Second Marriages, Drunken Debauchery, & Children Left Behind
Often couples with no children think that they don’t need a will because their spouse will fulfill their wishes with respect to extended family. Sometimes it works; often it doesn’t. Though we can hope, we simply cannot predict what the future will hold for us or our loved ones, which is why planning is critical. Incapacity can strike in more ways than one leaving our extended family members or favorite charities empty: Gina and Lisle were in their second marriage. Gina was a widow when she and Lisle met. Her first husband was a generous man, with no extended family, so he left Gina the bulk of his estate. Lisle’s ex-wife retained a very good divorce attorney, so she ended up with nearly everything he owned, including the shirt off his back. Fortunately for Lisle, his ex found a wealthier second husband and Lisle was eventually able to buy a new shirt. Neither Gina nor Lisle had children but both had siblings and Gina had nieces and nephews who captured her heart. Lisle only had one brother, Jake, a scoundrel and leech, living off relatives and women who took pity on his substance abuse and inability to stay employed for longer than a couple of weeks.* One day, Lisle received a call from a hospital. Gina had been admitted after slipping and falling on an icy intersection crosswalk. She broke her ankle as a result of the fall. Lisle arrived at the hospital and the doctor told him that while treating Gina, they noticed she had an irregular heartbeat. They wanted to examine the cause and decided to keep Gina for a few days and run tests during that time. After running the tests, doctors determined that Gina had severe blockage but before the hospital could treat the blockage, Gina developed a bacterial infection. And this bacteria was very resistant. The bacteria was so resistant and Gina’s immune system so compromised by the blockage that she never recovered and died in the hospital. Gina left no will or trust but had a verbal understanding with Lisle that part of their combined estate was to go to Gina’s nieces and nephew to assist with their college education. However, as Lisle floundered in grief after Gina’s passing and became gravely ill himself a little more than a year after Gina\’s death, he fell victim to Jake’s undue influence and the nieces and nephews never got a dime. Sometimes it’s not your incapacity but the disability of others that may undermine your wishes if you haven’t a solid plan in place. *Whether he realizes it or not, Jake is incapacitated with respect to Illinois law, whose definition of incapacity includes, “because of gambling, idleness, debauchery or excessive use of intoxicants or drugs, so spends or wastes his or her estate as to expose the person with disability or dependents to want or suffering.”
5 Reasons Why the \”Permanent\” Exemption Matters to You
Many people probably know that Congress made permanent the Federal estate tax, which is $5 million, indexed for inflation, per person and $10 million per married couple. This means that approximately 98% of Americans will not have taxable estates on their deaths with respect to the government’s estate tax. A sigh of relief for many families could be heard across the land. However, folks shouldn\’t sigh too heavily because the same matters that existed before for individuals and families were not eliminated by Congress’s act. So the following are 5 issues that have nothing to do with the federal estate tax but are still very important to protecting yourself and your family: You have children. Even families with modest-sized estates should ensure that their children are cared for according to their wishes and values if a tragedy occurs. Minor and disabled children are of primary concern. I’ve written before that without a will that nominates a guardian, minor or disabled children may be placed with someone a parent would consider less than ideal. Beyond that, consider retirement proceeds. If a minor or even young adult child is the beneficiary on a retirement account, depending on the language of that account, Uncle Sam may still take a large bite or equally troubling, a relatively young adult may come into a large sum of money in one fell swoop. You aren\’t married BUT you are in a loving committed relationship with someone. So that means your significant other or partner, while being able to benefit from your lifetime exemption, cannot benefit from portability. Also, the same issue with respect to retirement proceeds as mentioned above also apply in this scenario. If your unmarried in the eyes of the federal or state government but you and your partner have a child, just bring the issues of number one right on down. You are a professional or small business (smallbiz) owner. Unfortunately, we Americans are a litigious bunch. If we believe we have suffered an injury related to professional services, e.g., doctor, lawyer, dentist, or a small business, then many of us have no problem pursuing litigation that will cost much more than the malpractice insurance covers. Estate taxes have little or nothing to do with covering your assets from multimillion dollar litigation. You have income producing assets. The federal government and many state governments tax beneficiaries on 2 levels: estate and income. If your daughter\’s trust has income producing assets, such as the 3-flat apartment building you gave her, then there is a likelihood that the trust will have to pay income tax. How much depends on how well your team works to protect you. Still, like number 3, this has nothing to do with estate taxes. You live in a \”decoupled\” state. Some states are \”coupled\” with the Federal estate tax regime, meaning their state\’s lifetime estate tax exemption is identical to the Federal government\’s. However 28 states are decoupled, and most of those states, unlike Illinois, have a significantly lower estate tax exemption amount. So that means that while estate tax may not be due to Uncle Sam, it may be due to Uncle Quinn – Illinois\’ governor, for example. Estate taxes were a primary focus of estate planning because no one likes paying taxes. Well, estate taxes are no longer a primary focus and those other issues still need to be considered, just like they did before December 31, 2012.
