Update and Answer (?) to the Mendelson Mess…
***The most recent update*** The Illinois Trust Code finalized the rule about transferring property to trusts: Transfer of real property to trust. The transfer of real property to a trust requires a transfer of legal title to the trustee evidenced by a written instrument of conveyance. Update to First Post (Below). The bill was signed into law by Governor Rauner and becomes effective on January 1, 2017. BUT… questions, of course, are still unanswered, such as what is an \”interest\” in property for the purpose of this law. Well, we will continue to muddle through… First Post In October of 2015, we reported about a case that caused a slight sensation in the Illinois estate planning, title, and probate communities by providing that property need not be titled to a trust in order to be considered part of the trust estate. In response to the quiet uproar, on appeal, the court retraced some of the steps, but still left the issue about whether property needs to be titled to a trust in a questionable state. So, 2 Illinois legislators came to the rescue and introduced a bill in February 2016 requiring a title transfer to a trust and that the transfer be made via a written instrument, e.g., a deed to the trust. The measure, SB 2842, has passed both legislative chambers and is waiting for the Governor\’s signature. So stay tuned…
If You Have a Facebook, LinkedIn, Twitter Account …
A recent case, Ajemian v. Yahoo!, Inc., came to my attention because it involved access to a dearly departed brother’s Yahoo! email account. A recent change to Yahoo!’s terms of service includes the following: You agree that your Yahoo! account is non-transferable and any rights to your Yahoo! ID or contents within your account terminate upon your death. Upon receipt of a copy of a death certificate, your account may be terminated and all contents therein permanently deleted. (Emphasis added by The Shark Free Zone.) Therefore, siblings, who were administrators of the brother’s estate and despite providing a death certificate, could not even access the content of their brother’s Yahoo! account. This case highlights the fact that, if any information that is useful to an estate’s executor or administrator, e.g., a username change, bank or utility online statements, or the names of online accounts that the user had were provided, upon proof of a loved one’s death, the Yahoo! account may be frozen and the information not transferred but destroyed. That means that the executor or administrator will have to go through the departed’s mail, papers, or even underwear drawers, to contact the institution and perhaps wait days or weeks for final account information to be provided. Ouch! The above is also another reason why I’ve said it before and will keep on saying it: Property powers of attorney should authorize access and control of digital accounts and assets. Equally important, a list of user names and passwords, at least for email and financial accounts, should be provided to your designated executor or one or two loved ones. If you bank and enter into other financial transactions online, such as paying a utility bill, without usernames and passwords your power of attorney agent can\’t properly manage your affairs. Arguably, providing the agent under a power of attorney could be construed as “transferring” the rights, but your agent is acting on your behalf, so the transfer is actually what we call a “legal fiction.” But death is death; no fiction that can undo that. So even if you didn\’t take care of the matter while you were on Twitter, if you didn\’t at least authorize your executor to obtain and use this information, then your family will experience even more emotional angst than necessary after your final tweet. What was the ruling on the case? It was remanded back down to the court from which it came to make the decision from a state law perspective, since the deceased was a Massachusetts resident. The Court decided that the selection of law that Yahoo! tried to impose – California was improper given the decedent user lived in Massachusetts and that state would have a decided interest in the case. Maybe this is also another reason for us to be more careful about what we post; it could end up in the hands of a stranger or a loved one who we unduly and harshly criticized. Double ouch!
4 Estate Planning Facts Everyone Should Know
1. You have an estate and a plan even if you’ve not done anything. The answer to how this is possible is found in the definition of “estate” and the law – at least for the state of Illinois. Your estate is everything you own – tangible and intangible. It includes retirement benefits, debts owed to you, your bicycle, your bodily tissues and organs, whatever may be in your bank accounts, and whatever remains of your coming paycheck after obligations are paid. Probate assets of those who die without a plan or a will in Illinois will be distributed according to the laws of intestacy per the Illinois Probate Act of 1975 as amended. Accordingly, debts, your bike, your bank accounts, and your paycheck will go to who the laws of intestacy and the court decides. So, regardless of what you possess and your actions, you have an estate plan. 2. Your estate plan, even the one you don\’t know about, is in effect during your lifetime. Documents you sign at medical and dental treatment facilities before being treated, and even some sporting events, typically involve you implicitly designating your “next of kin” to act on your behalf if you became incapacitated. Sometimes, this isn’t who you think it is. Since you’re going to sign these forms anyway, wouldn’t you rather make an actual decision before the dental cleaning? 3. Family and friends fight over stuff and the fight can become war. Love is love until death and then it becomes war. Folks will fight about could be grandma’s old cookie jar, gold coins, or memorial arrangements. Nevertheless, once a battle ensues, the only real winners are the litigators; they get most of the cookies. Considerations for this fact include: apathy for one\’s family; family harmony; good karma; and increasing the wealth of trial attorneys.* 4. The most important decision you can make in estate planning is not what to give away or who to give it to, but who will manage it or give it away for you. Even if you don’t interact with a certain individual regularly, they protect the cookie jar. These individuals, called “fiduciaries,” include personal bankers, financial planners and advisors, accountants, lawyers, trustees, agents under powers of attorney, guardians, and executors or personal representatives. A large part of guardianship and estate litigation involves the “breach of fiduciary duty,” where the fiduciary has dipped his or her hand into the cookie jar. Sometimes the fiduciary is a family member; sometimes a long-time, trusted friend and advisor; and sometimes not such a long-time friend but is still trusted. Thus, even if you’re not at the point of naming an executor, perhaps you should carefully consider who is going to step into your shoes and manage your finances if you become seriously ill or just go for an annual check-up; then designate someone…in writing. A thoughtful and appropriate designee may prevent abuse, breach, litigation, and possibly war. * Some of my dearest friends are trial attorneys.
