Do Grandchildren Get Some of the Estate If Their Dad Dies before Me?

February 17, 2022

It’s not that uncommon that a child dies before a parent. The question then arises about who gets that share. Is it the children of the decedent child (the will maker’s grandchildren), or do the will maker’s other children split the share of the decedent child?

Nj.com’s recent article entitled “Who gets this inheritance if a beneficiary dies?” explains that the language of the will itself governs what happens with each beneficiary’s share in the event one of the adult children dies before his or her parents.

Some wills divide the remainder among the will maker’s children who are still living. With this, the surviving siblings would receive the entire estate.

This is called “per capita,” which is a Latin phrase that translates literally to “by head.” In a per capita distribution, each designated beneficiary receives an inheritance only if they’re living when the inheritance vests (at the will maker’s death).

If a beneficiary dies before this, that beneficiary’s share is divided among the surviving named beneficiaries. As a result, the children of the decedent beneficiary get nothing, unless they are specifically designated as beneficiaries.

However, the more common approach is for a will to state: “I give, devise and bequeath my residuary estate to my descendants, per stirpes.”

Per stirpes is a Latin phrase that translates literally to “by roots” or “by branch.” A per stirpes distribution means that a beneficiary’s share passes to their lineal descendants if the beneficiary dies before the inheritance vests. Per stirpes effectively designates a class of beneficiaries to receive estate property, rather than designating only specific individuals to inherit property.

Therefore, providing this language in the will means that if a child predeceases the testator and the predeceased child has surviving descendants, that predeceased child’s share will go to that predeceased child’s descendants … that would be the will maker’s grandchildren.

Ask an experienced estate planning attorney about how each of these designations would work in your specific situation, when you draft or update your will.

Reference: nj.com (Oct. 28, 2021) “Who gets this inheritance if a beneficiary dies?”

James Brown Estate Battle Resolved … Almost, but Not Quite

February 17, 2022

A company specializing in buying and marketing estates and song catalogs has bought the assets of James Brown’s estate, including music rights, real estate and control over Brown’s name and likeness. It is hoped that the sale, worth an estimated $90 million, will finally achieve Brown’s wishes to finance scholarships for needy children, according to a recent article from The New York Times titled “After 15 Years of Infighting, James Brown’s Estate is Sold.”

The money will be used to endow the Brown scholarship trust in perpetuity, said the accountant who has served as the Brown estate’s executor since 2009. The deal includes a provision for the buyer, Primary Wave, to also contribute a percentage of future earnings to the scholarships, intended for children in South Carolina, where Brown was born, and Georgia, where he grew up.

This is a step forward in one of the longest and most contentious estate conflicts in the high-profile world of celebrity estates. Multiple lawsuits in state and federal courts have cost millions in legal fees and left behind what one official described as “As big a tangle as you’ve ever seen.”

Part of the mess centered around Ms. Tommie Rae Hynie, a singer who married James Brown in 2001. It was later learned she was already married to another man. With her spousal status unclear, Ms. Hynie and five of Brown’s children battled over the estate. Their goal was to set aside his will and negotiate a settlement of their own to receive big chunks of the estate.

They found a willing listener in a state attorney general and a state judge who approved their agreement in 2009. However, four years later, the South Carolina Supreme Court struck down their settlement, calling it “a dismemberment of Brown’s carefully crafted estate plan.” It also ruled unanimously that Ms. Hynie was not Mr. Brown’s legal spouse.

Brown’s heirs and several executors have also fought over the estate’s value. One estimated it as $5 million, while another put it at $84 million. The discrepancy was claimed to be a result of savvy management of the estate after Brown’s death.

Negotiations for the sale were handled by John Branca, who was Michael Jackson’s longtime attorney and one of the executors of Jackson’s estate.

However, it’s not over yet. For one thing, the longstanding battle between two executors, Mr. Bauknight and Ms. Pope, removed as executor in 2009, isn’t over. She is suing the estate; he and others have filed suit against her. These cases are under appeal and until they are settled, or a court decision is made, no distributions can be made and no scholarships can be paid.

Reference: The New York Times (Dec. 13, 2021) “After 15 Years of Infighting, James Brown’s Estate is Sold.”

