Asset Protection ~ Facts & Fiction
Recently, I read a column that suggested asset protection strategies should be used by those with modest estates. While I appreciate the premise, I respectfully disagree. Asset protection strategies used by high-net worth or ultra-high net worth individuals require a substantial investment in resources – specifically time and money. Most families with modest estates don’t have $2-5 million in liquid assets, a mortgage free million dollar primary residence, a second vacation home, watercraft, and insurance to cover the value of all of these assets. Let’s be real, if: (1) Your family residence is still subject to a mortgage, you don’t actually own the asset to protect. (2) You own 1 or 2 multifamily income producing properties that are still subject to mortgage, you don’t actually own the asset to protect. You do, however, own the income, which is what umbrella insurance and LLCs are for. (3) You don’t have the funds readily available to replace your mortgage-free family home, the only way to protect that asset is with a robust homeowners insurance policy. Economic uncertainty is frightening. And ways exist for families with modest estates to protect what they have and undergird their wealth accumulation efforts. However, if you’re thinking about asset protection consider the above and think again: AFFORDABILITY. The legal fees alone are generally $10,000 or more, and they generally do not end because asset protection or wealth preservation is not a “set it and forget it” endeavor. CURRENT JURISDICTION. All states (or jurisdictions) don’t allow you to establish an asset protection plan or recognize asset protections trusts. IT TAKES A TEAM. Lawyers, tax professionals, appraisers, insurance professionals, and, even, security professionals depending on your other family members and the size of your estate. Experienced estate planning and wealth preservation professionals will do what they can within legal parameters to set you and your family up for success. But, it’s not like the movies and if a wealth preservation professional snaps their fingers and agrees with everything you say, run…fast…and far.
High-Wire Acts & Estate Planning
“If you look down, what you see may not be legally binding.” Like most people, I listen to podcasts on a regular basis. One episode heard lately had absolutely nothing to do with the law, but mentioned the issue of “informed consent.” That led me down the legal rabbit hole considering my duties as a lawyer with potential clients. Every time I or one of our associate attorneys meets with a potential client, we must obtain their informed consent to provide them with legal services. And what exactly is informed consent? Ensuring that our potential client has the requisite mental capacity to take the steps they want to take. For example, the capacity needed to establish a Last Will and Testament requires that a potential client knows what they have and its approximate value, who their heirs would be, what they want to do with their estate assets, and understands the consequences of the distribution scheme they have in mind. Next, they must have accurate knowledge related to the services they are seeking. Using the Will as an example again, a potential client must know that an estranged spouse, can, in Illinois reject the Will and take 1/3 of the Estate. Related to the two elements above, a potential client must then understand the implications of their actions, like establishing a Will that disinherits an estranged spouse or doesn’t mention an estranged spouse. Can you say probate? Oh,..and then we have to explain what that is. After all of the above, the potential client then must have the freedom to say “no thank you” to our pitch. If Junior is sitting next to Grandma whispering in her ear and Grandma says reluctantly, “Ok. Who do I make the check out to and give everything to Junior,” Houston, we could have a problem. Finally, Grandma must provide us with the authority to prepare the Will. If Grandma says, “sounds good,” I’ll talk to my family and walk away. Grandma hasn’t given us authority to do anything. Now… I’ve a few questions: (1) When you sign up for one of the online platforms, are you providing your informed consent? (2) And if so, to whom? (3) What AI program or online platform took and survived the bar exam? I love technology, but leaving issues involving family and money to something that is artificial and has no real world experience in probate courts is a high-wire act, to say the least. Need a Review Of Your High-Wire Estate Plan
We Were Surfing, Then a Shark Ate Her
What Happens if You Die Without a Will While On Vacation? It was going to be the best honeymoon ever. We met a couple of years post-divorce for both of us, and fell madly in love with each other and each other’s children. We were financially secure and each of us had our own wealth and intended to keep our assets separate. The water was beautiful and blue and the waves were amazing. We went out on our boards and out of nowhere appeared a grey fin, an ugly snout, and then menacing black eyes. She freaked out, fell off, that thing opened its snout, showed teeth, and the center half – 1/3 – of my new wife’s body disappeared. Then all hell broke loose. We had quickly prepared powers of attorney prepared before we left and were planning to have an estate plan prepared by an attorney once we returned. My wife was particular about how she wanted her remains disposed – she wanted to be buried in the most sustainable and economical way. At the hospital, researchers appeared and refused to release her body. Unlike our home state, in this state, doctors were the final decision-makers on dispositions of remains. So I had to leave her remains in a strange place. I’m also going to have to pay thousands of dollars to a healthcare