Preventing Family Feuds for the Smallbiz Owner
At a Chicago Bar Association’s Solo/Small Firm Committee Meeting, I gave remarks on why estate planning is not a “basic” endeavor. A favorite example was a about Ms. Small Biz (Ms. SMB) who was married to Mr. Manager and had College-Age Children. It’s a favorite example because it identifies the issues contemporary families comprised of smallbiz owners may confront with respect to business planning, disability, death, and succession planning: Ms. SMB is the sole proprietor of a small, lucrative, and growing graphic design firm. She has 3 employees in addition to herself, and her son works part time during the school-year and full-time during the summer. Her daughter, however, has no interest in the business. But Ms. SMB has great vision for the business with a Pinterest page, a blog, and even a design auction website. Her husband is satisfied with his position as a midlevel manager with a software company. So the family is happy and enjoying its status. For several years now, Ms. SMB has been consistently reaping the fruits of 10 years of hard work and wants to ensure that in the event of her disability or death, her family and business are safe and wrapped up in a neat little package. So how should the estate planning attorney assist? First, we should assess the following: her stand-alone net worth; when the last time, if ever, was her business valued; what is the best legal entity for her business (at this point it should not be a sole proprietorship); who will run the business – digital assets and all – if she suffers a long-term illness; upon her death does she want the business sold or transferred to her son or her son and employees, or family and employees; who will wind the business up if she wants it sold; and if it is sold who gets what and in what form? Undoubtedly, Ms. SMB will need a will or a trust. She will also need to consider the tax implications of the business entity, e.g., LLC, S-Corp, FLP, she decides on. And what about those digital assets; do we need to consult with an IP colleague? However, what is equally important is her decision about what to do with the business at her death. This decision will weigh heavily on her attorney’s counsel about choosing fiduciaries. For example, will that person understand her business, can he or she successfully execute a buy/sell agreement, and can he or she manage winding up the business? Additionally, she wants to provide for both children equally. But giving half of the business’ financial interests to the daughter when the daughter has shown no interest may start a family feud between the siblings. Perhaps life insurance may help and may help in two ways. Once, the attorney ascertains the value of her business and, subsequently, her estate, life insurance can help lower the value of the estate for estate tax purposes and equalize the gifting between her two children. This example shows that smallbiz owners have a several critical decisions and options to make and consider at the start and near the end of their involvement with their businesses. Also, because the decisions made in the beginning can significantly affect the options with respect to succession planning, new smallbiz owners should seek to create a business plan that isn’t a stand-alone plan, but one that also encompasses estate planning. Ms. or Mr. Smallbiz & Family is just one of the faces of today’s family and the multiple faces and overlaps of today’s family shows why estate planning isn’t a “basic” area.
