Estates and Trusts Law Blog
Commercial Litigation
A Divorce Checklist – Death and Bankruptcy Considerations
A substantial portion of estate and trust litigation and post-divorce enforcement litigation (“contempt proceedings”) is rooted in failures or shortcomings in negotiations or drafting during the divorce process itself. Here is a recommended “best practices” checklist of questions developed based on my nearly three decades of bankruptcy, creditors’ rights, collection and enforcement, and estate and trust litigation. This “best practices” checklist for family law (aka matrimonial law) attorneys, divorce lawyers, those contemplating divorce, and those, perhaps, already in the throes of post-divorce contempt proceedings tracks with my recently published List of “Top 5 Divorce-related Financial Protection Failures”. It incorporates lessons learned “the hard way” from potentially avoidable situations occasioned or worsened when the questions compiled here had not been considered or, if asked, ineffectively taken into account by the drafting attorneys involved in the first instance. This checklist is a practical, check-the-box application of the “Top 5 List” broken down into specific questions to be asked and answered by all involved in the divorce process. The checklist can and should be relied upon and applied (in whole or in part, depending on the circumstances) during multiple phases of a divorce proceeding. The checklist should help guide drafting considerations during negotiations of a Property Settlement Agreement when trying to avoid or limit costly equitable distribution litigation to determine how much each spouse is equitably to receive; otherwise to be measured by what portion of which assets the judge determines most appropriate after costly hearings. The checklist similarly serves to guide drafting considerations of the final divorce decree itself. Furthermore, although the checklist is intended to reduce costs and delays associated with post-divorce litigation used to hold a non-compliant spouse accountable when not adhering to one or more financial terms of the divorce, it can be equally effective during these contempt proceedings at aiding decision-making and providing both cost-saving guidance and time-saving benefits for the user. If routinely followed and effectively applied, the checklist should serve to help avoid unintended negative financial consequences while reducing future litigation and related legal fees, costs, and delays. THE CHECKLIST Insurance Notice to Provider - Has the insurance company (and/or benefits provider) been notified and / or asked about relevant policies and procedures for irrevocably assigning policy proceeds (and precluding unilateral re-designation of beneficiaries by the insured)? Beneficiary Re-designation - Have policy beneficiaries been irrevocably re-designated to identify ex-spouse (and/or child, children, or trust) expressly by name? Account Access – Has perpetual real-time account access to policy information (including, most importantly, payment status and continuing coverage) been irrevocably established? Employment Coverage - If relying upon employer-provided insurance coverage, have conditions or contingencies been established for the continuance of coverage upon termination, or if work-related coverage benefits ceases to be provided for any reason? Premium Payments - What specific protections (e.g., Irrevocable Life Insurance Trust (ILIT) or escrow) have been established to assure continuity of premium payments if the debtor-spouse refuses or is unable to pay for any reason? Real Estate Clean Title - Have you verified that there are no mechanics liens, judgment liens, or other title impediments? Premature Death - Have you analyzed and provided sufficiently for the possibility and potential impact of the premature death of either spouse? HELOC - Have you protected against additional credit extensions in addition to making appropriate arrangements for payoff or paydown? “Robbing Peter” - If an asset is to be liquidated and paid over in whole or in part, have you established consequences, contingencies, and otherwise protected against proceeds of the asset(s) being improperly disposed of, including in satisfaction of a separate financial obligation? Retitling/Disposition – Have you documented that “time is of the essence” and maximized protection of “reciprocal rights” against bankruptcy and/or failed pre-condition(s) to relinquishing, re-titling, or otherwise disposing of assets, especially real property assets? Retirement Accounts/Benefits Notice to Providers - Have all benefits managers/providers of relevant retirement accounts and benefits been given sufficient notice of all changes? Beneficiary Re-Designations - As with insurance coverages, have all beneficiaries been appropriately and irrevocably re-designated? Claim Deadlines – If in a jurisdiction with time limits on claims against a decedent’s estate (e.g., MD – 6 months), have adequate disclosures been made to assure timely action after death? Spousal Payout Elections – If applicable, have appropriate elections been irrevocably made to assure manner and means of payout after death (e.g., continuing spousal payments v. payments terminating at death)? Borrowing Restrictions – Have any outstanding loans against any retirement assets been factored in for valuation purposes and future borrowing against such assets been appropriately and irrevocably restricted? Bankruptcy Jurisdiction - Do you know what, if any, continuing jurisdiction the “divorce court” has if a bankruptcy is filed? Different Chapters - What difference, if any, would the filing of a Chapter 7, 11, 13, or “Subchapter V” bankruptcy have on your situation? “DSO’s” - Have you negotiated financial obligations regarding future PSA payments concerning whether they are subject to characterization under bankruptcy law as “domestic support obligations?” “The Automatic Stay” - Are you prepared to seek relief from the automatic stay and or pursue enforcement in bankruptcy court if a filing is forthcoming? Corporate Assets - If division and/or control of corporate assets by or between one or both of the spouses is/are to be factored, has a potential bankruptcy filing been accounted for with relevant valuation and enforcement considerations? Collectability Limitations Contempt Jurisdiction - Have you sufficiently familiarized yourself with binding local precedent regarding the scope of continuing contempt jurisdiction of the “divorce court” in the event of a bankruptcy filing? Bankruptcy Clawback/Discharge - Have you evaluated whether, and/or the likelihood of, future financial obligations might be subject to clawback or discharge in bankruptcy (and/or how the outcome/impact might differ depending on which bankruptcy chapter or sub-chapter is pursued)? Third-Party Requirements - For known assets held or controlled by third parties, has/have any specifically needed language been incorporated into the PSA, divorce decree, or contempt order to avoid later having to seek additional judicial relief as a pre-condition to third-party cooperation? Escrows/POA’s - Presuming future ex-spouse noncompliance, what, if any, limited power of attorney language and/or separate writings might be included, created, and/or escrowed to avoid, potentially altogether, future ex-spouse involvement? “Double-Duty” PSA - As a potential failsafe, have you incorporated language of present intent and otherwise satisfied necessary elements for the PSA itself to serve if/as needed as a deed, written assignment, or other ownership conveyance? (See [TWR’s “PSA as Deed”] and [TWR’s “PSA as Equitable Assignment”]
July 11, 2024
Estates and Trusts
Top 5 Divorce-Related Financial Protection Failures
Inadequate Insurance Assurances Uncorrectable Real Estate Refinancing/Retitling Shortcomings Unclaimed Retirement Benefits Unconsidered Bankruptcy Impacts Unconsidered Collectability Limitations Death and Insolvency Considerations as Divorce-related “Best Practices” Divorce lawyers routinely fail to protect clients against an ex-spouse’s failure and/or outright refusal to comply with the terms of the documents governing the termination of the marriage relationship between their client and their client’s soon-to-be ex-spouse. As an estates and trusts litigator, with nearly thirty (30) years of relevant creditors’ rights and bankruptcy experience, I have seen innumerable cases involving avoidable–if not always easily foreseeable!–situations occasioned at least partly by shortcomings in the language of the documents generated and relied upon in a client’s divorce proceedings. In short, many, if not most, of the more costly post-divorce, death-related and non-compliance enforcement/collection matters can be substantially mitigated, if not completely avoided, by additional considerations at the drafting stage. With a backward-looking inquiry addressing “how could this ‘new’ costly litigation have been avoided?” assuring that these death and collection-related matters make the “best practices” checklist in any divorce-related legal planning only makes sense. Top Five Divorce-related Financial Protection Failures The top five divorce-related financial protection failures are as follows: Inadequate Insurance Assurances – Failure to assure irrevocable designation of proper policy beneficiaries and unlimited access to policy-related information are primary among divorce “to do” list items not done. Similarly, divorce lawyers do their clients a disservice by failing to take sufficient steps to assure that insurance coverage remains in place, typically by neglecting to include a plan or structure assuring the payment of, and means to make, policy premium payments. A written assignment of policy proceeds is a necessary consideration, as is job-loss protection against either potentially willful or involuntary loss of employment where the insurance coverage relied upon is a benefit provided by a spouse’s employer and, therefore, only an option so long as the employment continues. Providing for a client anticipating death benefits to have perpetual, real-time access to policy information is an easy way to afford a client the means to protect themselves against the future indifference and/or neglect of a willfully non-compliant ex-spouse who fails to keep up premium payments. In circumstances justifying the added expense, the imposition of and well-considered funding of an irrevocable life insurance trust, or “ILIT,” may provide the highest level of protection short of pre-paying policy premiums for the entire life of the policy (which is itself, a non-option in more than 99% of cases). Uncorrectable Real Estate Refinancing/Retitling Shortcomings – Failure to provide properly or sufficiently for failed refinancing/retitling of marital assets converts a hypothetical remedial benefit into a potentially cost-prohibitive non-option. Many divorces include commitments to sever ties between spouses both as to title and financing commitments related to the marital residence or other jointly held real property. It is not enough to provide for a simple “what if” scenario involving the failure to refinance, retitle, or otherwise dispose of a real property asset by one spouse for the benefit of the other, or, for that matter, to include some form of reciprocal rights of the other spouse in the event the first fails to achieve the contemplated refinancing, retitling, etc. Best practices in this regard ought to consider unanticipated, untimely death-related scenarios. For instance, what if the hypothetical “what if” scenario arises because of suicide? What if the titular owner of the real property dies unexpectedly before carrying out the contemplated transfer of title? Thorough planning in this regard would necessarily consider the existence and potential interaction of an existing will or trust, or of the intestacy hypothetically arising due to the lack thereof. Unclaimed Retirement Benefits – Much like the unfortunate situations involving life insurance policies with unchanged beneficiary designations, failure to provide for proper notice and/or re-designation of retirement plan beneficiaries can mean the difference between a divorce client’s future perpetual financial security and potential ruin. First and foremost, it is not enough to include a provision in a divorce-related agreement that one simply agrees that a particular someone shall receive the proceeds of one’s work-related pension, 401k, or other ERISA-qualified retirement account. In fact, it is not enough to include such a commitment generally in one’s will, trust, or other testamentary document. One must communicate one’s change in beneficiary designations directly to