Elder Financial Abuse Can Be Prevented

February 17, 2022

Elder financial abuse is always upsetting, but it’s even worse when a parent is in a long-term care facility and adult children aren’t there to prevent it or stop it. This is especially true during the pandemic, when restrictions meant to keep residents safe from COVID make them more vulnerable to scammers.

The federal Consumer Financial Protection Bureau recently released a guide to prevent this very same problem, as reported in the article “Preventing Elder Financial Abuse When Your Parent Is In Long-Term Care” from next avenue.

The goal is to help professionals who work with the facilities to recognize red flags, develop policies and protocols and use technology to prevent residents from becoming victims. There’s also a lot of good information in the guide for the children of residents.

One reason elder financial abuse occurs so easily in long-term care facilities is because members of care teams can easily get access to financial records as well as medical records. Putting protections in place before financial abuse happens is the best strategy.

Banking and credit card accounts should be monitored regularly, and fraud alerts should be set up to be sent to the individual and a designated, trusted contact. An outside professional may also be hired to watch over the person’s finances.

Experts recommend listening to their loved ones during visits, online or in person. When a senior complains about money or personal belongings going missing, don’t assume these are part of cognitive issues. Take steps to investigate and document findings.

If an aging parent mentions a strange phone call or an unusual request by a staff member, immediately check their accounts, even if they insist no personal information was shared. Scammers are very good at what they do and can easily convince a victim nothing wrong has occurred. Even if something didn’t occur this time, a single phone call or conversation may be a warning of the parent being on someone’s radar as a possible victim.

Pay attention if small amounts of cash are missing from accounts. Scammers typically begin small, testing the waters to see if the person, their family, or the financial institution is paying attention. Banks cannot discuss your parent’s finances with their investment advisor, due to privacy rules, so the designated family member needs to be in touch with any institutions handling their money.

If no family member has been given Power of Attorney over financial accounts, this is a must-do, as long as the parent has legal capacity to grant this power. The POA gives the person the legal ability to manage financial accounts. If the person is incapacitated, it may be necessary for the child to be named guardian. An estate planning attorney will be able to discuss the situation and recommend the best way forward for the individual and their family.

Reference: next avenue (Dec. 17, 2021) “Preventing Elder Financial Abuse When Your Parent Is In Long-Term Care”

What Is Considered an Asset in an Estate?

February 15, 2022

Estate planning attorneys are often asked if a particular asset will be included in an estate, from life insurance and real estate to employment contracts and Health Savings Accounts. The answer is explored in the aptly-titled article, “Will It (My Home, My Life Insurance, Etc.) Be in My Estate?” from Kiplinger.

When you die, your estate is defined in different ways for different planning purposes. You have a gross estate for federal estate taxes. However, there’s also the probate estate. You may also be thinking of whether an asset is part of your estate to be passed onto heirs. It depends on which part of your estate you’re focusing on.

Let’s start with life insurance. You’ve purchased a policy for $500,000, with your son as the designated beneficiary. If you own the policy, the entire $500,000 death benefit will be included in your gross estate for federal estate tax purposes. If your estate is big enough ($12.06 million in 2022), the entire death benefit above the exemption is subject to a 40% federal estate tax.

However, if you want to know if the policy will be included in your probate estate, the answer is no. Proceeds from life insurance policies are not subject to probate, since the death benefit passes by contract directly to the beneficiaries.

Next, is the policy an estate asset available for heirs, creditors, taxing authorities, etc.? The answer is a little less clear. Since your son was named the designated beneficiary, your estate can’t use the proceeds to fulfill bequests made to others through your will. Even if you disowned your son since naming him on the policy and changed your will to pass your estate to other children, the life insurance policy is a contract. Therefore, the money is going to your son, unless you change this while you are still living.

However, there’s a little wrinkle here. Can the proceeds of the life insurance policy be diverted to pay creditors, taxes, or other estate obligations? Here the answer is, it depends. An example is if your son receives the money from the insurance company but your will directs that his share of the probate estate be reduced to reflect his share of costs associated with probate. If the estate doesn’t have enough assets to cover the cost of probate, he may need to tap the proceeds to pay his share.

Another aspect of figuring out what’s included in your estate depends upon where you live. In community property states—Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin—assets are treated differently for estate tax purposes than in states with what’s known as “common law” for married couples. Also, in most states, real estate owned on a fee simple basis is simply transferred on death through the probate estate, while in other states, an alternative exists where a Transfer on Death (TOD) deed is used.