Popping the Question, Prenupts, and Powers of Attorney
Valentine’s Day is quickly approaching and thousands of individuals will be “popping the question” and getting the question popped at them. This is, at least what jewelers around the country have been spending all those advertising dollars on. It’s also what those individuals wanting to be “popped,” so to speak, are also hoping for, and my hopes are with you. In celebration of that bended knee, larger than life smile, and mother’s joyous tears, I offer a few points to ponder after the popping and before the party planning. The points are sobering but will help to provide years of “bubble and squeaky” happiness long after you’ve settled in with each other. If you’re not cohabiting, have “the money talk.” If you are living together and haven’t had the money talk, tsk..tsk… If you are cohabiting and have had it, good for you! and have the money talk again. If there is a large disparity of income or both of you are very affluent, consider a prenuptial agreement. It is commonplace in such scenarios so no one should feel offended if it is mentioned or requested. The basic rule is that both parties should retain their own attorneys to draft and review the document, which should be signed before the formal engagement celebration, if there is one. If you’re cohabiting obtain life insurance and powers of attorney. If you’re not living together but engaged, obtain these items before going on the honeymoon. If you’re on relatively equal financial footing economically and the families are smiling, when you return from the honeymoon, add a will to your estate plan. If even one close family member is frowning, turn that frown upside down by promising to leave him or her something in your will and then add an in terrorem clause. Better yet, have a trust prepared with a pour-over will attached and leave him or her whatever you like with or without the in terrorem clause. Love means planning a relationship founded on pragmatic principles as well as butterflies in the tummy.
The 5-Letter Word\’s Evil Twin
I often comment fervently about trusts, as any good estate planning attorney would, that is, talk a lot…about trusts. So, yes, if someone asks me how best to plan for their family and I learn that they have more than $100,000 in assets or that they’ve got other family members with bones to pick, I spell out the word T-R-U-S-T in as many ways as possible. “However folk,” in the words within a great Sinatra monologue, a trust just ain’t the answer to all of life’s woes. A few “folk” can tell you why: Tammy Lewis is being sued for $50,000. She owns a piece of property with her sister. The property value is $100,000. A revocable living trust came to Tammy’s mind when she found out about the judgment. And the thought should have made like the rabbit in the black hat and disappeared. Whether the property is held in joint tenancy or tenancy in common, Tammy’s interest in the property is attachable by a creditor. If held in a revocable living trust, the trust assets are still considered owned by the grantor (which could be Tammy), so there is no creditor or judgment protection for Tammy. Sean Davidson and his wife were happily married for 15 years. His wife worked for 9 years and then took time off to give birth, nourish and nurture the kids, volunteer with the PTA, and so forth. Initially, she worked a little from home but not much, ultimately deciding that being a full-time wife and mother at least until the youngest was in first grade was important. However, when Ms. Davidson worked, she and Sean contributed equal amounts financially to buy and help pay the mortgage on the $600,000 family residence. Now, Sean wants a divorce. He contacted an attorney to place the house held in joint tenancy with the soon to be former Ms. Davidson in a trust for Sean and Sean alone. The flow of this particular scenario would work something like this: House + Sean Davidson Revocable Living Trust + Divorce = Wife Awarded 50% of Marital Property (incl. part of the house) = Invalid Trust = Sean Sues Lawyer = Lawyer Pays and Is Possibly Disciplined Of course, other avenues exist to address some of these issues but the main point is if you owe a debt, you can’t hide from it with a trust. It’s called F-R-A-U-D. The names of individuals found within this blog are purely fictional, unless otherwise expressly stated.