and with the account broker/provider (or, in many cases, through official means managed by one’s employer acting as the provider’s agent). Such a change is most typically accomplished by submitting a signed beneficiary designation change form or via an electronic equivalent. Again, it is not enough to request such a form, or even to complete such a form without “delivery” of such a form to the provider or its agent. Here, best practices should include confirmation requirements and not merely a commitment to timely effect the change. Query whether pre-compliance, untimely death considerations ought not also be taken into consideration in this instance as a best practice, as well. The better question is why one wouldn’t at least include this on the checklist of considerations when deciding whether to expend any additional resources in protecting against such a risk. Unconsidered Bankruptcy Impacts – Failure to contemplate “what if” scenarios of possible bankruptcy filings by either or both divorcing parties or a related business entity (e.g. individually to try to delay or avoid support obligations or of a business the value, cashflow, and/or operational continuity of which as a critical marital asset served to leverage negotiated concessions). There is no “one size fits all” bankruptcy provision to plug into divorce-related property settlement agreements, just as every divorce gives rise to a necessarily factually unique set of circumstances. What is most important is that when negotiating asset transfers and contemplating spouse #1 v. #2, one factors the potential impact of bankruptcy scenarios into asset values and negotiates accordingly. Client risk tolerances and, possibly, actual threats or perceived intentions regarding post-divorce bankruptcy filings comprise the most important considerations. One does not necessarily need to incorporate potential bankruptcy language in every divorce agreement but failing to make or seek a bankruptcy risk/impact evaluation only invites subsequent client dissatisfaction, potential Bar complaints, and perhaps even potential malpractice considerations. Unconsidered Limitations on Collectability – Failure to consider requirements of financial institutions and other third-party asset holders likely comes at a future cost and with potentially significant unwarranted delays. It should be no surprise that divorcees do not always live up to their financial commitments in divorce-related agreements and/or divorce decrees. Contempt proceedings and related remedies are not unto themselves the only mechanism to be employed when it comes to securing payment and satisfaction of divorce-related financial obligations. In fact, contempt proceedings themselves generally give rise to additional financial obligations, the collection of which is not a foregone conclusion and rarely, if ever, immediate. Contempt awards are frequently not satisfied immediately. Consequently, the financial relief a successful contempt proceeding is intended to provide often comes, if at all, only after imposing additional financial burdens on the “creditor spouse.” When a “debtor spouse” refuses to make divorce-obligated payments, a creditor-spouse can employ the contempt process to quantify and formally liquidate the amount(s) owed in an enforceable court order (sometimes coming only after the threat of or actual jail time). Having secured entry of a liquidated contempt order amount, one still needs to enforce the order to satisfy the newly liquidated debt. Such enforcement actions (such as garnishments, attachments, asset seizures, turnover actions, etc.) again mean additional legal fees and costs, but here’s where some pre-planning can potentially reduce or avoid even more fees, costs, and delays. Applying some “creditor’s rights” know-how during the contempt process, including considering known third-party asset holder’s risks and requirements, can be a substantial difference maker. It might very well avoid altogether the need for a secondary enforcement proceeding.
June 20, 2024
Estates and Trusts
When Athletes Stumble: The Perilous Pitfalls of Financial Scams and the Simple Legal Mechanisms to Stop Them
In a world where reputation is paramount, athletes often stand as symbols of hard work, determination, wealth, and success. Despite their celebrity, they are not immune to the snares of financial scams. Take, for example, the LA Dodger’s own Shohei Ohtani’s former interpreter, who pled guilty just last week to bank and tax fraud after admitting to stealing more than $16M from the Dodger’s phenom. It drew to mind the NBA’s own Tim Duncan, who lost more than $20M to an unscrupulous financial advisor, leading Duncan down a seven-year path of bad investment after bad investment. From musicians (here’s looking at you, Billy Joel) to politicians and athletes to actors like Kevin Bacon, a victim of Bernie Madoff, the list of those who have fallen victim to fraudulent schemes is as diverse as it is alarming. In this article, we delve into the web of financial scams and explore why even the most prominent athletes at the top of their game can become ensnared. We will also offer insight into simple ways that others in their position can avoid the quandary in which Shohei, Tim, Billy, and Kevin found themselves. The Allure of the Scheme Scams come in various guises, each designed to exploit vulnerabilities and capitalize on trust. Whether it's a Ponzi scheme promising unrealistic returns, a phishing scam targeting personal information, or old-fashioned fraud, perpetrators often employ sophisticated tactics to ensnare their victims. The allure of these schemes can be particularly potent for athletes and public figures. With wealth and often hectic training and game schedules, many athletes entrust their financial affairs to advisors or hangers-on, unwittingly exposing themselves to exploitation. Moreover, the desire for greater returns or the fear of missing out on lucrative opportunities can cloud judgment, making them susceptible to manipulation. Trust Betrayed One of the most devastating aspects of financial scams is the betrayal of trust. In Shohei’s case, his translator, the person he relied upon to bridge language barriers, engage with the press, and provide the in-game interpretation that Shohei needed to perform, was the culprit, gambling away what many believe is more than $20M in total, $16M of which came from Shohei. For Tim Duncan, his financial advisor, whom he had trusted for nearly a decade, unwittingly involved Duncan in speculative investments and risky loans and took Duncan down with him. Busy athletes rightly place their faith in advisors, managers, and associates to safeguard their assets and guide their financial decisions. When that trust is violated, the repercussions can be profound, both financially and emotionally. The Power of Due Diligence While no one is immune to the threat of financial scams, athletes can take steps to mitigate their risk. Chief among these steps is the power of due diligence and having proper legal mechanisms plan in place to reduce exposure. By thoroughly vetting financial advisors and lawyers, conducting independent research, scrutinizing investment opportunities, and then creating the proper legal infrastructure of checks and balances, athletes can better protect themselves from potential scams. Financial advisors, as licensed professionals, undergo scrutiny to ensure their integrity. Their licenses are subject to review for any prior acts of misconduct. At large institutions, advisors face additional scrutiny from their compliance departments. Ensuring that client assets are invested properly, aligning with the standards of a prudent investor based on the asset amount, age, and relationship to risk. Licensing and infrastructure can go a long way to ensure that one bad actor cannot misuse funds. Like financial advisors, lawyers also hold licenses and have their own areas of concentration. If an athlete requires legal assistance for estate and financial documents, most likely, they should consult a lawyer other than the one that drew up his playing contract. Instead, the athlete should turn to a lawyer who has expertise in properly drafting estate planning and financial documents that will insulate and thwart predators from penetrating the athlete’s financial assets. Trust the Process The level of protection that a properly drafted legal infrastructure to manage an athlete’s assets cannot be understated. Most estate plans for athletes and other public figures include one or more Trust instruments to accomplish this protection. Trust instruments, whether revocable or irrevocable, can own all types of assets; from the earnings of a lucrative contract to real estate to business ventures to life insurance, a Trust is the vehicle that manages most assets for athletes. First and foremost, when a Trust is created, it is private. There is no disclosure to the public or in the public record to disclose the identity of the Trust creator. A Last Will and Testament, for example, is a public record that can be viewed and reviewed by any member of the public. Trust assets are held and distributed without notice to anyone other than those authorized in the Trust instrument. Upon the athlete’s death, their estate is likewise distributed without an action of the court or notice to the public. The bequests that the athlete makes in his Trust can also be made in further Trust to protect the athlete’s family members from the same financial vulnerability they may have faced during their lives. It Takes Two When a Trust is created, the role of the Trustee is vitally important to protect the athlete from wrongdoing. As the name implies, the Trustee must be trusted. The Trustee’s job is to manage Trust assets, make investments, and distribute income and principal among countless other financial transactions related to Trust assets. Many of my public figure clients are inclined to appoint their closest friend or a family member in this role for their rightful fear of exploitation. While often these relationships are the most trusted, these individuals may lack the necessary skill set to effectively manage such significant assets and stave off financial scams and opportunistic predators. For those with significant assets like athletes and other public figures, having more than one Trustee appointed in this capacity may make sense, requiring that they act jointly. For practical purposes, appointing two Trustees requires two signatures, two sets of eyes, and two individuals reviewing transactions. Simply put, an act of fraud is much harder to commit when two Trustees are involved. When two individuals are appointed, the most trusted person together, with someone with the financial acuity, can work as a team to ensure that the athlete does not fall victim like so many who came before them. Leave it to the Professional Choosing the right Trustee to execute the athlete’s wishes and oversee their Trust assets typically requires a professional with the expertise to navigate the complexity of significant net worth. Given the complexities involved, including tax considerations, intricate investment vehicles, and corporate structures, an independent corporate Trustee is often necessary. A corporate Trustee is not an individual but rather a financial institution, such as a bank or investment firm, that assumes the fiduciary responsibility of managing a Trust. Athletes often hire corporate Trustees for their professional experience, financial acumen, and legal knowledge in trust matters, qualities that a trusted family member or friend may not possess. Hiring a corporate Trustee to collaborate with the athlete’s trusted family member or friend provides an additional layer of protection against financial misconduct. This partnership ensures that the athlete’s assets are safeguarded and minimizes the risk of unchecked financial mismanagement that could occur with the sole reliance on one individual. The Road to Recovery For those who have fallen victim to financial scams, the road to recovery can be long and arduous. Beyond the immediate financial losses, there may be legal battles, reputational damage, and emotional trauma to contend with. The prevalence of financial scams is a stark reminder that no one is immune to deception, regardless of their stats on the court or stature in pop culture. Shining a spotlight on financial scams and sharing personal experiences like those of Tim and Shohei can help raise awareness, potentially preventing others from suffering a similar fate. Thoroughly vetting professionals and ensuring that athletes or public figures have the proper legal documents in place can help to avoid a similar fate.