This legal jargon may be confusing, but it’s important to know, because if property is in your probate estate, expenses may vary from 2% to 6%, versus assets outside of probate, which have no expenses.

Speak with an experienced estate planning attorney in your state of residence to know what assets are included in your federal estate, what are part of your probate estate and what taxes will be levied on your estate from the state or federal governments and don’t forget, some states have inheritance taxes your heirs will need to pay.

Reference: Kiplinger (Dec. 13, 2021) “Will It (My Home, My Life Insurance, Etc.) Be in My Estate?”

Estate Planning when So Much Is Uncertain

February 15, 2022

Negotiations in Washington continue to present a series of changing scenarios for estate planning. Until the ink is dry in the Oval Office, taxpayers face an uncertain legislative environment, says a recent article titled “Estate Planning in an Uncertain Time” from CPA Practice Advisor. Many people hurried to use lifetime gifting strategies because of estate tax provisions contained in earlier versions of the infrastructure bill, but even with these provisions dropped (for now), there are still good reasons to use lifetime gifting strategies.

The current $11.7 million estate/gift tax exemption will still be reduced on January 1, 2026, even if Congress takes no other action. Under current law, Taxpayers who have not taken advantage of this “extra” exemption before then will lose the opportunity forever.

Speak with an experienced estate planning attorney to review your current lifetime gifting plan and see if it needs to be revised. Of course, if you don’t have an estate plan, now is the time to get that underway.

Reference: CPA Practice Advisor (Nov. 17, 2021) “Estate Planning in an Uncertain Time”

Can You Refuse an Inheritance?

February 15, 2022

No one can be forced to accept an inheritance they don’t want. However, what happens to the inheritance after they reject, or “disclaim” the inheritance depends on a number of things, says the recent article “Estate Planning: Disclaimers” from NWI Times.

A disclaimer is a legal document used to disclaim the property. To be valid, the disclaimer must be irrevocable, in writing and executed within nine months of the death of the decedent. You can’t have accepted any of the assets or received any of the benefits of the assets and then change your mind later on.

Once you accept an inheritance, it’s yours. If you know you intend to disclaim the inheritance, have an estate planning attorney create the disclaimer to protect yourself.

If the disclaimer is valid and properly prepared, you simply won’t receive the inheritance. It may or may not go to the decedent’s children.

After a valid qualified disclaimer has been executed and submitted, you as the “disclaimor” are treated as if you died before the decedent. Whoever receives the inheritance instead depends upon what the last will or trust provides, or the intestate laws of the state where the decedent lived.

In most cases, the last will or trust has instructions in the case of an heir disclaiming. It may have been written to give the disclaimed property to the children of the disclaimor, or go to someone else or be given to a charity. It all depends on how the will or trust was prepared.

Once you disclaim an inheritance, it’s permanent and you can’t ask for it to be given to you. If you fail to execute the disclaimer after the nine-month period, the disclaimer is considered invalid. The disclaimed property might then be treated as a gift, not an inheritance, which could have an impact on your tax liability.

If you execute a non-qualified disclaimer relating to a $100,000 inheritance and it ends up going to your offspring, you may have inadvertently given them a gift according to the IRS. You’ll then need to know who needs to report the gift and what, if any, taxes are due on the gift.

Persons with Special Needs who receive means-tested government benefits should never accept an inheritance, since they can lose eligibility for benefits.

A Special Needs Trust might be able to receive an inheritance, but there are limitations regarding how much can be accepted. An estate planning attorney will need to be consulted to ensure that the person with Special Needs will not have their benefits jeopardized by an inheritance.

The high level of federal exemption for estates has led to fewer disclaimers than in the past, but in a few short years—January 1, 2026—the exemption will drop down to a much lower level, and it’s likely inheritance disclaimers will return.

Reference: NWI Times (Nov. 14, 2021) “Estate Planning: Disclaimers”

How Can I Clean Up My Estate Plan?

February 11, 2022

Chicago Business Journal’s recent article entitled “8 steps to tidy up your estate plan now” gives you some items to think about when working through your affairs.

Make certain that your plan is accurate and up to date. Your basic documents, which include your will, health care directive and power of attorney, should be in place and up-to-date. Review them to confirm that they’re consistent with your wishes and the current laws.

