The Connecticut Elder Law Blog

The Evolving Will

Many of my clients tend to procrastinate when it comes to finalizing their estate planning documents.  They struggle over who to appoint as guardians for the kids, or who should be the "back up" executor if the surviving spouse can't act, or who's going to end up with the tool collection.  Sometimes these questions can be tough ones and people "freeze up" and stress out over whether or not they're making the right decision.

As the estate planner I'm always concerned that the famous bus is going to run my clients over while the drafts of the wills sit on my desk unsigned.  So I try to gently nudge my clients along towards finalizing everything. 

One factor that I try to impress upon my clients is the fact that their wills are not set in stone; that my clients should conceptualize their wills as evolving documents.  As developments occur in the family (if people pass away, someone becomes disabled, someone gets divorced, there's a "falling out", etc.) it is possible to tweak the documents in order to address the new family situation.

I also emphasize that tweaking the documents ("amending" the documents, in legalese) is very easy and very inexpensive, assuming that the change is not overly-complicated.  I always keep the documents on my computer, or stored digitally, so re-printing the documents with a new date and a new name here or there is very easy.  My fee for doing something like that runs in the two figures, not three figures.

So, don't stress out about it too much when you set up your will and other documents.  Make the best decision you can given the current circumstances and facts.  Then schedule a signing date with your attorney knowing that you can easily change things later if you need to. 

And remember that once your documents are signed you will experience a wonderful peace-of-mind, and that's what estate planning is all about.

Be Specific with Charitable Bequests in your Will...

If you don't have any family members to leave your estate to, or you do have family members but you don't care to leave them anything (which happens way more often than you'd think!) then it's always nice to consider naming any charitable organizations or churches that have some personal meaning to you. 

Unfortunately, I see many wills which have very simple language when it comes to charitable bequests.  For example, and I'm not promoting donations to this particular organization, but let's look at the statement, "I leave my estate to the American Cancer Society."  Brevity is wonderful, but in this case it can cause some problems.

First of all, the American Cancer Society (like most large charities) has a central headquarters and many regional offices.  Did the person want the money to benefit the headquarters or her local regional office since it's closer to home?   

Second, what did the person want the money to be used for once it arrives at ACS?  In all likelihood, a simple statement like the one above will result in the charity using the money for its general purposes.  This could include administrative things like purchasing paper clips.  And if that's what the person wanted then that's fine, but maybe she wanted her money to be used for a higher purpose like research funding, establishing a scholarship or to support a particular fund-raising event, like ACS's Relay for Life.

The message is that some things should not be kept simple, like a charitable bequest in a will.  Be specific and detailed to ensure that your true wishes are followed.

A Tip on Funeral Instructions...

Many clients ask me whether they should include their funeral instructions in their wills.  I always tell them that's a good start, but they need to go beyond that as well. 

The problem with stating your wishes in your will is that in most cases, no one looks at the will until sometime after the funeral.  At that point, learning your wishes regarding your funeral isn't very helpful. 

So by all means, document your funeral instructions in your will, but make sure to follow that up with verbal instructions to close family members and friends which will prompt them to refer to your will before the funeral arrangements are made. 

Better yet, consider purchasing a pre-paid funeral contract with the funeral home of your choice.  That's a great way to guarantee that your wishes are well known...not only are they in writing, but they're also backed up with some funds!  This is also a great tool if you need to spend down your assets for Medicaid planning purposes.

Check Those Beneficiaries!

OK, let's start the year out right and invest some time in making sure that the beneficiaries that are listed for your assets make sense in light of your current circumstances.  I'm talking about any financial asset that has a "designated beneficiary", such as life insurance, qualified retirement accounts (IRA's, 401K's, etc.) annuities and any bank account that has been established as a "POD" (payable on death) account. 

If you remember nothing else from this post remember this: Your will or living trust does not control the distribution of the assets listed above.  If an asset has a designated beneficiary, then upon your death the remaining funds are going to that beneficiary (or beneficiaries) and no one else.  The company in charge of the account doesn't give a hoot about what your will or living trust says.

One perfect example of when this can cause an enormous problem is when there is a divorce.  If you don't update your beneficiary designation after the divorce then your ex could end up with the proceeds upon your death.  Wow.

Please look at that list in the first paragraph again and note that we're not talking about small change here.  If you're like most of the population then your retirement accounts are probably the largest assets you have with the possible exception of your house.  Also, the pay-out of your life insurance may represent the largest percentage of your estate.  So it's worth it to sit down with your estate planning attorney and make sure that you get your beneficiaries right.

What Does "Per Stirpes" Mean, Anyway?!