May 15, 2024
Family Law
Should Your Wedding Checklist Include a Prenup?
Fans of The Golden Girls may remember the episode in which Dorothy decides to remarry her ex-husband, Stan. He’s the selfish, cheating, novelty salesman Dorothy had married as a teenager in a shotgun wedding. Although they are now divorced, Stan remains the bane of Dorothy’s existence. She calls him, without irony, a “yellow-bellied sleaze ball,” among other epithets. Dorothy’s decision to remarry Stan has Rose, Blanche, and Sophia all rolling their eyes. It is only on the day of the wedding, when Stan unexpectedly asks Dorothy to sign a prenuptial agreement, that she comes to her senses and calls it off. “I don’t want to make the same mistake twice,” she tells her disbelieving guests. A prenuptial agreement may be the least romantic thing an engaged couple can talk about. Simply bringing up the topic may arouse suspicion, suggesting a lack of good faith or an expectation of divorce. But rather than any want of sincerity, preparing a prenup can reflect a couple’s maturity and respect for each other. The process of sorting through the terms of the agreement may even bring them closer together. Under Maryland law, the separate assets each partner brings to a marriage belong to that person, even if the marriage ends in divorce. The assets they acquire during the marriage, however, would be divided equitably between them in the event of a breakup. A prenup is a contingency plan that enables the couple to say what that division should look like. For example, each partner could simply take what they separately contributed to the union and be on their way. Or the partner with greater assets could agree to support the other long enough for them to get back on their feet. The agreement can also say what happens to the family home. Should one partner be allowed to buy out the other’s interest in the house? Or should the property be sold and the proceeds divided according to the percentages each of them contributed to the down payment and mortgage installments? Children are another consideration. If one partner has children from a prior relationship, the agreement could allow him to bequeath his entire estate to them, rather than his new spouse. This provision would trump the surviving spouse’s legal right to take a third or more of the estate as her “spousal share.” If the couple already has children together, one or both spouses could agree to maintain life insurance for the children’s benefit while they are still minors. The one thing a prenup cannot dictate is custody of the parties’ own children in the event of divorce. Regardless of what provisions it includes, a prenuptial agreement can be a reassuring document to have in the fire safe. It’s a lot like the airbag in your car—you hope you’ll never have to use it, but you’ll be grateful to have it if the need arises. As a practical matter, that need may be more likely to arise for some couples than for others. With the arrival of same-sex marriage, many couples are tying the knot after having been together for years or even decades. These relationships have already withstood the test of time and are unlikely to end in divorce. But two people in a newer relationship may like the idea of a prenup so they can enter into marriage prepared for the unexpected. In the same way, couples who are significantly different in age, wealth, or level of education should give a prenuptial agreement serious consideration. Having children from a prior marriage is another circumstance in which a prenup may be advisable. If Dorothy Zbornak, already in her wedding dress, had gone ahead and signed Stan’s prenup, it probably wouldn’t have held up in court. Stan, ever the yutz, had neglected to follow some important formalities. First, the document should include full financial disclosures from both partners. Any omission could invalidate the agreement. Second, two attorneys should be involved, one to represent the separate interests of each partner. And third, sufficient time should be allowed between executing the agreement and exchanging vows to avoid the suggestion that either partner was pressured into signing. A valid prenuptial agreement can save a couple time, money, and heartache if things don’t go as expected. If there are wedding bells in your future, contact an attorney who practices in this area to determine whether a prenuptial agreement is right for you.
May 15, 2024
Estates and Trusts
Four Reasons Your Power of Attorney May be Out of Date
A financial Power of Attorney is an essential document in any estate plan. It enables you to appoint someone you trust to manage your finances and other legal matters in case you become unable to do so yourself. The person you name, called your “attorney in fact,” generally has broad powers to handle things like paying your bills, filing your taxes, accessing your safe deposit box, managing your investments, and even selling or mortgaging your house. A “Durable” Power of Attorney remains in effect even if you become incompetent, which is when the document is most likely to be needed. Because it may be years before your Power of Attorney is used, you should review it periodically to make sure it remains current. Here are four reasons to consider having your Power of Attorney revised: It is more than five years old. Unless the document states otherwise, a Power of Attorney technically remains valid indefinitely. Still, banks and other financial institutions may be skeptical if the document is more than five years old. Their skepticism may stem from a legitimate concern that the Power of Attorney has been revoked or perhaps superseded by a newer version of the document. It names the wrong people. Longtime partners and married couples often name each other as their attorneys, in fact, and another individual to act as a backup in case the partner or spouse isn’t able to do the job. If your marital status has changed since you had your Power of Attorney prepared, or if your backup attorney, in fact, has fallen out of favor, it’s time to rethink who should be in charge of your finances if you can’t be. It’s Not the Maryland Statutory Form. In October 2023, the Maryland Legislature adopted a new Statutory Power of Attorney. Under state law, Maryland’s banks, insurance companies, and brokerage firms are legally obligated to accept this statutory form. Anyone who refuses to honor the Statutory Power of Attorney can be forced to pay the attorney’s fees spent getting a court to require that they accept the document. Although other Power of Attorney forms are still valid in Maryland, having the statutory form will help to ensure that the document is honored without delay. It doesn’t include provisions for your digital assets. Digital assets include things like the electronic data stored on your computer or smartphone, your Internet accounts like LinkedIn and Gmail, and your online pictures and documents. Without explicit authorization, called “lawful consent,” no one can legally manage these assets for you if you become incapacitated. Some of these assets, like your PayPal or Amazon accounts, may have monetary value. Others, like your email account or personal blog page, could be of great sentimental importance. Even your voicemail account may be valuable if it includes messages from potential clients or expressions of support from loved ones during an illness. Only a newer Power of Attorney will include provisions for your digital assets, and it may be wise to have yours updated for this reason alone. It is also important to make a list of your passwords and login information. This should be kept in a safe place so your attorney, in fact, can find it when the need arises. Do you really need a Power of Attorney? Without one, it could be necessary for the court to appoint someone to become your legal guardian. A guardianship proceeding is an arduous and expensive process. In addition, the guardian would need to file annual accountings with the court to verify how your assets had been spent. Taking the time to have a Power of Attorney prepared—and to keep it current—is well worth the small effort required. Lee Carpenter is a Principal at the law firm of Offit Kurman, P.A., and can be reached at (410) 209-6426 or lee.carpenter@offitkurman.com. This article is intended to provide general information and should not be construed as legal advice.