Review your named beneficiaries and fiduciaries. Confirm that the names of designated beneficiaries and fiduciaries are accurate. Most assets will pass under your will or through trusts, other accounts such as retirement, or life insurance may pass directly to a named (or contingent) beneficiary. If your planning circumstances have changed since creating these designations, update them.

Review your life and property insurance coverage. Be sure that these policies offer adequate coverage and meet their intended purpose. As your wealth increases, the planning purposes behind a term policy for risk mitigation purposes or a whole life policy to ensure ample liquidity upon death may become unnecessary. However, if your assets’ value has grown, you may need to re-examine if the current property coverage is sufficient to minimize your increased potential liability.

Ensure that your beneficiaries have enough liquidity. The estate administration process can be slow and tiresome. It’s possible that a person may not have immediate access to liquidity after a spouse’s death, depending on how assets are titled. A temporary (but major) burden can be avoided, by confirming at least some liquidity will be titled in or directly available to your spouse after you have passed.

Locate and compile important information and account identification. A difficult step in estate administration is locating a decedent’s assets. Make this process easier for loved ones, by creating a list of your accounts, property of significant value, liabilities and contacts at each financial institution. Make the list easily accessible to your family or executor, and update it whenever opening or closing an account.

Review digital assets and online accounts. These assets are frequently overlooked as to access and ownership after death. Instead of divulging passwords or allowing account access, you can add a “digital assets clause” to your planning documents. This lets named parties access specific items within the bounds of accepted legal standards.

Draft a letter of wishes. This document allows you to fully express your intentions and hopes, as well as any explanations or instructions you want to impart to your loved ones.

Plan to review. Repeat the review process regularly and calendar a reminder to give yourself an annual financial and planning checkup.

Reference: Chicago Business Journal (Dec. 2, 2021) “8 steps to tidy up your estate plan now”

What Taxes Have to Be Paid When Someone Dies?

February 9, 2022

The last thing families want to think about after a loved one has passed are taxes, but they must be dealt with, deadlines must be met and challenges along the way need to be addressed. The article “Elder Care: Death and taxes, Part 1: Tax guidance for administering a loved one’s estate” from The Sentinel offers a useful overview, and recommends speaking with an estate planning attorney to be sure all tasks are completed in a timely manner.

Final income tax returns must be filed after a person passes. This is the tax return on income received during their last year of life, up to the date of death. When a final return is filed, this alerts federal and state taxing authorities to close out the decedent’s tax accounts. If a final return is not filed, these agencies will expect to receive annual tax payments and may audit the deceased. Even if the person didn’t have enough income to need to pay taxes, a final return still needs to be filed so tax accounts are closed out. The surviving spouse or executor typically files the final tax return. If there is a surviving spouse, the final income tax return is the last joint return.

Any tax liabilities should be paid by the estate, not by the executor. If a refund is due, the IRS will only release it to the personal representative of the estate. An estate planning attorney will know the required IRS form, which is to be sent with an original of the order appointing the person to represent the estate.

Depending on the decedent’s state of residence, heirs may have to pay an Inheritance Tax Return. This is usually based on the relationship of the heirs. The estate planning attorney will know who needs to pay this tax, how much needs to be paid and how it is done.

Income received by the estate after the decedent’s death may be taxable. This may be minimal, depending upon how much income the estate has earned after the date of death. In complex cases, there may be significant income and complex tax filings may be required.

If a Fiduciary Return needs to be filed, there will be strict filing deadline, often based on the date when the executor applied for the EIN, or the tax identification number for the estate.

The estate’s executor needs to know of any trusts that exist, even though they pass outside of probate. Currently existing trusts need to be administered. If there is a trust provision in the will, a new trust may need to be started after the date of death. Depending on how they are structured, trust income and distributions need to be reported to the IRS. The estate planning attorney will be able to help with making sure this is managed correctly, as long as they have access to the information.

The decedent’s tax returns may have a lot of information, but probably don’t include trust information. If the person had a Grantor Trust, you’ll need an experienced estate planning attorney to help. During the Grantor’s lifetime, the trust income is reported on the Grantor’s 1040 personal income tax return, as if there was no trust. However, when the Grantor dies, the tax treatment of the trust changes. The Trustee is now required to file Fiduciary Returns for the trust each year it exists and generates income.

An experienced estate planning attorney can analyze the trust and understand reporting and taxes that need to be paid, avoiding any unnecessary additional stress on the family.