The Issue of Issue, Deers, and ART
A couple of days ago, I read an article on alternative reproductive technology, “ART,” and posthumously born children. It reminded me of conversations and cases about heirs that I’d also recently encountered. The article, conversations, and readings affirmed for me that the question of who is an “heir” or “issue,” while initially may seem simple to answer, can be complex. Thirty years ago, the definition of “child” found in a will or trust may have been a few sentences. Today, that definition is – or should be – a few paragraphs. Consider the following: Jeremy and Jessica were in a loving, committed, cohabiting relationship for more than 10 years and were unmarried because they refused to institutionalize their relationship. Still they wanted to have a baby, but Jay was sterile. However, Jeremy’s best friend, Keith, agreed to b a sperm donor. Eventually, they found a clinic that would perform the procedure and Keith was asked to sign a consent form. One statement on the form provided that Keith waived all rights of parentage with respect to the child that would be born to Jeremy and Jessica using Keith’s sperm. He was to check that box if he agreed with this statement. Keith thought about his significant other, Karen. He and Karen were also in a long-term relationship and discussed marriage and children a few months ago. But no definitive plans were made. Keith was in his early 40s and very successful; if he and Karen didn’t work out, he reasoned that this could be his only chance at quasi-parenthood. He decided not to check the box and think about it more but he signed the form. Jessica underwent the procedure the day Keith signed the form. Then, the 3 left the clinic; Keith headed home to Karen. Unfortunately Keith never arrived home. He was killed when a deer darted out in front of his car and Keith swerved onto a patch of ice, careening him and his car into an oncoming semi-tractor trailer. Karen was more than distraught because she was going to tell Keith about the bundle of joy that was produced when she and Keith had far too much to drink a couple of months ago. Keith died without a will, so who will eventually inherit his estate? Illinois law provides that posthumously born children are children of the decedent. Consequently, if both ladies were successful giving birth, then both children would have been Keith\’s heirs. This also illustrates the importance of another provision now becoming a standard in wills and trusts – the genetic reproductive material provision. If Jessica chose to store Keith’s sperm until a day she was more fertile and Keith died before that day with a will that had a genetic reproductive material provision, then Jessica could have been precluded from using his sperm. Keith could have also changed the definition of children in his will to expressly disinherit any children born of ART except those born during the time he is in an intimate, cohabiting relationship with the mother of said child. Still, all this presupposes that Keith would not have wanted 2 daughters. The point? No one can predict who or what our family will be or look like, but when we make a decision about what part or all of that family may look like, we need to write it down in a legal instrument ASAP.
3 Ways A Will Is Not Cake (de Gateaux)
One primary reason many individuals in Illinois use a revocable living trust is to avoid the court process known as probate. Why do people want to avoid probate here? Well, probate is: Time consuming, requiring at least 7 months, typically 13 – 14 months, and sometimes longer to complete; Costly, at least $2,500 if there is no litigation, i.e., a claim made against the estate; and Public and so anyone in the public domain can view for himself or herself what a cheapskate the testator was or who got disinherited. However, even if your beneficiaries can wait a year, no claims will be lodged, $2500 is un morceau de gateaux, and no one gets disinherited, a few additional reasons make trusts more attractive than wills, especially with respect to gifting: You want to ensure your children or grandchildren have an opportunity to attend all 4 years of college and a good graduate program without financial aid angst. Trusts provisions known as “staggered mentoring” provisions and a separate educational subtrust help in this situation. If you and your spouse want to leave the family residence to your children, but you still want to maintain control of the residence during your lifetime, a QPRT (“qualified personal residence trust”) may do the trick. If you live in a state that does not match the federal estate tax regime, such as Illinois, and you want to leave more to the children by minimizing the amount of estate taxes your beneficiaries will have to pay both Uncles – Sam and Quinn, instead of the normal two-pot trust, a three-pot trust may work. As with most estate planning vehicles, trusts also have disadvantages in gifting, such as trust fees and administrative costs if the estate is very large. Additionally, unless the gift is given completely away, or you opt for an asset protection trust, it will be more difficult to use federal and state lifetime estate tax exemptions. Still, the advantages of having a