March 4, 2024
Estates and Trusts
Five Biggest Mistakes of Estate Planning
#5 - Inequity The fifth biggest mistake of estate planning is presuming to treat everyone equally, equaled only by the error of presuming to treat your loved ones differently because you don’t think they need anything or, in the other extreme, that they don’t deserve anything. Perhaps you’ve given more to one in life and intend to balance things in death. Unless you intend to include a detailed accounting (and even then?), I urge you to reconsider in this regard. Similarly, choosing who is to serve in what role (attorney-in-fact under a power of attorney, executor, or trustee, for instance) based on perceived fairness or not wanting to seem inequitable is a mistake. Have a reason, trust your judgment, and choose someone based on your sound judgment (for instance, she’s the oldest; he’s a lawyer; she’s the only one who hasn’t done time… these are all good reasons). Worse, appointing two co-fiduciaries (i.e., co-attorneys-in-fact, co-executors, or co-trustees, might be the biggest mistake of all - especially if you refuse to provide the two co-equals with a means of breaking a deadlock. If there are two empowered to make decisions and they don’t agree on something, if you’ve not authorized a coin flip or other means to break the tie (rock, paper, scissors, perhaps?!), their only recourse is to the courts. Don’t do it…don’t name two co-equal decision-makers to manage your affairs when you die. If you simply can’t help yourself, at least give them a fighting chance and tell them what to do when they disagree (if considering a coin flip, I suggest making it at least two out of three!). #4 – Sentimentality The fourth biggest mistake of estate planning is presuming one or more of your loved ones “wouldn’t want” something of yours, or alternatively, planning based on presumed values ascribed to the “objects of your bounty.” It is difficult to nearly impossible to know accurately what one of your kids might value over another, and you should take no offense by loved ones’ avoiding the subject altogether or making statements to the effect that they don’t want anything of yours. Everyone deals with death and the loss or thoughts of loss of a loved one in one’s own way. That said, it may, of course, be true that they don’t want your stuff; your style and tastes may be embarrassingly outdated. It may also be true that they don’t need anything, have the space for things they might want, or might not want to be perceived as thoughtless or greedy by asking for something of yours, for instance, before you are even in the ground! Rather than take offense or think, “How dare they!” consider over-sharing and discussing more with them, not less. Force them to face truths none of us generally care to acknowledge — first and foremost of which, you are going to die! Hate to be the one to burst that bubble for you, but it happens to all of us eventually. Too often, I see families left squabbling over misperceived intentions and failing/refusing to face these avoidable issues head-on, which brings us to the third biggest estate planning mistake. #3 – Communication The third biggest mistake of estate planning is failing to involve your beneficiaries in the planning. You need not give them a say in your plans necessarily or even seek their input per se, at least not everyone’s!, but that doesn’t mean you shouldn’t involve them at all, even if only to communicate that you’ve made a plan and where/how it can be found. Those who intend to play a role later should be consulted. The executor (or “personal representative”), who will oversee the administration of your probate estate; the trustee, who you will count on to manage assets you’ve opted to have held/protected from creditors and managed for the benefit of those you may not completely trust to manage them effectively for themselves (either because of their immaturity, addictions, or other special needs); and especially guardians of any minor children you might leave behind…these should all be consulted and confirmed before being named and saddled with such responsibilities. After all, they may not want or be able to handle the responsibility and/or their own life circumstances may not be fully known to you and may not make them the best choice. To minimize the risk of mistaken choices in this regard, don’t compound the mistake by failing to name a backup and a backup to the backup and also setting forth a means of picking the person you would want to be next in line should all else fail. #2 – Indecision The second biggest mistake of estate planning is changing your plans. This one comprises a whole series of mistakes. Changing one’s mind is ok, of course. The timing of a revised estate plan is one of the primary factors when litigation is later considered. Doing so after declining mental health, shortly before or after major life events, just prior to death (on one’s deathbed!), and/or with the involvement or input of less than all of one’s beneficiaries virtually assures legal wrangling after you’re gone, or, at the very least, likely breeds ill will among your loved ones in ways you can’t possibly fully anticipate. Compounding this mistake with less than full and open communication about your planning efforts (refer back to #3!) frequently sparks resentment and even hostility when you yourself have set different and differing expectations among those to whom you intend to benefit. If you opt to share your planning documents, do so with all of your beneficiaries. If you opt to make a change, be sure to communicate any changes to everyone, preferably with very specifically communicated reasons why. Oftentimes, in addition to breeding resentment for each other, change, especially uncommunicated changes to one’s estate plan, leaves your loved ones resenting you, even when they are the ones benefiting from the change! #1 – Inertia The number one biggest mistake of estate planning is not to plan. A favorite lyric from a group I’ve enjoyed since the 80s goes as follows: “If you choose not to decide, you still have made a choice.” Not planning, i.e., not creating a will or other document directing the disposition of assets upon your death, is the equivalent of deciding you want your loved ones to experience the costly, time-consuming, living hell that can often be the result of doing nothing. Don’t let inertia be your guide. Have a plan… execute the plan. Do it now; tomorrow may never come. Carpe diem!
January 29, 2024
Estates and Trusts
2024 Update – Federal Exemption and Exclusion Amounts
Beginning January 1, 2024, the IRS has increased the federal estate tax exemption to $13.61 million per person and $27.22 million for married couples. This increase also applies to the lifetime gifting exemption and means that individuals can transfer up to $13.61 million tax-free during their lifetime or at death. Married couples can double the exemption amount through portability and gift-splitting. As a result of the increased exemption amount, individuals who have previously used all of their lifetime gifting exemption now have an additional $690,000 that they may use to make gifts in 2024. Additionally, the 2024 annual gift tax exclusion amount has increased from $17,000 to $18,000 per donee in 2024. The increased exclusion also means that a married couple may gift up to $36,000 in gifts to individuals this year. Although the exemption amounts have increased for 2024, it is important to note that the 2017 Tax Cuts and Jobs Act, the federal legislation that increased these estate and gifting exemptions, is set to end on December 31, 2025. Unless Congress acts in the interim, the federal exemption amounts will revert to $5 million per individual (adjusted for inflation) on January 1, 2026. As a result, it is best to consider gifting now while the exemption amounts are higher and perhaps earlier in the year before the 2024 election in the event of further congressional action. An experienced planning attorney can advise you on estate and gift tax avoidance strategies that may be of benefit to you and/or your family.
January 4, 2024
Estates and Trusts
Wealth with Wisdom: Leaving Educational Legacies in Your Estate Plan
As estate planning attorneys, we guide our clients in distributing their wealth to the next generation efficiently. However, Guy Fieri and Shaquille O’Neal recently made headlines by stating that their children need to earn two degrees to inherit from them. There is a trend articulated in the headlines, namely that tying inheritances to education goals, especially the size of inheritances from celebrities like Shaq, should contribute to the personal and intellectual growth of your children. Conditions requiring certain educational milestones or that an inheritance may only be used toward this goal in order to inherit from a loved one can be a powerful way to leave a lasting impact. The following are a few tips to consider when exploring the idea of leaving assets in your estate plan with educational conditions for your children, emphasizing the importance of combining financial legacy with a commitment to lifelong learning. The Purpose of Leaving Educational Legacies: Empowering Future Generations: When a condition of education is articulated in an estate plan, a message is received. That message, stating that education is a prerequisite to receiving an inheritance, not only encourages your child to pursue additional education but also sends a message that you believe life is more than just financial security, that education is a prerequisite to obtaining that financial security. It is the hope of many of my clients who choose to have educational prerequisites in their estate plan that they not only instill the importance of learning but perhaps demonstrate that education can empower them to also accumulate wealth for future generations. Fostering a Growth Mindset: A requirement that a child meets an educational condition can also encourage a “growth mindset.” Many clients see this condition as a conduit to inspire their children to embrace the challenge of higher learning. So many of our clients who worked hard to accumulate their own wealth have concerns that simply handing over an inheritance will mean that their own child will never face the challenges that the client has faced nor understand the value of “hard work” or the “struggle” to succeed and accumulate wealth. Placing a “two degrees” condition on an inheritance might be a way for your child to not only prove to themselves that they are up to the challenge, but the hope is that further education will also better equip the child to not only manage the inheritance more efficiently but also have a greater appreciation for that inheritance. How to Create Educational Conditions: How the Funds Can be Spent? Your Will or Trust is your “universe,” and therefore, it can define the educational conditions and expenditures as you see fit. For example, an inheritance can be left in trust, and distributions might only be made for tuition and educational expenses related to pursuing a college or an advanced degree. You may even specify what portion of the inheritance can be allocated to cover the costs associated with pursuing a degree and further define those expenses (i.e., books and transportation but not living expenses). The requirements can be even more granular to state that an inheritance can only be used to pay for graduate school in a particular field of study that a parent deems worthwhile. Educational Attainment Milestones: Like Shaq and Guy, many clients determine that their child’s entire inheritance is conditional upon earning a degree. As Shaq said so eloquently, “No cheese without two degrees.” Guy has made public statements following Shaq’s lead. Unless the O’Neal and Fieri children earn two college degrees each, they will not inherit at all from their fathers. Milestones like these are easy to add to an estate plan and are easily enforceable. As already mentioned, the spirit behind the milestones is to foster that growth mindset and empower their family’s future generation to ensure a more educated family tree. The hope is that the more educated the child, the more responsible they will be in managing those assets and preserving the wealth for generations to come. Important Details to Consider: Flexibility: Life is unpredictable, so it’s important that your estate planning documents are drafted in such a way that it is possible to adapt to life’s changing circumstances, particularly for your children. It is essential to design your educational conditions with flexibility to accommodate unforeseen challenges or opportunities for your children. Perhaps this means that you should extend the scope beyond traditional education to include opportunities for professional development, ensuring your children are equipped for success in their chosen fields. What happens if your child, while responsible and hardworking, is not college-bound? Conditions can also be tied to earning a vocational degree or being gainfully employed. Additionally, conditions can be tailored to encourage entrepreneurial ventures to foster their creativity or business acumen. Communication: Communication is key! If you want to empower your children and foster a growth mindset, you need to share this with your children. Therefore, it is so important when these types of estate planning conditions are imposed that they are communicated transparently to your children so that they have the opportunity to meet and exceed the conditions. It would be best to discuss your intentions with your children so they fully understand the conditions, how the funds can and cannot be used, and your rationale for imposing these conditions. Trusteeship. It cannot be understated how important it is to appoint a Trustee who will not only enforce the terms of your educational conditions but also understand and respect them. A trustee will enforce the terms of the conditions to ensure that all of the terms are met by your children. Most importantly, the trustee will be your voice long after you’re gone and can help communicate those educational conditions to your children so that they can successfully manage their inheritance and their future security. In conclusion, leaving assets in your estate plan with educational conditions for your children is a profound way to extend your influence beyond your lifetime. By intertwining financial legacies with a commitment to education, you not only provide for their immediate needs but also empower them with the tools to thrive intellectually and professionally. As you plan for the future, consider the legacy of wisdom and knowledge you can pass on to future generations, leaving a lasting impact on their lives.