system because we didn’t have traveller’s insurance. When I returned home, I learned that some of her accounts had no designated beneficiaries, so instead of everything going to her children, her children will have to split everything with me. When they found out about that, they began blowing up my cell phone asking me what I intended to do. Of course, I intend to give them the 100% of my share but one of them is a spendthrift – money burns holes through their pockets and my wife was adamant about being careful how much to give to this child on a regular basis. That has caused some friction between all my stepchildren. Also, since my wife had no Will or Trust, her estate must go through probate. In this state, because I’m the surviving spouse, I have preference in acting as an administrator for her estate. This issue also created discord between me and my stepchildren. That frickin’ shark! I think what I’m going to do is use part of my half to create a trust for the spendthrift child to shelter at least part of their share of the estate, and they are not going to like that, but I know it’s what my wife would have wanted. She would have been very upset with the fact that this kid, who she actually suspected as being a functional addict, is going to obtain 1/6 of their share completely outright. I really hope the kids don’t blow through their inheritance; they are still young adults, just a few years out of college. Her estate was rather large, so I also must obtain insurance to cover the value of her estate, which cost the kids thousands of dollars. My wife was also working with a tax professional because she also had a significant tax liability that they were disputing with the IRS. That means I can’t distribute her estate to the kids (or anyone else) until that issue is resolved. How am I going to explain that to the kids? Maybe I can provide a partial distribution, but I still need to have some appraisals done – she owned a couple of rental properties and a small online business. I really miss her – she was fun but brilliant. This is a mess… And a fictional story…kinda
Navigating Florida\’s Perilous Spousal Estate Inheritance
Contributing Author: Nicole Page Florida law provides significant protection to surviving spouses who have been disinherited or left a small share by their deceased spouses. In Florida, a spouse cannot be disinherited by a will or a trust, which is different than Illinois, where a spouse can be disinherited by using a trust. Florida law gives spouses the option to choose to inherit what was left to them according to their deceased spouses will or the choice to elect to receive a percentage of the elective estate. A surviving spouse usually elects to take an elective share in situations where the deceased spouse attempts to disinherit them or leaves them less than they would receive if they took an elective share. The amount of the elective share is a case-by-case analysis, depending on the value of the estate. There is no fixed number, but rather a percentage – up to 30% of the deceased spouse’s estate. It’s also important to note that some assets that aren’t typically a part of an estate are considered to determine the surviving spouse’s elective share. This means that an attempt to circumvent the elective estate statute by distributing assets into a trust may still not be sufficient to disinherit a spouse. Florida does not discriminate by codifying what type of character the spouse had or the nature of the relationship between the spouses. This means that even if the spouses have been living separately for years, it does not infringe on the right to the elective share. As long as the spouse is a Florida resident and still married at the time of the death, they can claim the elective share. Barriers to claiming the elective share are: Executing a valid premarital or postmarital agreement. Required procedural protocols: The surviving spouse must file a written notice that they are invoking the elective share statute with the probate court within 6 months after the date of service of the notice of administration or 2 years after the date of the decedent’s death. Still, if you would prefer to provide for your children because you\’re in a second marriage, beware of what\’s lurking beneath…
Give Me Your Family and Your Money
Estate planning attorneys help clients manage the 2 most important aspects of our clients’ lives: their families and their money. This means we must know as much as possible about our clients, more than almost anyone. A friend recently chuckled when I told them that if they want to be my estate planning client, then they need to talk to me as they would their doctor and then tell me what their doctor reported; talk to me like they would their tax accountant and then give me copies of their tax returns; talk to me like they would their financial planner and then give me copies of all of their financial records; talk to be about their children, siblings, partners, and parents and then tell me what they don’t want them to know; and, finally, give me the complete contact information for each one of the persons we just discussed so that I can verify, within the bounds of attorney-client privilege, HIPAA, and other fiduciary rules, the information provided with each person. And THAT is why to consider preparing a Last Will and Testament or a Trust as a DIY task is NOT funny … Unless you’re a doctor who can diagnose their own maladies, an estate planning attorney who is also a tax accountant, and a Certified Financial Planner with licenses to buy all the financial products available to amass wealth, AND you have no loved ones or potential beneficiaries. And THAT is why having a credible, experienced estate planning attorney is important for 99.9% of adults… One of our instruments is called a Trust for a reason. No joke.
