Many people believe that all property owned by a married couple automatically distributes to their spouse upon death, regardless of how property is legally titled or whether the couple have any estate planning documents in force.
While in specific cases this type of distribution would occur, in many instances, this may not be the case. More specifically, while property owned between spouses titled as “Joint Tenants with Right of Survivorship” and “Tenancy by the Entirety” distribute to surviving joint owners, there are many types of financial assets which do not automatically distribute to a surviving spouse at death by operation of law.
For example, tax-deferred retirement plan accounts, including IRAs, 401(k)s, and other types of employer provided retirement plan accounts, along with proceeds from life insurance policies and annuity contracts, distribute according to the beneficiary designation on file with retirement plan administrators and life insurance companies. As a result, if a spouse is not designated as the beneficiary, he or she may not receive any of these financial assets, (which property often collectively comprises over 50% of a client’s net worth), even if the deceased spouse intended that their surviving spouse receive all property owned upon death of the first spouse.
Therefore, it is vitally important to understand that establishing a written and current Last Will and Testament, along with a Revocable Living Trust, with terms and provisions that distribute all individually owned property at death to a surviving spouse does not override existing beneficiary designations on file with retirement plan custodians or life insurance companies.
In addition, if an individual dies with a surviving spouse and one or more surviving children, the surviving spouse may only receive a specific dollar amount plus only 50 percent of the deceased spouse’s assets, with the balance of 50% distributed outright to the deceased spouse’s children. This is often a surprise to couples without estate plans who believe and intend that everything they own automatically passes to the surviving spouse upon death of the first spouse.
To demonstrate issues relevant to married couples which can arise upon the death of a spouse, we will explore some common scenarios:
Mary and John got married ten years ago. Mary had a daughter, Sally from a prior marriage, and John had no children. Mary and John both believed that everything they owned would distribute to the surviving spouse and did not have any estate planning legal documents prepared. Mary recently died, and her husband John and daughter Sally both survived her.
Mary and John had a joint bank account to may their recurring monthly expenses, but Mary also had a number of bank and brokerage accounts titled in just her name alone.
If Mary had established a comprehensive estate plan, clearly stating her intentions and desires regarding the distribution of her individuality owned property upon her demise, then she could have made certain that her separate property would have distributed to her husband John upon her passing. However, without an estate plan, Mary’s individually owned assets distributed under the intestate statute, which typically would divide her individually owned property between her husband, John and daughter, Sally.
This unintended result could have been avoided by either adding John as a co-owner to Mary’s accounts or by creating an estate plan which provided that Mary desired her husband John would receive all of her property upon her passing.
In addition, Mary owned her own home before she married John, and the home remained titled in her name alone during their marriage. After they married, John moved into the home with Mary, and they lived there together until Mary’s death.
Because Mary owned the property in her name alone, and the couple never took the time to re-title or transfer the home into joint ownership, the home is Mary’s separate property and may be divided between her husband, John and daughter, Sally upon Mary’s death. As a result, as a beneficiary Mary’s estate under intestate law, Sally may be able to require her step-father John to pay rent if he desires to continue living in Mary’s home, force a sale of the home, or evict John from the home. Each of these scenarios may occur due to the absence of Mary re-titling her home into joint names with her spouse or failing to have an estate plan, which could have specifically devised Mary’s home to her spouse John upon her demise.
If Mary wanted her husband John to be able to live in the home for as long as he lived, she could have established a Testamentary Trust under her estate plan, wherein John was provided with a Life Estate in Mary’s home. Thereafter, upon John’s subsequent death, Mary’s home, or proceeds from the sale of her home, could have distributed to her daughter, Sally. In essence, Mary’s wishes, with respect to the distribution of her home, could have been accomplished with the creation and execution of proper trust and estate planning legal documents.
As we can see from these examples, even if you believe that your spouse will receive everything you own upon your death, it is important to ensure that the title of your assets, and your estate planning legal documents, clearly reflect your intent and wishes regarding the distribution of your property in the event of your death.
In a nutshell, having a comprehensive estate plan can avoid unintended consequences and unpleasant surprises for your surviving spouse.
An experienced estate planning attorney will be able to advise you regarding titling your assets and preparing the appropriate estate planning legal documents necessary to achieve your desired goals and objectives.
Dementia is a progressive brain disorder that can cause memory loss, changes in personality and behavior, and difficulty with daily activities. It can be a challenging and emotional experience for both the person with dementia and their family members.
There are a number of significant actions that families can do to prepare when a loved one has been diagnosed with dementia.