trust, for many Illinois families, outweigh the disadvantages irrespective of the income bracket because every family is unique and minimizing taxes isn’t the only type of protection afforded by trusts. Disclaimer Woman Caveat: The materials provided in this blog, The Shark Free Zone, and throughout the website for The Law Offices of Max Elliott, Ltd. are for educational purposes only. By reading these materials, no attorney client relationship has been established. Additionally, because of the very complex nature of estate planning, one should not attempt to create or draft a trust on your own but seek the counsel of an estate planner. Finally, IRS Circular 230 Notice: \”To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code of 1986, as amended, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.\”
4+ Million Reasons and a Kid
It\’s sometimes difficult to understand the federal and state (for my purposes, Illinois) estate tax regimes and how they may affect you and your family. So this post and next week\’s post will try to explain visually and very simply, what the implications may or may not be. And this visual is so simple that it serves a dual purpose – it illustrates why some things should be left to graphic designers and not clipart. This week shows what can happen through December 31 of this year. Next week, you\’ll get to see 2013. 7 Points to Ponder: If you\’ve a minor child, then doing it yourself (DIY) is a bad idea; If you\’ve real property, then the Small Estate Affidavit probably won\’t work in Illinois; If you\’ve more than $100K in personal and/or real property, then a DIY will likely end with your loved ones in court; A trust should generally always include a will but court shouldn\’t be part of the deal; If loved ones end up in court with a sizable estate on a dispute regarding the estate\’s value, then they may also end up with a tax bill; The typical cost to probate a will in Illinois (take it to court) starts at about $2500; If the trust is valid and the estate is under $5.12M, then both Uncles should walk away empty-handed.
4 Occasions When a Will Won\’t Work
Recently, law students received the following hypothetical to answer: “Ms. Angel Booth has phoned you, Ms./Mr. Associate, and said, “Hi, this is Angel Booth and I want to set up a will because I want to completely disinherit my daughter.” What is your response?” After getting rid of the “deer-in-headlights” look, the students came up with a myriad of answers. Yet and unfortunately, this isn’t an uncommon scenario and for valid reasons. Furthermore, this occurs not just between parents and children, but between as many relationship pairings as you can think of. Still, this scenario goes to reason number 1. Using a will is a tenuous proposition at best if you’re trying to disinherit an heir. Admittedly, I’m being a tad hyperbolic, because it can work – after a lengthy court battle involving lawyers, doctors, and a ton o\’ family members. To disinherit an immediate heir, in Illinois, using a standalone will where the value of the estate is more than $100,000 in personal or real property will beg for a contest and bye-bye goes a large portion of the estate – in probate litigation. Mamma Mega Millions Marries Gorgeous. Yes, you’ve been smitten by the most gorgeous, decades younger, individual walking the planet. You’ve worked your petooty off as a single mother, put your children and your siblings through university, and now want to enjoy the million-dollar fruits of your labor with Gorgeous in the bounds of matrimony. You will probably be advised to have an airtight prenuptial agreement. You also want a will prepared, but a will that leaves most of those millions to Gorgeous will shout, “Probate Litigation!” and siblings, children, BFFs, third cousins, you name it will probably shout back with claims against the estate. Grandpa Disses Daughter-in-Law. So, while it can’t be proven that she murdered your dearly departed son, you, Grandpa, just don’t agree on anything with your daughter-in-law about your grandchildren. In your opinion, she isn’t parenting the way your loving son would have. Still, you’ve saved about $30,000 that you want the children, ages 7 and 8 to have upon your death. I previously wrote about the imprudence of leaving substantial financial gifts outright to minors. This is another example. In Illinois, if a minor receives a substantive gift, e.g., more than $10,000, the funds must be transferred into a restricted vehicle for the minor whereby the guardian or custodian is given control. Typically, the guardian or custodian is an adult member of the minor’s family, i.e., Dastardly Daughter-in-Law or a trust company. Thirty-thousand dollars isn’t usually sufficient for a trust company; thus, DDIL will likely gain control over the $30,000. Calling Dr. Cooper. Finally, setting aside seedy scenarios, let’s consider Dr. Amy Cooper. She has a thriving practice with three other doctors and has started accumulating a substantive portfolio. She doesn’t mind paying her fair share of taxes, but doesn’t want her beneficiaries to pay more than their fair share either. Leaving everything outright to her partner and children in a will, however, results in the very thing she doesn’t want.