New Laws Approaching Fast
Summer has ended for most families with children and we thought about this and other family dynamics in our most recent newsletter. However, the summer didn\’t stop Illinois Governor Pritzker from approving several laws that will affect families and businesses in the coming months. Here\’s a few that you may find interesting: The Illinois Trust Code, effective January 1, 2020, aligns Illinois with states that have adopted or established their own version of the Uniform Trust Code. Meaning for you: As you and your family move among the states, your estate plan may not need much revision. Assault or battery of an elderly person results in a loss of inheritance, effective January 1, 2020. Meaning for you: Nothing, we hope. Recreational cannabis will be legal in Illinois, effective January 1, 2020. Meaning for you: If you will partake or endeavor commercially, remember it is still against the law, federally, Uniform Partition of Heirs Property Act, effective January 1, 2020. Meaning for you: If you inherit property with someone else as a co-tenant and y\’all can\’t get along, the property can be sold without mutual agreement. Department of Public Health Powers and Duties Law amended to allow a feasibility study for a state repository for Healthcare Powers of Attorney and other medical Advanced Directives. Meaning for you: Unclear; these are your taxpayer dollars going to a study to determine if your medical information should be held by the State. Those are the headliners that we found relevant to our clients and associates. We\’ll be providing deeper analyses of these issues and others as the laws become effective and part of our society\’s fabric.
Was I Just Disinherited?
As an estate planning and estate administration attorney firm, we routinely get questions when an individual’s loved one has died and they believe they are owed an inheritance. Perhaps they heard their loved one mention a Last Will and Testament or a Revocable Trust or, worse, a loved one died and because the individual is the only reviving heir, they are confused when they can’t obtain a second mortgage. Leaving the latter situation for another time, below are a few common questions we are often asked. Q: How will I know if I\’m a beneficiary of my mother’s Will or Trust?A: The Executor or Trustee must contact you; it’s the law. Q: My grandmother died a year ago and had a Trust. My uncle, the Trustee, won’t tell me anything. Is there anything I can do?A: Your grandmother may have left everything to her children (your uncle and parent) equally and not per stirpes, in which case, you may not be entitled to know anything. However, if your parent, who was your grandmother’s child, predeceased your grandmother, you could seek to probate your grandmother’s estate. Q: My father died and his Trust left everything to my stepmother, and upon her death, me and my siblings will inherit. Can’t we get anything now?A: If the terms of the trust are validly provided as you stated, you can’t receive anything now. You may receive inheritance from life insurance or bank accounts whereby your were the designated beneficiary but that’s all. A marital Trust, which is what this may be, generally provides all income and complete discretionary distributions of all principal to the surviving spouse. In other words, your stepmother can spend up or sell all trust assets, leaving you and your siblings with nothing. Be nice to your stepmom. Q: My sibling mentioned her Trust before dying a month ago and we can\’t find it among her papers. What she me and our other brother do?A: If she had a lawyer, contact the lawyer. If she was a regular client at a bank, maybe she has a safe deposit box, which will require a Small Estate Affidavit to open; but it could be in there. If you can’t find anything in 90 days, click here to learn about probate. Feel free to contact us if you\’ve got a question.