December 22, 2023
Estates and Trusts
When to Review your Estate Plan: The 5 Ds
Originally posted 12/17/2020, no content changes. You finally sat down with an estate planning attorney after years of procrastination and created an estate plan that reflects your wishes: can you file it away with the rest of your important documents and never think about it again? Not exactly. As a rule of thumb, you should review your estate plan every three years or when there are significant tax changes at the state or federal level - much like the changes (likely) on the horizon this January. However, if your life has been touched by the 5 D's - Death, Disability, Divorce, Distance, and/or Descendants you should speak with your estate planner right away. Death When a family member or close friend dies, there are a few reasons to trigger a review of your own estate plan. First, the deceased loved one may have left you a significant inheritance that changes the schematic of your own estate plan from a tax perspective. Receiving a large inheritance will necessitate a review of your plan to ensure that you have considered the tax ramifications of the same. Second, the deceased loved one may have been named as a fiduciary in your estate plan. If you named the deceased loved one as your agent under a Power of Attorney, or Health Care Proxy, it is important to review those documents to make sure that you have an alternate agent and if you do not, you should update those documents right away. In your own Will, if the deceased loved one is a beneficiary of your estate, are you satisfied with who will inherit from you instead of the deceased loved one? It is often necessary to revise the plan of distribution considering a loved one's death. Disability Receiving a diagnosis of an illness or life altering condition for you or a loved one can be overwhelming. In addition to grappling with the realities of a diagnosis, it is imperative to review your estate plan from the lens of that disability. For example, if your spouse is diagnosed with a memory impairment condition such as dementia or Parkinson’s Disease, your estate plan should be reviewed by an elder law attorney to make sure that your assets are held in a trust that will allow for Medicaid eligibility in the future to pay for care one day. If a beneficiary in your Will is now disabled and relies on public benefits to pay for his care, you may wish to revise your own Will to direct that your disabled loved one's bequest is left in trust for him, so that his future inheritance will not disqualify him from the benefits upon which he relies for his disability. If you received a diagnosis, you should make sure that those you nominated as your agents under your Power of Attorney and Health Care directives are the people you still entrust with these particularly important and vital roles. Divorce If your marital status changes - a divorce, or a new marriage, your estate plan will certainly change. In the case of a divorce, each of your estate planning documents should be reviewed. If your estate plan was created during your marriage, it is likely that you chose your former spouse to act as your agent under a Power of Attorney and Health Care Proxy and as Executor or Trustee under your Will or Trust. In many states, a divorce will automatically end such an appointment without changing your documents - but not in every state. In addition to reviewing your documents, you should also consider the assets that have beneficiaries to ensure that your former spouse is not named as a beneficiary on your retirement savings plan, life insurance, and other financial accounts. In the case of a new marriage, it is important you have a discussion with your new spouse about your assets entering into the marriage and your wishes as related to the distribution of those assets in the event of your death. In many cases, spouses enter into pre- or post-nuptial agreements to address estate inheritance issues and estate planning documents should reflect those agreements. Distance If you relocate from the state where your estate plan was created, it is important to have your estate planning documents reviewed by an attorney licensed in your new home state. Laws vary greatly from state to state with respect to rules of inheritance, asset protection, and estate taxes. While states do honor other states' documents under the Full Faith and Credit Clause of the US Constitution, each state has its own forms and provisions that may make a revision of your estate plan in the new state more practical and cost-effective in the future. In addition to your own move, if a fiduciary that you have named in your Health Care Proxy or Power of Attorney moves across the country it should be considered whether it is practical for that person, who now lives in a different time-zone, to continue in that role. It becomes even more complicated in the case of a fiduciary moving out of the United States. In New York for example, if you name a person as your executor who resides in a foreign country, it is unlikely the Court will honor your choice and instead appoint someone else as an executor. Descendants It is imperative to create an estate plan when you have children. In 2020, I generally do not have to remind clients that bad things happen. In the unfortunate event that you and your spouse or partner die with minor children, it is imperative that you make an election with respect to your children's care. A Will should provide a guardianship provision for your minor children in the event of your death. Leaving this information out of your Will or relying on a Will that was created before you became a parent could be catastrophic for your minor children. If you are a single parent, the importance of a Will with a guardianship clause is exponential. If you die without a guardianship provision, anyone in your child's life could petition the court for her guardianship. The court will decide guardianship based on your children's "best interests" - which might not match what you would believe to be in your children's best interests. In the case of a grandparent who excitedly amended her Will to include her first grandchild as a beneficiary, it is important that her estate plan is updated for each new grandchild. With all of this in mind, it is important to think of your estate plan as fluid. Whether it is a new presidential administration or one of the 5 D’s, it is so important to stay in touch with your estate planning attorney and review your estate plan to make sure it is reflective of your current life circumstances.
December 18, 2023
Estates and Trusts
Caught Between Generations: A Roadmap for the Challenges and Strategies of the Sandwich Generation
In the ever-changing landscape of family dynamics and related demographics, a term has emerged in the last few years to describe a group of people who find themselves literally squeezed between the demands of caring for and planning for aging parents and supporting their own children: “The Sandwich Generation.” Personally, finding myself in this unique group, alongside many of my friends, we face numerous challenges and responsibilities, requiring us to balance our caregiving roles for our aging parents and our children while maintaining our own well-being. In this article, we will delve into what the Sandwich Generation entails and offer insight into strategies for effectively managing these often-overwhelming responsibilities that characterize this unique phase of life. What is the Sandwich Generation?: The term “Sandwich Generation” refers to individuals who find themselves entwined in the middle of a generational “sandwich,” positioned between aging parents on one side and dependent (or semi-independent adult) children on the other. Those of us in the sandwich are literally stuck in between, managing both sides. Typically, the individuals who make up the Sandwich Generation are in their 40s to 60s, grappling with the dual responsibility of managing both ends of the generational spectrum. Still, with expanded life expectancy, varied family make-ups, and childbearing years stretching into the 5th decade, age alone does not define membership. The crux of what characterizes the Sandwich Generation is the simultaneous responsibility of providing care and support to both older and younger family members. Challenges The Sandwich Generation Faces: Financial: Navigating the dual responsibilities of supporting both aging parents and children can impose a significant financial burden. From medical expenses and long-term care costs for aging parents to education and upbringing expenses for children, the financial strain can be overwhelming. The strain is exacerbated by the fact that many aging parents do not have the resources or the aforethought to plan for the cost of care properly. Consequently, the onus falls to their adult children, the Sandwich Generation, to solve via their own financial means or provide the required care for their aging parents personally. Time: Members of the Sandwich Generation often find themselves juggling multiple roles and responsibilities. The delicate balance between the demands of caregiving, coupled with professional commitments and personal obligations, can lead to an intense time crunch, resulting in stress and guaranteed burnout. There are simply not enough hours in the day to help everyone in the way they need help. Emotional: Navigating the simultaneous care of aging parents and raising children can be emotionally taxing. Witnessing the decline of one’s parents while safeguarding the well-being of one’s children can lead to a cascade of feelings, including guilt, anxiety, depression, and emotional exhaustion. Throw in the addition of complicated relationships with those aging parents and siblings who have differing opinions on how one’s aging parents should be cared for, and it can be a recipe for emotional disaster. Lack of Support: Individuals grappling with Sandwich Generation challenges often experience a lack of support and resources tailored to their unique circumstances. Family members do not always live geographically near others, which can lead to feelings of resentment for those who can’t be there physically to offer support. Even worse is when family members are within close geographical proximity and still do not offer support, burdening one family member with the overwhelming responsibility of “doing it all.” Strategies for the Sandwich Generation: Foster Open Communication: Talk about it! It is crucial that you foster open and honest communication with your family members. Discuss your caregiving responsibilities and the areas where you need assistance with your spouse or partner, your children, and your parents. Ensuring everyone is aware of the challenges you face in providing care can help set realistic expectations and build a support network within your family. Seek External Support: The time to reach out for help is now! Whether the support is found in your community resources, support groups, or organizations that cater to the needs of the Sandwich Generation, external support is vital. It might be helpful to keep in mind that the community and support groups are free. Connecting with others facing similar challenges in the Sandwich Generation can provide insight, solutions, advice, practical assistance, exchange of information, or just an old-fashioned vent session. Prioritize Self-Care: We all know the anecdote that plane passengers hear at the start of every flight: put on your own oxygen mask first, and only then can you help others. This old adage is something easier said than done. The bottom line is that caring for others begins with caring for yourself. As a member of the Sandwich Generation, make it a priority to engage in self-care activities such as exercise, pursuing your favorite hobbies, and even practicing relaxation techniques. Maintaining your physical and mental well-being is essential to effectively providing care to those around you. Remember, you cannot effectively care for others if you are running on empty. Holistic Financial and Elder Care Planning: Work with a financial advisor, an elder law attorney, and a geriatric care manager to develop a comprehensive plan that considers the financial, legal, and emotional needs of both your parents and children. Explore potential benefits, government programs, legal documents, and long-term care options to alleviate the financial and legal strain. The time to plan is now. Delegation is Key: You simply cannot do it all. Do your best to identify tasks that can be delegated or shared among family members, friends, or hired professionals like those mentioned in number 4 above. You can even involve your children in age-appropriate caregiving responsibilities to assist their grandparents or take away some of your burdens so that your attention can turn to your aging parents. Do not hesitate to seek assistance from your siblings or other relatives to distribute the workload more evenly. Embracing delegation is crucial for maintaining balance and effectiveness in your caregiving role. Embrace the Power of Technology: Utilize technology to streamline caregiving tasks. Explore online scheduling tools, medication reminders, and telehealth services. Embracing technology can help save time, reduce stress, and improve efficiency in managing both your aging parents’ and your child’s care. Leverage technology to empower those far-away family members to contribute to caregiving by paying bills remotely, scheduling doctor appointments, or even ordering groceries online. Embracing technology ensures a more streamlined and collaborative approach to managing the care of both your aging parents and your children. For those of us who know, being a member of the Sandwich Generation can present numerous challenges. Still, navigating these responsibilities successfully with the right strategies and support is possible. The key is finding a balance between caregiving roles and your own well-being. While the role remains challenging, no matter how many solutions are identified, it is possible to thrive while supporting both the older and younger generations in your family. Click here to listen to my podcast, The Sandwich Generation Survival Guide.