Reference: The Sentinel (Dec. 3, 2021) “Elder Care: Death and taxes, Part 1: Tax guidance for administering a loved one’s estate”

Prince Philip’s Will: Are Royals Different than Regular People?

February 7, 2022

There’s a royal battle brewing over Prince Philip’s will, but it’s not what you might expect. The lawsuit isn’t being brought by a creditor or even a potential beneficiary of the estate, A major United Kingdom newspaper, The Guardian, has instead announced that it’s taking legal action. This is according to a recent article titled “The Legal Battle Over Prince Philip’s Will” from Wealth Management.

The newspaper is arguing that the press should be allowed to attend the hearing for the will and claims that doing so constitutes a serious interference with principle of open justice. In other words, the Royal Family is a public family, funded by the public and the public is entitled to know what’s in the will.

A hearing was held in September concerning keeping the will sealed for 90 years, and the press was neither notified nor invited. The only people in attendance were Prince Philip’s estate attorney and an Attorney General. The court’s position is that the presence of the Attorney General represented the people.

British law is similar to American law, when it comes to making wills public. Once the will goes into probate, following the death of the person, it’s a public document. This is why estate planning attorneys recommend using trusts, which remain private and allow assets to pass outside of the probate process. It’s also why certain information should never be in a will, like financial account titles and numbers.

The idea of sealing a will is an exception under rare circumstances, and in England this has to date only been done for the royal family. The president of the family division of the high court ruled that these exceptions are necessary to enhance the protection of the royal’s private lives and the dignity of the sovereign and other close family members.

There have been many attempts to challenge the privacy of royal wills. So far, none has been successful.

The question posed by this lawsuit concerning the public’s right to know is not a new one. However, it will be interesting to watch in a day and age when royalty and the role of the royal family is under severe scrutiny.

The royal family is funded by taxpayers, who routinely question how much privacy should be permitted when the money comes from their pockets. Whether such special rules are really needed to protect the “integrity” of the royals has been an on-going debate in the U.K.

In the United States, individuals and families use trusts and other methods to maximize their privacy and to convey assets to their heirs.

Reference: Wealth Management (Dec. 1, 2021) “The Legal Battle Over Prince Philip’s Will”

Should I Use a Corporate Trustee?

February 5, 2022

When you work with an experienced estate planning attorney to create a revocable living trust, you will usually name yourself as trustee and manage your financial assets as you have previously. However, it’s necessary to name a successor trustee. This person or entity can act, if you’re incapacitated or pass away.

Selecting the right trustee is one of the most important decisions you’ll make.

The Quad Cities Times’ recent article entitled “Benefits of a corporate trustee” warns that care should be taken when selecting someone to serve in this role. Family members may not have the experience, ability and time required to perform the duties of a trustee. Those with personal relationships with beneficiaries may cause conflicts within the family. You can name almost any adult, including family members or friends, but think about a corporate or professional trustee as the possible answer.

Experience and Dedication. Corporate trustees can devote their full attention to the trust assets and possess experience, resources, access to tax, legal, and investment knowledge that may be hard for the average person to duplicate. A corporate trustee can be hired as the administrative trustee—letting them concentrate on the operation of the trust. You can also hire a registered investment advisor to manage the investment assets. A corporate trustee can also be engaged as both administrative trustee and investment manager.

Regulation and Protection. Corporate trustees provide safety and security of your assets and are regulated by both state and federal law. Corporate trustees and registered investment advisors are both held to the fiduciary standard of acting solely in the best interests of trust beneficiaries.

Successor Trustee. If you choose to name personal trustees, you may provide in your trust documents for a corporate trustee as a successor, in case none of the personal trustees is available, capable, or willing to serve. Corporate trustees are institutions that don’t become incapacitated or die. You should consider the type of assets you own including investment securities, farmland and commercial real estate and then choose the most qualified corporate trustee to manage them.

In sum, many estate owners can benefit from the advantages of a corporate trustee.

Ask an experienced estate planning attorney when creating or amending a revocable living trust, about naming the appropriate corporate trustee, and the advisability of including terms for your registered investment advisor to manage assets for your trust.

Reference: Quad Cities Times (Nov. 28, 2021) “Benefits of a corporate trustee”

Estate Planning Blog

Serving Clients Throughout North Central Missouri

Do Grandchildren Get Some of the Estate If Their Dad Dies before Me?