It’s Quite a Taxing Season…for Trusts
Everybody probably knows by now that in December, the Tax Cuts and Jobs Act (\”Tax Act”) was signed into law. Significant changes were made to the tax code, benefiting almost all United States citizens for at least one year and at least 1% of United States citizens for at least 7 years. In addition to the significant changes affecting individuals, the Tax Act also resulted in significant changes with respect to trust income. Before the Tax Act was signed, trust income that did not exceed $12,400 was not taxed by the Federal government. Trust income that did exceed $12,400 was taxed at the highest marginal rate, which was 39.6% in 2017. Now, with the Tax Act, the threshold has disappeared, meaning that all trust income not distributed in the year in which it was accrued is taxed at the highest marginal rate, which is now 37%. But before we get our knickers twisted, let’s parse this out a bit: Does this tax apply to all trusts? Good question. Generally, revocable living trusts are named such because the Grantor or Settlor – the person creating the trust – can change the trust whenever they want or even revoke the whole thing. Since the Grantor has this right, the assets in the trust, including all income, are considered to belong to the Grantor. So, because the assets and income belong to the Grantor, the income is generally taxed via the Grantor’s income tax return, the 1040, not an estate tax return, i.e., a 1041. Example 1 John Ross retained the firm, Hamilton & Associates to establish a revocable living trust for John, leaving his wife, Betsy, everything he owns upon his death; if Betsy dies before John, the assets will go to his nephew. John owns a house in Pennsylvania, life insurance from Lloyd’s of London, and a 49% share in Betsy’s flag-making business (Betsy’s Flags), which generates about $1,000 a year in income. After the JR Revocable Living Trust is established, John’s home is transferred to the trust because he doesn’t want Betsy to go through probate and, for some reason, he also transferred his 49% interest in Betsy’s Flags to the trust. However, the JR Revocable Living Trust is revocable and all assets still belong to John as Grantor and Trustee, so the trust pays no income tax because John pays the taxes … to the King. Example 2 John unfortunately dies while in service to his country. Upon his death, the JR Revocable Living Trust becomes irrevocable; it can’t be changed. And Betsy decides to leave John’s 49% interest in Betsy’s Flags in the trust and resigns as Trustee, letting Hamilton & Associates act as Trustee. The business is booming because several rogues, who were well acquainted with John, decided to start a war with the King and ordered a ton of flags from Betsy as a symbol of unity. So she’s quite happy with her 51% and really doesn\’t have time to administer the trust. John’s trust is now a “non-Grantor” trust because the Grantor is dead and the trust owns the assets. So any income generated by the 49% of Betsy’s Flags may be subject to the King’s income tax. Revocable Living Trust Tax 2017 2018 Income $1,000 $1,000 Federal Income Tax -0- -0- Irrevocable Trust Tax 2017 2018 Income $1,000 $1,000 Federal Income Tax -0- $ 370 Of course, one may distribute the income before the end of the year and deduct the payment from the trust’s tax return. However, scenarios exist where such distributions are neither desired nor advisable. Then what? Make sure your estate planning attorney, accountant, and financial advisor know and respect each other. Does this apply to all income? Another good question. One of the changes that the Tax Act also heralded in was a deduction for income earned by certain small businesses. Thus, the income generated by the 49% of Betsy’s Flags may actually be $296.00 instead of $370.00. What do you mean by certain small businesses? That’s a question for another article. So stay tuned…
The Supercalifragilisticexpialidocious Codicil
There we were sitting in Wills and Trusts and the prof used the phrase, “the power of the codicil.” I was struck. Why? No idea. To this day, I still love the phrase and still have no idea why. Similar to a child’s love of the phraseology of “supercalifragilisticexpialidocious.” Thus, in honor of the almighty Codicil and National Estate Planning Awareness Week, I thought it a good idea to unpack “the power of the codicil.” A Codicil (“kah-duh-sill”) is the mechanism used to change a Last Will and Testament. Consider the following scenario: A very long time ago, Molly, an independent and progressive young woman for her time, had a Last Will and Testament prepared. She was married and owned a couple of properties. Her Will left everything to her spouse and since she and her spouse had no children, Molly named her best friend, Florence,as a contingent beneficiary (or more precisely, legatee). Unfortunately, Molly and her spouse divorced and to celebrate her divorce, Molly decided to take a cruise from New York to England. Her best friend became ill and so had to stay home. During the oceanic voyage, the ship sank but Molly survived and Molly vowed to change her Will as soon as she returned home. [SIDEBAR – Had Molly died, the law would have prevented her ex-spouse from inheriting but instead of her best friend inheriting her fortune, it would have gone to her no-good nephew, Fred.] Molly’s Will was very precise and long for the day – more than 10 pages. Still, all she wanted to change were the legatees; she didn’t need a completely new Will. So… enter the Codicil. Molly’s attorney prepared 2 pages, explaining and stipulating the changes – Florence received everything and if Florence predeceased Molly, then her fortune went to the Jane Addams Hull House. Molly and 2 witnesses signed and dated the codicil and voila! All was right with the world. Her will was validly changed. Molly remarried decades ago but is now a contented widow in her twilight years with great-grandchildren. About 20 years ago one particularly geeky grandchild convinced Molly to invest in \”some contraption called \”the Google\”,” this other stock called \”Apple,\” and \”a silly online store called \”Amazon\” of all things.