December 5, 2023
Estates and Trusts
23 and Me (and who?) and your Estate Plan
Originally posted on 12/10/2022, content updated on 11/27/2023 With the holidays just around the corner, the advertisements for the home DNA test kits are everywhere: For only $99, give the gift of your family tree! In fact, a local restaurateur told me recently that one night he had two separate tables of families “meeting” both for the first time, after receiving their DNA results from one of these kits. Suffice it to say, the direct-to-consumer DNA test kits are adding an element of surprise to many family gatherings. Finding out about a long-lost half-sibling can be great news (or startling news,) but it can also throw an estate plan into chaos. In New York, as in many jurisdictions, estate planning attorneys like myself draft estate planning documents such as Wills and Trusts with language referring to one’s “issue”. In the legal world, a person’s issue is defined as children, grandchildren, and their lineal descendants – in short, the genetic line. Using a term like “issue” is common in estate planning documents so that a person’s lineal heirs are covered in one’s estate plan, even in the event of an untimely death of a younger-generation family member. For example, I might draft a Will that states: “I leave my entire estate to my surviving issue” – which in laymen’s terms means: I leave everything to my children and lineal descendants. Now, suppose your father, who was married to your mother for his adult life, fathered a child unbeknownst to him with someone other than your mother. You are contacted by this child via one of these genetic testing sites and told that you have been identified as their sibling through your father’s bloodline. In the meantime, your father dies with a Will that leaves his estate to his “issue”. Does this newly discovered sibling factor into your father’s estate plan? You bet he might. The path to prove heirship to a decedent in New York is often complicated and rarely direct. If Dad knew about the child and openly acknowledged his relationship, then it would be much easier. In these cases, the New York Courts have accepted an “openly acknowledged” child outside of a marriage as an heir, even without genetic testing. In the example of an “unknown” heir or a child that was never acknowledged, the court most often requires DNA testing to prove heirship, along with other evidence to prove the relationship. So far in New York, the courts have not accepted a self-administered DNA test as independently sufficient to prove heirship. Further DNA testing is required by an approved DNA testing lab to meet the New York standard. However, what is important to note is that an unknown heir obtaining information from a DNA home test kit, might be enough to convince a court to take a harder look at who are the children of the decedent. Preliminarily the results from a home DNA test kit could provide that child enough standing to halt any distribution of the estate until the matter can be further investigated and the child is provided an opportunity to prove his relation. As sophisticated science becomes more available to the general public, the law will inevitably change to accommodate the accessibility of this information, particularly as it relates to estate planning. So, if you find a DNA testing kit under the tree this year resulting in a surprise branch of your family tree, it might be important for you to meet with an estate planning attorney.
November 27, 2023
Estates and Trusts
Holiday Harmony (or Hubbub): Disinheriting with Finesse
Whether it is the result of a discussion about politics, a few too many after-dinner drinks, or a shift in a family relationship, after every major holiday, calls from clients increase requesting a change in their estate plan. Regardless if you wish to reconsider who shall serve as guardian for your minor children in the event of your death or to disinherit a family member, things change. The good news is that an estate plan is fluid, and if drafted properly, removing someone from your estate plan is not as complicated as one might assume. Where to start? First things first, you should not make this change to your Last Will and Testament on your own. In New York, defacing a Last Will and Testament, writing notes in the margin, or crossing out someone’s name is generally insufficient to change a Will. In the worst-case scenario, markings on a Will, or defacing it, could even revoke the entire Last Will and Testament, not just the portion you wish to change. Can you make a change? In a word, yes. Wills are revocable and amendable at any time before you die, as long as you have the requisite mental capacity to make this change. In fact, a Will is not an enforceable legal document until your death. And generally speaking, you can leave your assets to anyone you choose, whether they are related or not. Likewise, aside from certain protections for your spouse, you can disinherit almost any family member from your Will. In fact, other than the State of Louisiana, no state even requires that you leave assets to your adult children (minor children are entitled to support from your estate). The protections in place that will not allow you to disinherit your spouse entirely due to public policy reasons will be addressed in a future article. Similarly, with a change to a named guardian for your minor children, you may remove the named guardian from your Will at any time and replace them with someone you believe is more suited for the job. For single parents, it is important to note that naming someone other than the child’s surviving parent as guardian of the minor child is generally insufficient unless there are extenuating circumstances that would render the surviving parent an inappropriate guardian for your minor child. Why make a change? The most obvious reason people make changes to the beneficiaries of their Will is due to family conflict or estrangement. However, there are many other reasons that one may wish to consider making a change. It may be that your beneficiary was recently diagnosed with an illness and, due to that illness, may need to apply for means-tested government benefits. If that is the case, assets that you may leave to that person may be attached by his creditors, like Medicaid, or worse, the inheritance could disqualify him from a much-needed public benefit. One of your beneficiaries, who may have had a greater financial need when you created your Will, may no longer be in a dire financial situation and simply may not need the financial support. Alternatively, one of your beneficiaries may have shown themselves to be financially irresponsible with her own assets, and you may wish to reconsider leaving funds to someone who does not have the ability to properly manage those assets or set up a trust instead to direct how those funds can be used. Suppose one of your beneficiaries is going through a protracted divorce proceeding or is in a marriage that is likely to dissolve. In that case, you may want to reconsider leaving assets directly to that loved one, as the inheritance could end up with your beneficiary’s former spouse. In the case of making a change to your minor child’s guardian, there are all sorts of reasons to replace a guardian. The named guardian may not be as connected to your family or your child as she once was when the Will was first established. Perhaps the named guardian does not live geographically close to your family any longer, and you wish to consider a more local choice for your child to remain in the event of your death. Similarly, if the guardians you chose were married at the time you signed your Will but are married no longer or have had a significant change to their own lifestyle, they may not be the right choice as guardians of your minor children now. There may be a change in the guardian’s religious or political beliefs that are now quite different from your own and could influence how you would otherwise wish your children to be raised. Regardless of the reason for the change of heart, it is important that a change in guardianship be articulated in a properly executed Will; otherwise, such an appointment could be unenforceable, and a court would determine the best guardian for your child. How to make the change? It is important for you to contact an estate planning lawyer to make the above changes to ensure that they are effective. In addition, when making a change that could alter your entire estate plan, it is important that you communicate to the attorney drafting the change your reasons why the change is being made. In the event that one of the disinherited beneficiaries challenges your Will upon your death, the more information the lawyer has to support this change, the less likely a challenge by a disgruntled beneficiary would be successful in his challenge. For practical purposes, it is best practice to mention the related beneficiary who would otherwise inherit specifically in your Will. For example, when disinheriting an adult child or sibling, it is recommended that you include their name and state that “for reasons known to them” or “not for lack of love and affection,” they are not a beneficiary of the Will. This mention does two things. First, if the disinheritance is not for conflict or any other reason, it is a kind gesture to say so to ensure there are no misunderstandings about why you chose to disinherit them. The second reason why a mention of this person is important is so that the disinherited beneficiary cannot make a case to challenge the Will by saying there was a drafting error or they were unintentionally omitted. By the same token, if a person would not be otherwise entitled to inherit from you, in the example of a more distant family member, an in-law, or a friend, there is no reason to mention that they have been excluded from your Will. In conclusion. If your Thanksgiving holiday was full of more conflict than stuffing, contact our office, and we can provide you with the proper guidance to make a change. Similarly, if you are concerned that your current Will that already disinherits a family member could be challenged by him, you may wish to consider a trust that is harder for a disinherited family member to challenge. Either way, your estate plan is your own, and you have a right to ensure that those who inherit from you and those who serve as guardians for your minor children are the individuals that you choose.