4 Points to Ponder for Your Peace of Mind
The house is quiet. The treat you bought yourself is still in the fridge. You and your spouse have a dinner date in the middle of the week. Your cell phone is no longer a constant reminder of the triple life you lead: companion, professional, and parent. You’re a tad stiff in the morning, but nothing that a few asanas and a hot cup of coffee won’t cure. Plus, there’s nothing wrong with a little stiffness after the decades you’ve spent working out, right? Right. Your mind continually and comfortably drifts off to favorite travel destinations or that mid-week date during meetings you must attend in order to be a “sober second” when asked; and you’re getting asked less and less, thank goodness. Life is . . . pretty good. So, while you have some time on your hands, allow me to provide you with 4 points to ponder related to that pretty good life. Your children are out of the house for good, leading their own lives with their own families. Does this mean you have grandchildren to enjoy and then return to the fray? If so, have you thought about providing or helping to provide for their education? Your career has moved right along or your wok has become more and more tolerable. You’ve gone this far, so you’re in it for the long haul. Have you thought about what to do if, working near the end of the long haul, you are injured for a substantial length of time? Can you afford it? Do you have long term disability insurance or a strategy viable to ensure that you’ll still be able to assist with educating the little brutes or brutesses once they’re about to enter high school or university? The end of the long haul is clearly in sight. Accordingly, the previous point bears revisiting. Also, do you have a strategy for making it through the “Golden Years” comfortably? Do you know how you’re going to draw down your retirement funds so to maximize your money and minimize your taxes? People are living longer now so our resources must keep up. Will you be able to just sit on that old porch swing and smile? Family isn’t charity; it isn\’t a cause. Family is a wonderful responsibility and gift shared amongst its members. However, as those responsibilities, even to ourselves, wane and are fulfilled, how have we shown responsibility toward our community? Is there an organization, a group, a center whose work you admire and would like to try to help ensure the work and programming will continue? You see, estate planning isn’t just about planning for death. These 4 points to ponder prove it. How are you going to (1) help family, (2) help yourself heal peacefully, (3) protecting your porch swing, and (4) helping your community?
With this Ring, I Don\’t Civil Union or Wed
Several articles on The Shark Free Zone discuss challenges married or Civil Union couples face. However, their challenges, especially in terms of planning and protecting their families, are minimal compared to cohabiting couples. And before I continue, let me say that not wanting to subject your relationship to institutional constraints is understandable. With the divorce rate in the U.S. between 40-60%, whether you’re a same-sex couple or a straight couple who consciously decides against obtaining legal status for your relationship, your decision ultimately may be more pragmatic. I’m thinking Kurt and Goldie. However, the decision to cohabit will currently cost you and your partner more than 1100 state and federal government benefits. The decoupling of these benefits from cohabiting couples results in the above-mentioned challenges. Nevertheless, planning tools exist that are universally applicable, irrespective of your relationship status, tools such as powers of attorney, certain types of life insurance, and certain retirement accounts. Additionally, you and your partner can take other definitive steps to protect your relationship. Furthermore, these steps, which are gender-neutral, can help your family today and tomorrow. Prepare A Property Sharing Agreement. One of my favorite TV shows is The Big Bang Theory and, admittedly though Leonard tugs at my heartstrings and I LOL at Raj and Howard’s “bromance,” I identify most closely with Sheldon. Sheldon has a roommate agreement that probably puts most prenupts to shame. Among some of its provisions, is an outline of who owns what, how the asset should be replaced if the other party destroys it, and how property bought together, such as a life-size authentic Time Machine, should be divided if the relationship ceases and one roomie moves out. The cohabiting relationships I’m discussing in this article are, of course, more substantive than roommates, but the premise is the same: list what you own together and separately and acknowledge it on a legally signed document. Seek Adoption. If one of you is a biological parent with sole custody of the child, a second-parent adoption by your partner, if he or she is a non-biological parent, is critical. Otherwise that person will have no legal rights if the biological parent becomes incapacitated, dies, or decides to end the relationship. Trust the Trust. Both of you place your express intentions in a valid trust. A will can be challenged and the gender composite of your relationship is irrelevant. Nasty courtroom battles have occurred between family members who opposed the surviving partner’s share because of religion, age, or other cultural reasons that had nothing to do with the couple’s gender orientation. In a nutshell, what must a couple do to protect their non-institutionalized relationship? Document the sharing and put all agreements in a valid contract whose benefits aren’t derived from or through federal, state, or local governments. Other than that, enjoy your loving and stable family just like everyone else enjoys theirs. In the words of Tommy Llewellyn-Thomas: Noli spurios te contundere.