"Per Stirpes"?  What the heck does that mean?  That may be the singlemost common question I hear from clients when they receive drafts of their estate planning documents for their review.  It's certainly a fair question since it doesn't tend to come up in everyday conversation.  But it's one of those necessary evils in the world of estate planning since writing out the meaning of the term would add another large paragraph to everyone's will.

First of all, it's a Latin phrase (a working knowledge of Latin is practically mandatory in the legal industry for some reason) which means "by the roots".  Interesting perhaps, but not very helpful yet.

OK, it essentially means that descendants of the next generation following a beneficiary will each receive an equal share of the beneficiary's share of the estate if the beneficiary has predeceased the decedent.  Well, if you read that last sentence very slowly it may start making sense.

So let's finish it off with an example:  Jerry dies without a spouse, but he has one son, Kramer.  Actually he had one son, but Kramer tragically died before Jerry.  BUT, Kramer had two kids, George and Elaine, and they survived both Kramer and Jerry. 

Can you guess what happens next?  Yes, Jerry dies with a will stating that his estate goes to Kramer "on a per stirpes basis". 

The result: since Kramer's not around to get his inheritance, George and Elaine will take it on Kramer's behalf, 50/50.  It doesn't matter if George and Elaine have kids of their own because those kids (Jerry's grandkids) would get nothing since their parents survived them.

That's the simplest way I can explain "per stirpes" (complete with a Latin translation!).  But if it's still as clear as mud, please ask your estate planning attorney to walk you through how your estate distribution works if the beneficiaries of your will receive their shares on a per stirpes basis.

A Different Set of Tax Rules for Non-U.S. Citizen Spouses

If you or your spouse is not a U.S. citizen then you need to be aware of the fact that you have a completely different set of estate tax rules to contend with.  And if you don't then you may end up sending a lot of your hard-earned dollars to the government unnecessarily.

When you have two spouses who are both U.S. citizens, then upon the death of the first spouse there is never any tax regardless of how large your estate is.  It's upon the death of the second spouse when estate tax can become an issue if the surviving spouse dies with an estate that exceeds the federal exemption amount (currently $2 million).

But...if one spouse is a U.S. citizen and one is not, and the U.S. citizen spouse dies first, then estate tax could become due at that point and the government is not going to wait until the death of the second spouse before collecting a tax.  Why not?  Because the government is worried about that foreign spouse high-tailing it back to his or her home country and dying there, in which case the U.S. government can't collect a single penny of estate tax.  So the government has decided to tax while the taxing is good...while that non U.S. citizen spouse is still here in the country.

So...if one of the spouses is not a U.S. citizen, then there is a unique estate planning issue that must be addressed.  In the next post I will go over the most common approach to this situation; a QDOT trust (yes, another one of those Q-acronyms that come up a lot in estate planning).

Beware of "Living Trust Mills"

I try my best to keep an ear to the estate planning blogosphere, and one of the more recent issues in the world of estate planning is the surfacing of "living trust mills".  The loose definition is an organization that markets revocable living trusts (usually by way of a lunch or dinner seminar at a nice restaurant) and tries to convince the public that living trusts are documents that virtually everyone needs and purposely misrepresents how estate tax and the probate courts operate in order to make living trusts more appealing.  The result is people (usually seniors) spending four-figure amounts on estate planning documents that they don't actually need.

The growth of these mills are evident in recent class action lawsuits initiated by clients who claim that they were misled when they purchased living trusts.  And Kudo's to Florida estate planning attorney, David M. Goldman for listing recent articles on these scams.   

I have posted on the danger that financial predators pose for our elderly population, but it's deeply saddening to learn how prevalent such predators have become in my own industry. 

I will throw my two cents into the blogosphere discussion by saying that there certainly are a lot of people who could benefit greatly from living trusts, specifically if the focus is avoiding the probate process.  But I would argue that they are not documents that everyone needs.  Perhaps these living trust marketers genuinely believe that living trusts should be as widespread as living wills. But I don't agree, particularly since trusts are much more expensive than wills and require much more leg-work in regards to re-titling assets into the name of the trust.  And I don't believe in counseling my clients to take on the added expense and hassle if they truly don't need to do so.

So...if you do attend one of those living trust seminars, I strongly recommend that you look into the background and experience of the presenters and be very wary of anyone claiming that there is a universal need for living trusts.

Your Will and Your "Stuff"

When I talk with clients about their wills, they almost always want to know how their estate planning should address their "stuff". The more refined, legal terminology for "stuff" is "tangible personal property". Things like collections, photo albums, clothing, furniture, the family coat-of-arms...they all fall into the "stuff" category. It's essentially any asset that isn't a financial item or real property. Just about everything else is your "stuff".