November 17, 2023
Estates and Trusts
Discretionary Trust Distributions – When “Because I said so!” May Be Legally Sufficient
Not too long prior to Senator Diane Feinstein’s recent passing, her daughter, exercising a durable power of attorney (POA) for the ailing Senator, filed suit seeking to force payments by the trustee of what is described as a very generously endowed trust fund (by the Senator’s late billionaire husband) reported to include provisions to cover expenses related to the Senator’s health and welfare. So many directions to take this one! This single-sentence summary presents so many potentially valuable legal nuggets to mine! . . . from “What’s a durable POA?” to “What possible good-faith basis could the trustee have for refusing to pay/reimburse for medical/healthcare expenses with funds entrusted to his/her oversight for this very purpose?” I’ll leave the durability question to Siri and Google, noting that with the adoption in states such as Virginia of what is known as the Uniform Power of Attorney Act (or “UPOAA”), powers of attorney are now presumptively durable unless expressly indicated otherwise in the document itself. Before moving on, I’ll also add that a POA need not require the incapacity of its principal/maker to empower the agent/attorney-in-fact to act on the principal’s behalf. Many people mistakenly presume that a POA is intended only to take effect upon the incapacity or incapability of the principal to act on one’s own behalf. POAs can be immediately effective or “spring” into effect if and only when specifically defined events occur, which define the circumstances when the agent’s authority springs to life on behalf of the principal. Without conducting any sort of formal study on the subject, I am confident when I say that springing POAs are by far the exception to the norm. For now, at least, I address myself to the meatier issues stemming from the late Senator’s trustee’s alleged breach of fiduciary duties and general malfeasance. Asked for my opinion about this “obviously-in-the-wrong” trustee after news of the legal action broke (because no one would go to the trouble of filing suit if the allegations weren’t true, right!), I instinctively provided my standard go-to, why-everyone-hates-lawyers response: “It depends!” With little more than the headline as fodder for a good cocktail party debate, any substantial opinion must necessarily depend on so many variables that any other conclusion about the merits of such a case should be presumed fiction (with similar presumptions regarding anyone who would be willing to draw any definitive conclusions about the impropriety of the trustee’s actions, motives, etc. on such scant information). For starters, the outcome of any such case and claim(s) totally depends on the precise language of the trust document governing the specific situation and the scope and extent of the authority such language extends to the trustee. Because the “correct answer” is so driven by the fact-specific trust language, it is truly pointless to speculate on whether the trustee should or should not have paid the particular expenses in the Feinstein situation. It is also precisely why two or more seemingly identical cases can produce seemingly equally contrary results. It is not necessarily true that one judge or jury gets it exactly right while another gets it completely wrong. Nearly identical facts can produce widely disparate legally correct results for a myriad of reasons. [For a separate case study on this issue, check out my co-authored piece on two seemingly identical cases resolving disputed beneficiary designations in the context of divorce-related life insurance obligations: “Same facts . . . opposite results!”] All that having been said, it is not uncommon for such trusts to build in not only a certain level of discretion for the trustee to decide when it might be appropriate to pay and when a particular expense might be unreasonably “over the top” or simply unnecessary. With such built-in discretion, the trustee has effectively been entrusted by the maker of the trust to act in a manner as to reach the closest equivalent to what the maker himself or herself might have decided. Under these circumstances, the trustee is essentially in the right simply because they said so. A court will generally not seek to impose its discretion over that of the individual the now deceased trust maker trusted in the first instance to make what the trustee determines to be the best decision. With this outcome in mind, I commonly encounter provisions bestowing on trustees the ability, or even the requirement, that before releasing any funds from the trust for expenses seemingly word-for-word covered by the trust, the trustee consider and/or “take into account” other resources available to the beneficiary. In this way, the trustee is forced to exercise fiduciary responsibility not only to the current trust beneficiary but also to those who would stand to benefit from the trust after the current beneficiary has passed. Then again, it might very well be that the scope of such authority is less than clearly defined in the trust document or that a trustee with an axe to grind and/or a personal agenda contrary to that of the beneficiary (perhaps favoring future beneficiaries over the current beneficiary, for instance) is, indeed, acting in a manner inconsistent with the trustor’s original intent. In either case, a court order might be needed to provide appropriate “aid and direction” to the trustee or forcing the trustee to act in a manner not otherwise abusing the discretion afforded to the trustee. One simply cannot presume to conclude as much from a news report, nor should one draw conclusions regarding either the trustee or the one bringing such an action against a trustee without knowing all the relevant facts – or at least substantially more of them than might be reportable in a 60-second, news soundbite. In one rather extreme example, I encountered an example recently where a trustee was empowered to provide for the health and welfare of the beneficiary, but only out of trust income (no principal) and if and only if the beneficiary passed a monthly drug test, the cost of which could be paid out of the trust income, but consequently serve to reduce the amount to be paid to the beneficiary. Whether to bring and/or how to defend such an action requires appropriate legal experience, understanding, and, consequently, investigation and analysis of as much relevant information as can be gleaned both from what might be readily available and that which might take some digging to uncover. In my experience, whether one or more valid claims exist in such situations requires significant investigative and analytical time and should not be presumed either a simple or inexpensive process nor one which is likely to lead to an unimpeachable, singular conclusion. I have observed, advised, and/or been involved to varying degrees in numerous such disputes representing various perspectives with differing agendas (consider, for instance, how a second or third-generation, non-profit charitable organization set up as a contingent beneficiary might view as a wasteful fiduciary breach of duty any payouts by a trustee to current beneficiaries with substantial independent wealth and the means to pay their own expenses). I would welcome the opportunity to evaluate the possibility of assisting should you find yourself on one or the other side of such a situation (or perhaps as a drafting attorney seeking to minimize the chances of such a dispute down the road).
November 13, 2023
Estates and Trusts
A Gift from the IRS? A Holiday Miracle
The holidays are nearly upon us, and for many, this means holiday cheer, baking, and our endless gift lists. What should also come to mind is the “gift” that the IRS bestows upon all of us, which is the ability to make many gifts to our loved ones free of taxes, together with the benefits that accompany making those gifts. Below is a handy list of gifts that should be considered as we close out 2023. Annual exclusion gifts: In 2023, an individual can make annual gifts of up to $17,000 per recipient to an unlimited number of individuals free from any gift tax. Married couples can double this gift to $34,000 per recipient to an unlimited number of individuals. This benefit is called the “annual exclusion amount” because the gift is excluded from gift tax for the calendar year in which the gift is made. The annual exclusion is a “use it or lose it” benefit, meaning that your ability to gift for that year ends after the year has passed. Not only are annual exclusion gifts an effective way to pass wealth to family members and others, free from estate or gift taxes, but these gifts also have the added benefit of reducing the gift-giver’s taxable estate that would otherwise be subject to an estate tax upon his death. These annual exclusion gifts can be made “outright” and paid directly to the recipient to qualify for the annual exclusion. Certain gifts can even be made to the recipient in a trust if it is properly structured. Lifetime gifts: Gifts exceeding the annual exclusion amount are sometimes referred to as “lifetime gifts.” When “lifetime gifts” exceed the $17,000 or $34,000 annual exclusion amount in the case of a married couple, it reduces the federal estate tax exemption of the gift-giver. For example, the current federal estate tax exclusion is $12.9M for each person. This means that at the federal level, the gift-giver can either gift during their life or die with $12.9M. Therefore, if the gift-giver gifts $117,000 to a recipient in 2023, $17,000 of the gift will qualify for the annual exclusion amount for 2023. The remaining $100,000 gift will reduce the gift-giver’s lifetime estate tax exclusion by $100,000, thus reducing his available estate tax exclusion credit from $12.92M to $12.82M at death. The other benefit of making more significant lifetime gifts that exceed the annual exclusion amount is that it removes the value of the gifted assets from the gift-giver’s estate. Removing assets from the gift giver’s estate can be particularly useful when the gifted asset is expected to appreciate in the future. By gifting those highly appreciable assets out of the gift-giver’s estate now, the gift-giver’s estate will pay a reduced estate tax at their death. Lifetime gifts should be strongly considered at the present time as the federal estate tax exclusion of $12.92M is set to “sunset” at the end of 2025. This means the amount of assets you can die with that will not be subject to an estate tax will plummet from $12.92M free of estate tax to only approximately $6.8M free of estate tax. Therefore, making gifts now to take advantage of the current $12.92M estate tax exemption is something to consider. Charitable Giving: Most appreciate the many benefits of gift-giving to a favorite charity: it feels good to make a positive impact while simultaneously supporting a cause that is meaningful to the gift-giver. Many are unaware, however, that there are trusts that can be established to provide the gift-giver with an income stream, a tax break during the gift-giver’s life, and a gift to one’s favorite charity at death. A charitable remainder trust does just that: it allows the gift-giver to make a contribution to the trust for the charity while simultaneously providing a partial tax deduction for the gift and an income stream to the gift-giver or her loved ones. The tax deduction the gift-giver receives from funding a charitable remainder trust is based on the type of charitable remainder trust created. The deductions, depending on the type of charitable remainder trust, are then calculated by several factors, including the present value of the charity’s interest, the assets “donated” to the trust, how long the trust will likely remain and/or the annual “payout” rate to the income beneficiary. In addition to the present tax benefit enjoyed by the gift-giver, the gift-giver can also name herself or a loved one as the beneficiary of the present income stream from the assets donated to the trust. Based on how the trust is set up, the gift-giver (or nominated income beneficiary) can receive income annually, semi-annually, quarterly, or monthly. The IRS requires that the annual income stream must be at least 5% but no more than 50% of the trust’s assets. After the specified term of the trust or upon the death of the last income beneficiary, the remaining trust assets are then distributed to the designated charitable beneficiaries. The charitable beneficiary (or beneficiaries) can be public charities or private foundations. Moreover, the trustee can be provided the power to change the trust’s charitable beneficiary (or beneficiaries) during the lifetime of the trust, if necessary. Gifting can be an integral part of one’s estate plan. Gift planning, especially involving trusts, can be complex and highly individualized. It is crucial to consult a knowledgeable estate planning attorney to ensure that the gifts made are properly structured and comply with tax laws at the state and federal levels, especially as the tax laws change over time. Please get in touch with me directly to discuss these or other gift-giving options before the end of 2023.
October 30, 2023
The Practice of Law
Jury Duty for Lawyers: Are You In or Out?