Following are seven (7) of the most important actions we often recommend:
1. Get a diagnosis. The first step is to obtain a diagnosis from a doctor. This will help you to understand the type and stage of dementia and the expected course of the disease.
2. Talk to your loved one who has been diagnosed with dementia about their wishes. Once you have secured a diagnosis, it is important to talk to your loved one about their wishes for their care. This includes their wishes for medical treatment, financial matters, and end-of-life care.
3. So long as the family member who has been diagnosed with dementia is competent, he or she should meet with an estate planning attorney for the purpose of developing and implementing a comprehensive estate plan. An estate plan can help to ensure that your loved one’s wishes are carried out, even if they have difficulty making decisions for themselves. This estate planning legal documents include a Will, Revocable Living Trust, Durable Financial Power of Attorney, Health Care Power of Attorney, and HIPAA Waiver Authorization.
4. Find support for your loved one who has been diagnosed with dementia. There are many resources available to help families cope with dementia. These resources can provide emotional support, practical advice, and financial assistance.
5. Take care of your emotional well being and physical health. Caring for a loved one with dementia is a demanding and stressful experience. Therefore, it is important to take care of yourself physically and emotionally.
6. Enjoy the time you have together. Dementia can take away many things, but it should not take away the joy of spending time with a loved one who has been diagnosed with dementia. Make the most of the time you have together.
The Levin Law Firm can help your family members to create a comprehensive estate plan and navigate relevant legal issues related to dementia.
If you have a family member who is suffering from a substance abuse problem, your situation is far from rare. Over 20 million Americans are addicted to alcohol or non-prescription drugs. In addition, many others have loved ones with behavioral addictions such as gambling.
As a result, we have seen clients spend tremendous emotional and financial resources over many years trying to help their loved ones to recover from substance abuse and other addictions.
Parents and grandparents in this situation often agonize over how to include their addicted family members in their estate plan, and often give serious consideration to disinheriting them. While they may certainly love their family member who struggles with addiction issues, clients also recognize that it may do more harm than good to give an addict an outright distribution, in one lump sum, of assets or other property that can easily be liquidated for cash.
They justifiable concern is that the family member who is struggling with substance abuse or other addictions will use all or part of their inheritance to purchase drugs, quickly depleting their share down to nothing.
While some clients choose to disinherit their child or grandchild, there are often viable and constructive options to provide financial resources for a family member struggling with substance addictions, safeguarding and preserving assets, without completely disinherited them.
In most cases, we see clients who want to provide resources and a safety net for a child or grandchild with addictions, but desire to select another family member or trust company to make discretionary distributions to the beneficiary by placing restrictions on how the inheritance is used, in order to protect the child from quickly depleting their inheritance through poor choices.
Fortunately, this goal can be accomplished by establishing a Trust that is properly structured and includes specific safeguards with respect to the distortion of income and principal to the family member with addictions.
Following is a summary of how a Trust can be structured by a competent estate planning attorney in these situations for the benefit of a family member:
- You select the beneficiary of your Trust and set aside funds, during your life or upon your passing, that will fund the Trust.
- You designate the Trustee who will manage the assets and distribute funds to the child. The selection of the Trustee is a critical decision, which can be a family member, friend, professional corporate trustee, or a Co-Trustee appointment. Strong consideration should be given to appointing an independent third party trustee, instead of a sibling since it is far less likely that a professional trustee will be pressured by an addicted child to make unwise distributions to the beneficiary with addictions or to succumb to such pressure.
- The nature of the discretionary distributions included in your Trust can be designed to meet the needs of the family member with addictions. For example, you may want to include provisions that authorize the trustee to pay only for the addicted beneficiary’s health, education, medical care, drug counseling and rehab programs. Payments from the Trust can be made directly to service providers, so reduce or eliminate the beneficiary’s direct control over inherited trust assets. Flexible Trust language can provide the trustee with the authority to use both income and principal under certain circumstances.
- Your estate planning attorney can also include specific language in the Trust which often encourage or fosters healthier behavior. For example, as an incentive for the beneficiary to make better decisions, you may direct your trustee to release additional funds to the beneficiary on the condition that the beneficiary regularly attends drug counseling sessions. This provision could also provide that if the beneficiary misses a certain number of counseling sessions, distributions are reduced. If the child has proven to be recovered and that recovery is documented over a significant period of time, you could direct your trustee to release a specific portion of the principal of the Trust to the beneficiary. You may also want to build in monetary incentives if the beneficiary accomplishes certain goals – for example, graduates high school, college, or maintains a steady job for a certain number of years.
