $1,094