With This Estate Plan, You May Take My Coat
Individuals sometimes ask me, why, if they are not millionaires, do they need an estate plan, ending with something akin to, “I’m not rich; I don’t have anything.” My response is usually the typical T&E (Trusts and Estates) mantra, “You don’t need to be ‘rich” to need an estate plan.” Furthermore, the converse is generally true – the smaller estates need equal, if not more, protection. Moreover, non-millionaire employees are “richer” than they think. Like an IRS person once said, “Stop thinking it’s your money.” So, if you\’ve been steadily employed, don’t think that the federal government sees you as a pauper, irrespective of your current financial woes. Acknowledging that these are horrendous economic times citizens worldwide, I must say that millions are also fortunate. They are employed; have retirement or profit-sharing plans; have life insurance; and they have a house, which may be worth less than what they paid for but they still own a home. My “Who Killed Kenny” winter down coat is worth less than what was paid for it but, considering January in Chicago, it would take a permanent move to my favorite desert oasis to get me to sell that coat. Pardon my slight digression, though I think you got the point: It may feel like you’re managing paycheck-to-paycheck, but even so, you may find solace in the midst of this economic maelstrom. Consider your retirement plan. It may have taken a beating over the summer, like most of our financial accounts. However, you may still be able to use your plan to your advantage in the long-term and/or to your loved ones advantage. The 2 most popular retirement accounts are 401(k)s and Individual Retirement Accounts (IRAs). A 401(k) is typically a qualified plan where your employer matches your contributions. Teachers often have 403(b) accounts that operate in basically the same way as a 401(k). While 401(k) contributions are tax deductible, generally any income earned is taxed on withdrawal. Additionally, once you reach 70 ½, you must make a required minimum distribution (RMD). With a 401(k), your spouse is presumed to be the beneficiary, so if you designate other beneficiaries in your will, your spouse must waive their right to the distribution in order for the other beneficiaries to take. Also, because 401(k) plans are governed by federal law, civil union partners cannot be designated spousal beneficiaries of 401(k) plans. IRAs provide a little more flexibility than 401(k)s, because there is no RMD at any age and withdrawals from Roth IRAs are not taxed. However, the maximum contribution is significantly lower than that of a 401(k) and an IRA account may not even be available if you also have a 401(k). Still, unlike a 401(k), with an IRA, there is no presumption of a spousal beneficiary, so who you names as beneficiary, even if it is your civil union partner or same-gender spouse, is the beneficiary. If that person passes away, then the beneficiary will be the person named next or if there’s no contingent, the distribution will follow the state’s testamentary code. Equally important, you can provide for your grandchildren by creating IRAs for them, so that the distribution that would be made to your children is instead rolled over into accounts for your grandchildren. So before you think you’re “not rich,” consider your retirement plan. Basic it may be, but if properly implemented, it could provide you with comfort like my \”Who Killed Kenny\” coat on those cold, January, Chicago days.
Why There\’s a \”Trust\” in Trustee, Part 2
In Part 1 of this series, I discussed why one should be careful in selecting a trustee. Family members are often considered the most trustworthy with respect to family matters, so people typically select them as trustees. However, this endearing gesture can cause serious problems later: Trust assets could be inadvertently wiped out. A trustee is usually responsible for managing the trust assets. If the trust is significant, the trustee should either have the required financial investment background or the ability to wisely choose someone with the needed background to act as the trust investment advisor. If the trustee is not well informed about investment matters relevant to the trust assets and does not employ someone who is, then the trust funds could dissipate leaving the terms of the trust unfulfilled, and probably one or more displeased beneficiaries. This last point is particularly important if the trust isn’t large, but the beneficiaries depend on its income for health and educational support, for example. Valid claims could go unanswered; or a trust claim could be ignored. The trustee is responsible for responding to or initiating litigation on behalf of the trust. So if a long lost family member who would have been provided for had their whereabouts been known, emerges claiming they should receive under the trust, the trustee should properly address that claim. If the trustee is a family member, however, the problem becomes one of bias against that claim because a valid claim could dilute the current beneficiaries’ shares, possibly including the trustee’s share. Another problem is that it takes time to respond to these claims, time that a family member may not have. Equally important is a trust may have a claim that needs to be litigated. But, if the trustee does not recognize the claim issue, a potential financial award for the beneficiaries may go unnoticed. Co-trustees don’t always agree. While the grantor may have gotten along well with both individuals, when it comes time to make a distribution decision or another decision involving the trust, the co-trustees may not see eye-to-eye and both could have valid perspectives. This type of disagreement starts many long-term family arguments resulting in costly court battles. If nothing else, by choosing a corporate fiduciary, the family will be at peace with each other and at war with someone else. Trust administration responsibilities are time consuming and numerous. The following is an incomplete list of trustee duties: Distributing beneficiary shares Providing a regular accounting to beneficiaries Paying debts, taxes, fees and expenses associated with the trust administration Giving notice to guardians or legal representatives of beneficiaries who are minors or incapacitated Executing documents required for trust administration Settling claims against the trust, not just from possible beneficiaries but from estate creditors Buying insurance for trust assets Perhaps now you’re thinking that a Last Will and Testament may circumvent this “trustee” matter, but that\’s not necessarily true. A Will’s executor or “personal representative” often has the same responsibilities as a trustee. So, establishing a Will not only requires delegation to the executor some of the responsibilities above, but in Illinois, it also entails more costs and more time because of probate. Therefore, it is critical to resist the urge to select a family member as a trustee – or executor – without first giving the decision the thought and discussion it deserves.