- Your Trust can also include provisions for any funds which remain in the Trust when your beneficiary passes away. Those funds could be distributed to the trust beneficiary’s own heirs if there are any, or to your other children or grandchildren.
Drug addiction is a difficult problem to conquer and a frustrating one for many families. However, your personal estate plan can provide for a loved one with addictions in a manner that does not contribute to the problem, or which hopefully may even encourage the beneficiary to recover and lead a productive and meaningful life.
A recent headline read “Battle Over Anne Heche’s Estate Settled” when it should have read “Yet Another Celebrity Dies Without an Estate Plan.” Anne Heche was a well-known actress who died unexpectedly following a fiery car crash in August 2022. Anne left behind two sons, one of whom is 20, the other of whom is 13, and no estate plan.
Her case was tragic and the results were completely avoidable in many ways. Because Anne failed to create even a basic Will, her estate will distribute in accordance with the laws of intestacy in California, through a public probate process, instead of in a private manner. In addition, California statutory law will determine who will receive her estate and how they will receive it. Anne’s 20-year-old son petitioned and ultimately won the right to administer his mother’s estate, despite several claims brought by the father of Anne’s 13-year-old son.
While Anne’s older son has won this battle, the settlement of his mother’s is far from over, especially since he will undoubtedly have his work cut out for him administering his mother’s estate. Anne’s death illustrates yet another of the many reasons why it is vitally important to have an Estate Plan, regardless of your age or level of wealth, especially when young and minor children are the anticipated beneficiaries.
Anne could have avoided this result by creating a comprehensive estate plan. A comprehensive estate plan often comprises a Last Will and Testament, a probate avoidance Revocable Living Trust, along with a Financial Power of Attorney, Health Care Power of Attorney, Living Will, and a HIPAA Waiver Authorization. These legal documents are state specific and provide financial and health care protection for our clients during their lives, in order to avoid a Guardianship proceeding in the event an illness, injury, or incapacity. These legal documents also ensure that that right property, passes to the right party, at the right time, upon the passing of clients.
When a comprehensive estate plan is properly structured, assets which distribute to beneficiaries can be protected as well from the potential claims of a beneficiary’s creditors, predators, and divorcing spouses, ensuring assets stay within the family blood-line. During life, an estate plan provides specific instructions regarding who is responsible for making specific decisions, if the client is unable to make those decisions due to a temporary or permanent illness or incapacity.
In the event of passing, the client’s estate planning legal documents specifically provide the names of the fiduciaries, including one or more executors and trustees, who are financially responsible regarding the distribution of estate and trust assets, to whom the decedent’s property will be distributed, and when and how the property will be distributed to the beneficiaries of the estate and trust.
If the client executed a Revocable Living Trust, then the terms of the Trust Agreement would allow the decedent’s estate plan to remain private, since unlike a Will, Trusts are not subject to the probate process in any state. In this case, a public fight over who would distribute Anne’s assets could have been completely avoided and have remained private.
If Anne had executed only a Will, then her Will would have been required to be admitted to probate upon her death in order for the executor to collect her assets. As a result, all of her assets, along with the terms of her Will would have been subject to public scrutiny.
However, her Will would would have allowed her to select one or more financially responsible individuals to administer her estate, rather than letting the local court decide who would administer her estate.
While Anne may have designated her oldest son to serve as her executor, who now holds that responsibility, it is entirely possible that she would have selected another family member, friend, or professional corporate fiduciary, with more maturity and experience to handle the settlement of her estate and deal with such matters.
If Anne had created a comprehensive estate plan, she could have included provisions to protect her children, utilizing at Trust-Based Plan. Instead, all of her property will distribute outright, in one lump sum to her older son, and a Guardianship account will need to be established for her younger son, until he attains the age of majority, at which time her youngest son’s share will be distributed outright to him.
For example, a Trust-Based Estate Plan could have provided a lifetime trust for the benefit of each son, which would have provided continuing asset management, divorce protection, asset protection, and estate tax protection for them.
Because Anne failed to create any estate plan whatsoever, as noted above, her eldest son will receive his inheritance outright. As a result, that will allow him unfettered access to the funds, and will not provide him with any protection from the potential claims of his current or future creditors.
Her youngest son’s inheritance will end up in a Guardianship account administered by someone else, potentially with significant court oversight. If Anne had taken the time to create an estate plan, she could have decided how she wanted each son to receive his inheritance, and who would be responsible for distributing the assets to her sons.