\” Molly\’s fortune exploded so she thought it would be a good time to change her estate plan. She intends to ensure her descendants are well-cared for and give to social justice and environmental causes. Her former lawyer has since retired, so she met with her grandchild’s lawyer and mentioned the power of the Codicil. The lawyer smiled and advised that, given her good fortune and fruitful life, an entirely new Will in addition to other planning mechanisms are in order. Molly understood and the asked if the lawyer accepted Bitcoin as payment. One may ask can a Codicil be considered a Will? For example, what if the Will was lost but the Codicil was located and, for some reason, restated everything in the Will. Because the Codicil must be prepared and signed with the same formalities as a valid Will, this Codicil would likely be considered just that – a valid Last Will and Testament. Another interesting question that occasionally pops up is what if a Testator just scratched out or added someone\’s name to the margin of the Will – what effect would those actions have on the Will? Would that deletion or addition be valid? No. Those actions are not valid unless done so contemporaneously during the signing of the Will. If done so afterward, without the formalities, the person who was scratched out will still inherit and the person added won\’t inherit a thing. After a Will has been signed, in Illinois, for those changes to be valid, one would have to execute a supercalifragilisticCodicil.
A Mother\’s Love Doesn\’t Include Dad\’s New Wife
When a spouse dies, leaving behind a surviving spouse, children, and considerable assets, the surviving spouse should tread carefully with respect to estate planning instruments governing those assets. The 2016 Illinois Appellate case, Gwinn v. Gwinn, is a good example of this premise. Background Facts Ken Gwinn, Sr. and Betty were married with 4 children. In 2002, Betty established a trust, providing for Ken and their children. If Betty predeceased Ken, he was the designated Trustee, which meant that he had a fiduciary duty to abide by the terms of the trust. In 2009, Betty died. Her estate consisted of approximately $600,000 in liquid assets, a mortgage-free home in Illinois valued at approximately $750,000, and farm property. The terms of the trust gave Ken as much of the trust income as he wanted and a discretionary, albeit limited, amount of the trust principal. Upon Ken\’s death, the remaining trust assets were to be divided equally among the children. Two years after Betty’s death, Ken married Maria. After marrying Maria, Ken withdrew $475,000 from the trust to buy a home in Colorado for him and Maria. The Colorado home was titled solely in Maria\’s name and, thus, represented a gift from Ken Sr.’s late wife’s trust to his new wife. Needless to say, the kids were not pleased. So 3 of the 4 children filed a lawsuit against their father claiming breach of trust and breach of fiduciary duty because this gift was “extraordinary” (a legal term of art for gifts that are beyond the scope of intent) and went beyond trust terms. The lower court ruled in favor of the father and the children appealed. Appellate Court Analysis and Findings The Appellate Court agreed with the children, in finding that the trust was established for their benefit in addition to their father’s benefit. However, the Court also asserted that their father was the intended primary beneficiary during his lifetime and, as trustee, had broad discretion over distributing gifts from the trust to himself as beneficiary. Nevertheless, that discretion was not absolute. After considering the cardinal rule of the “intent of the testator or settlor,” specific limiting language in the trust, relevant case law, and persuasive legal treatises, the Court ruled that the discretion of gifting from the trust was limited to Betty’s descendants. Clearly, Maria was not Betty’s descendant. Additionally, even if Ken tried to cloak the gift to Maria in his own beneficiary status, the law precluded him, in his capacity as trustee, from increasing any beneficiary’s gift, including his own. The Illinois home was sufficient; taking $475,000 from the $600,000 corpus was deemed an “extraordinary gift.” The Court, therefore, found that the nearly half-million-dollar gift from Betty’s trust to Maria was not Betty’s intent (ya think?!) and, thus, Ken breached the trust terms. In breaching Betty’s trust terms, he also breached his fiduciary duty to all of the beneficiaries. This year, if your Valentine’s Day gift requires retitling, think twice, just in case.