And don't take your stuff lightly! Any probate attorney will tell you that "stuff" often touches off very nasty legal proceedings. If you ask Judge Killian at the Hartford Probate Court about the case involving the family coat-of-arms that I mentioned in the above paragraph then you should be prepared to see his eyes roll around a great deal. So your stuff should be taken seriously in your estate planning.
If your stuff is genuinely valuable stuff which has significant financial value or will likely appreciate in value over time (like a fine painting or a baseball card collection) then it is something that will be considered part of your estate and the Probate Court will want to monitor its administration and distribution.

However, if an item has sentimental value but really no financial value (like a photo album or a family heirloom) then the Court typically prefers that the family handle its distribution outside of the probate process. This means that you are better off not mentioning it in the will and should direct its distribution with a letter or memo; something non-legal that is separate and apart from the will (attaching sticky notes with names on them to hidden spots on personal items is not unprecedented). This approach also makes it logistically easier to document any change-of-heart you may have in the future. In contrast, if you specifically mention it in the will then you need a very formal amendment process (an attorney to draft a codicil, witnesses, a notary, etc.) to make any changes.

But ( and this is an important "but") if you anticipate a family feud over any particular item, whether it's valuable or not, then specifically mention it in your will. There might still be a family feud over it, but the chances of your wishes actually being carried out go up substantially when they are in your will, which is witnessed and notarized.

One last tip: it's a somewhat morbid discussion, but you may want to consider having a family meeting to get some input from loved ones on how your stuff should be distributed. This may be the best way to avoid post-mortem court battles over your stuff.

Should Funeral Instructions Be In My Will?

Planning out a funeral certainly seems like a morbid task.  But the fact of the matter is that the act of planning out your funeral, whether it's done by you or someone else, is something that has to be done eventually (in light of the fact that death is one of the two things in life that are guaranteed).  So the funeral planning is one of the things that many of my forward-thinking cilents do.  And the question of whether the funeral instructions should be contained in the will often comes up.

As is usually the case with legal questions, the answer to this one is "yes, but...".  I usually encourage my clients to go ahead and talk about their funeral plans in their wills, assuming they have strong feelings on that topic, but you need to go beyond that. 

The problem is that when someone dies the will is often not even opened until sometime after the funeral.  You can imagine the loved ones' awkwardness when they discover that the funeral instructions in the will do not match up with what actually happened at the funeral. 

So, go ahead and include your funeral plans in your will, but you need to verbally indicate your wishes to your family as well.  You can even give them a document, separate and apart from the will, which spells out all of the funeral plans for them.  Setting up your funeral plans with the funeral home of your choice ahead of time also makes sense.  In other words, you should not rely on your will as being the sole source of funeral plan information for your family.

I will also mention that making funeral plans ahead of time, as morbid as that process may be, is almost always deeply appreciated by loved ones.  Having funeral plans in place removes a challenging administrative burden from your family as they go through an emotionally difficult time.

Can I Name a Trust as an IRA Beneficiary?

It wasn't too, too long ago when it was downright dangerous to name a trust as a beneficiary of an IRA.  As far as the rules were concerned, a trust could not have a life expectancy, and therefore all of the IRA funds would have to come out of the account and go to the trust within just 5 years of the death of the IRA owner.  All of the distributions during those 5 years were taxable as income and the wonderful benefits of potentially stretching out the tax liability over a much longer time period were lost. 

But suffice it to say that the rules have been changed...in a big way.  And although the rules changed back in 1997, I'm surprised at how many clients still have the "old rule" mentality a decade after the old rules were overhauled.

Nowadays, the tax deferral benefit is still available even if the IRA beneficiary is a trust and the life expectancy of the trust beneficiary is used to calculate the required minimum distributions each year.  If there are multiple trust beneficiaries, then the life expectancy of the oldest beneficiary is used.

However, the following requirements must be met:

1.  The trust is valid under state law (this is a relativley low hurdle to get over).

2.  The trust becomes irrevocable upon the death of the IRA owner.

3.  It's clear who the trust beneficiaries are.

4.  The IRA custodian (the financial institution managing the IRA) receives a copy of the trust by October 30th of the year immediately following the year in which the IRA owner dies.

Although the above requirements are not particularly onerous, it's always a good idea to chat with your financial planner, accountant and estate planning attorney before designating a trust as your IRA beneficiary to make sure you comply with all of the requirements.  They would also apprise you of any developments in the law that you will need to knwo about.  This is definitely not an area in which you want to make a mistake...the consequences could be very costly for your beneficiaries.