By failing to create a comprehensive estate plan, Anne deprived her sons of these benefits and saddled them with many undesirable consequences at a time when they should have room to grieve their mother’s untimely death.
By creating a comprehensive estate plan, with a competent estate planning attorney, the mistakes in this case can be avoided for your own family.
Estate plans often include both revocable and irrevocable trusts for a myriad of reasons. Regardless of the type of trust created, designating a responsible and suitable trustee to administer the trust is of paramount importance to the beneficiaries of the trust.
The trustee selected is the gatekeeper for the trust. This person, or trust company, is charged with the responsibility of investing the trust assets and making distributions to the individual and/or charitable beneficiaries in accordance with the terms and provisions stated in the trust agreement.
However, what happens when the beneficiaries of a trust desire to change the original trustee selected by the grantor to serve in the fiduciary capacity as trustee? This edition of Estate Planning Matters will explore the various options that beneficiaries of a trust may use to remove and replace one or more trustees.
As with most endeavors, it often makes good sense to start with the path of least resistance. In this context, that means requesting the undesirable trustee to resign. While this type of conversation may be uncomfortable, the trustee may no longer be interested in co thinking to serve as trustee and agree to resign. In many cases, if the beneficiaries are unhappy with the trustee, they likely have let the trustee know about their dissatisfaction.
Aa a result, the trustee may decide to resign without a judicial proceeding, especially when it no longer is feasible to satisfactorily administer the trust for the benefit of disgruntled beneficiaries.
The outgoing trustee will be required to prepare an accounting of all trust activity, including investments, receipts, and disbursements. Once the accounting is prepared, the trustee would request the beneficiaries to review and approve the accounting, then sign a waiver absolving the trustee and discharging the trustee of their current fiduciary responsibilities as well as agree to hold the trustee harmless in the future.
If the trustee refuses to resign, then the beneficiaries need to explore other methods of removal. The parties should look to the trust agreement to determine if the grantor included a specific provision authorizing the beneficiaries to remove and replace the trustee, with or without cause.
A competent estate planning attorney can provide both the beneficiaries and trustee with guidance to ensure that the parties to the trust consider relevant options when a change of trustee is necessary.
More specifically, legal counsel can guide the beneficiaries through the trustee removal and replacement process, as well as to ensure that all parties follow the terms of the trust agreement. Even if the document fails to include a power to remove the trustee, the attorney may help the beneficiaries utilize other trust provisions, which often include a change of situs or appointment of a trust protector as a means to accomplish the ultimate goal of removing the trustee.
If the trust agreement contains no provisions allowing the beneficiaries to remove and replace the trustee, and the trustee is not agreeable to voluntarily resigning, then the trust beneficiaries have several other options that can be pursued for the purpose of removing a trustee.
In states that follow the Uniform Trust Code (“UTC”), the UTC permits the use of a Non-Judicial Settlement Agreement (“NJSA”) to resolve such situations, if the matter does not violate a material purpose of the trust. However, the use of a NJSA requires agreement by all interested parties. Determining which parties qualify as “interested parties” requires engaging a trust and estate attorney who is knowledgeable and familiar with the appropriate statutory definition to ensure all interested parties agree.
The UTC lists several matters that the NJSA may address, although jurisdictions are not entirely consistent on whether or not matters not listed may be resolved using the NJSA. Generally, statutes allowing the use of the NJSA do not require court approval, although obtaining court approval would certainly prevent future disagreements on the matter.
If the use of a NJSA is not a viable option, the UTC states also allow modification of a noncharitable trust by consent of the parties. The comments to the UTC, reference relevant statutes, and one state court decision prohibit the removal of a trustee by consent, although the consent may be used to address other areas of contention between the beneficiary and trustee. Interestingly, even if the modification by consent violates a material purpose of the trust, if agreed upon by the grantor and all beneficiaries, it’s allowable. Some states require court approval, others do not. Modification by consent usually requires the consent of the grantor.
A well designed estate plan, designed, drafted, and implemented by a competent estate planning attorney, should include specific provisions that provide flexibility to modify a trust and evolve with changes in future circumstances. However, even if the existing plan lacks specific provisions regarding the removal of a trustee, beneficiaries have options worth exploring, based upon case and statutory law in the jurisdiction which controls the interpretation and administration of the trust.
Whenever trust beneficiaries are considering the removal and replacement of an individual or corporate trustee, it is wise to engage a competent estate planning attorney to provide guidance and legal advice to help the beneficiaries navigate through this process.