Jury service is both a civic duty and a privilege. Yet, attorneys rarely serve on juries. To be clear, there is a difference between reporting for duty and actually serving on a jury. For those attorneys who might consider reporting for duty, some question the value of the experience. In the County of Fairfax, Virginia, where I live and practice law, attorneys, along with judges, “first responders,” and some others are among those afforded an exception to jury duty. Every so many years, the County sends out a questionnaire to confirm eligibility to serve. I recently received mine and faced again the question of whether to exercise my right to choose not to serve, i.e., whether to opt in or opt out of jury service. That’s right, jury duty is optional for lawyers! (Please tell me I’m not the only one seeing the irony?!) [For a glimpse into the result of my previous decision to “opt-in” for jury duty.] I certainly don’t begrudge anything to those attorneys that choose to exercise their legal right to “opt out” of jury duty. After all, why expend all the effort when not being allowed to serve on a jury is practically a foregone conclusion – especially for a litigation attorney such as myself (and many of my colleagues with whom I’ve debated the issue)? I recognize that it is highly likely I will have wasted a great deal of time and effort only to be sent away without having been part of the deliberative process and/or helping decide a winner and loser at trial. Be that as it may, for me, at least, opting in is my only option. Why? As I stated at the outset, jury service is both a civic duty and a privilege. Expectation of a “strike?” For at least one of the lawyers trying a case, allowing an attorney on the jury is likely to be a bad thing since a lawyer-juror may be more likely to recognize weaknesses in the evidence presentation, including evidentiary gaps leaving material questions unanswered, and less likely, perhaps, to be persuaded by legal rhetoric. For these reasons and countless others, I suppose, it is very likely that a lawyer reporting for jury duty will be stricken with one of the “strikes” afforded to each of the parties as part of the jury selection process and, consequently, equally unlikely that the lawyer would actually end up serving on a jury. Our system would fall apart completely if everyone measured and determined their level of input by the relative expected impact on the overall process. Just as a single vote is unlikely to tip the scales of an election either way, the potential significance of one’s individual involvement in the judicial process cannot be overstated. I simply refuse to accept that the measure by which we ought to decide in the first instance whether to participate in the process at all is the extent to which we believe that our individual input is likely to be outcome-determinative. Rather, our willingness to serve, to make ourselves available to serve, as impartial decision-makers willing to share our time for others ought to equate to the level we would hope others might share of themselves should we ever find ourselves in need of a jury of our peers. Impacting the process? Whether one wants to accept responsibility for the consequences of one’s inaction, one’s non-involvement in the jury selection process impacts the end results. If the presence of an attorney is likely to cause one or the other party to exercise one of their limited strikes to remove the attorney from the jury, the absence of that attorney must necessarily mean that a strike remains available to be used on someone else. In other words, the ultimate makeup of the jury is skewed by the absence of an attorney who could have reported for duty, even if only to be struck. By not participating, therefore, an attorney has, unintentionally or otherwise, impacted both the process and the results merely by one’s absence. Jury of one’s peers? One accused of a felony is entitled to have the matter heard and decided by a “jury of one’s peers.” In a jurisdiction such as Fairfax, where lawyers abound, a jury pool with no lawyers would reflect less than accurately the “peer group” from which one’s jury is to be drawn. Consider, for instance, a lawyer-defendant on trial for a murder she didn’t commit. What ought the makeup of a jury pool of her “peers” properly include, if not a lawyer or two? My involvement would not assure an attorney on the jury for this hypothetically wrongly accused lawyer-defendant, but participating to the extent I am able amounts to playing my part and doing at least what is within my power to do. What if . . .? Maybe I get contacted and told to report to the courthouse. Maybe I get assigned to a jury pool, and report to a courtroom where lawyers preparing to try a case will ask a bunch of questions and decide whether having me sit on their jury is a good or bad idea. Maybe I survive all the strikes, get seated on a jury panel, and, after hearing all of the evidence, find myself in a jury room with the rest of that same jury panel deciding the fate of an accused criminal or the potential civil liability of parties to a civil case. Maybe I get elected foreman because those non-lawyers on the jury believe the attorney among them knows best what to do and how best to do it. Maybe we convict; maybe we acquit … or maybe we decide that one neighbor’s fence should be moved a foot to the left because it was improperly installed on the next-door neighbor’s side of the property line. Maybe, as a litigator myself, it proves to be an invaluable learning experience from which I am able to hone my craft. Maybe I gain a better appreciation for how all those potential jurors feel the next time I am the one selecting a jury. Maybe I make it as far as the first round of strikes and am sent home. I can live with that! I acknowledge the unlikelihood of my getting impaneled to help decide a case. I accept at the outset that most attorneys selecting potential jurors for their case will not see the potential value in having me in their jury box. I understand that it would be wishful thinking to believe I might find myself as the difference maker persuading fellow jurors to consider evidence in a different light, helping tip the balance in a case with life-altering consequences for the parties. For my money, opting out of jury duty is akin to not buying a lottery ticket – you can’t win if you don’t play. The PowerBall jackpot recently surpassed $1.5 Billion without a winner. My chances of winning were as infinitesimal as the next guy’s, . . . but I bought a ticket anyway. I’ll be sure to tell you all about it if my jury lottery number gets called. (P.S. I’m not making the same promise if my PowerBall number comes up!)
October 19, 2023
Estates and Trusts
Every Woman For Herself
Originally posted on 1/6/2021, content updated on 10/18/2023 I read a statistic that stopped me in my tracks: women are four times as likely to be a widow than men are to be widowers. Anecdotally, most of us know that women tend to outlive their partners but the fact that it is four times as likely should give us all pause. It should also prompt us as women to make sure that we have our proverbial houses in order, especially as we begin a new and brighter year ahead. How does one ensure her house is in order? Start with a list. The list should identify the assets that she owns, what the value of those assets are, and how she owns those assets. What are your assets? For practical purposes and for this exercise, your assets should be considered anything that you own that has value. Most people understand that their real estate, bank, brokerage, and retirement accounts are considered assets, but there are other items that might not immediately come to mind when you consider assets. Collectibles, artwork, expensive jewelry, interests in business, intellectual property, digital assets, inheritances, and insurance policies are also assets and often have significant value. It is important that these not-so-obvious assets are identified. How do you own those assets? Assets can be owned in various ways: jointly with or without rights of survivorship, assigned percentages, in a trust, and solely are just a few examples. If you are married, you may own your primary residence together as “joint tenants with rights of survivorship” with your spouse. This means that if your spouse predeceases you, your home will pass to you by operation of law. If instead you own vacation property as tenants-in-common with your brother and he dies first, his share will pass to his own heirs – which might not be you. This is an important distinction because if you own property with your brother and his children are the heirs to his estate, his 50% ownership of the property will pass to them. If that is the case, his children may want to sell the property. Do you have the finances available to buy them out? Or do you want to own property with your brother’s children? Maybe. But maybe not. What is the value of your assets? Asset valuation is a moving target. The market value of real estate and equities fluctuate daily so asset valuation should be updated at minimum, on a yearly basis. Even more complicated is determining the value of business interests, intangible assets, and specific tangible personal property that may be unique in nature. Take for example an art collection: oftentimes it is necessary to engage an art expert qualified in that particular genre to determine the market value of a piece or an entire collection. Or, even more complicated, the valuation of a closely held business in which you are the sole proprietor: what the value is during your life may not be the same after you die. It may be necessary to engage an expert to evaluate the value of your role in a business with or without you. Why is it important to understand the value of your assets? In a word, taxes. Depending on the value of your assets and who you plan to leave your assets to when you die could mean the difference in hundreds of thousands of dollars in taxes owed to the state or federal government upon your death, if not more. Knowing what your assets are worth will enable you to plan properly for who should inherit those assets and in what proportion. Beginning with a simple list is a good start in getting your own house in order; the list will better enable you to take the next step in planning. Knowing what you have will allow you to consult the appropriate professionals to create a functional estate plan that will serve your long-term goals and, in the end, protect you and your loved ones. After all, in the end, it is (four times as likely to be) every woman for herself.
October 18, 2023
Estates and Trusts
Have You Got the Power (of Attorney)?
Originally posted on 11/19/2020, content updated on 10/04/2023 The New York Durable Power of Attorney is an integral part of every estate plan, but it is also the one document that clients are most trepidatious about signing. Their concern is not unfounded. The Power of Attorney quite literally grants someone else the power to make decisions about another’s finances, property, business matters, taxes, gifts, investments and all things related. Why Do I need a Power of Attorney? Anyone over the age of 18 who has a bank account should have a Power of Attorney. If you own assets in your name, no one else can assist you in managing those assets if you cannot manage the assets yourself due to a short-term illness or incapacity, without a Power of Attorney. Many incorrectly presume that a spouse or family member can simply step-in and make any necessary financial transaction for another without a Power of Attorney in place; this is not the case. In fact, retirement assets, real property (even if owned jointly,) and solely-owned assets may not be accessed by anyone, including a spouse, unless she has a Power of Attorney signed by you, giving her permission to access those assets – even for simple tasks like paying bills. How Does the Power of Attorney Work? The Durable Power of Attorney allows you, the principal, to appoint another person, an agent, to make financial decisions for you. The decisions that you allow your agent to make can be tailored to your specific situation. Sounds easy, right? Not exactly. There is a tension that exists between giving your agents all the powers available under the law to act for you and very narrowly tailoring those powers to specific situations. Make the Power of Attorney too broad and your agent could step into your shoes and make any and all financial decisions on your behalf – decisions that you might not want another person to make for you. An overly restrictive Power of Attorney could very well leave your agent in a position where she cannot assist you in managing your assets in the way that you intended or in your best interest, rendering the Power of Attorney useless. Another important point is that Powers of Attorney are effective the moment you sign them, even prior to your incapacity. Practically speaking, your agent has the ability to use the Power of Attorney right away, which can be a worrying prospect. As such, it is vital that you choose someone who will act in your interest and not outside of the scope of what you intended. It should be noted that Powers of Attorney can be revoked at any time if the principal has the mental capacity to do so, and it is no longer effective upon the death of the principal. Who Should be your Power of Attorney? The who is the most important part of the Power of Attorney. Because your agent can be granted sweeping powers under your Power of Attorney if you allow it. She must be someone that you trust implicitly to make decisions based on the guidance you provided to the agent, and if you never gave direction, then the agent must act with your best interest in mind. Your agent should be responsible, honest and detail-oriented. The good news is that when New York State amended the law relating to the Power of Attorney in 2009 (and again in 2010,) it included the provision that the agent you appoint must also sign the Power of Attorney accepting your appointment of her and recognizing that she has a fiduciary obligation to the principal. The form explicitly advises the agent that in accepting the role, any transaction that she makes must be done in the best interest of the principal, not of the agent. The agent also has a fiduciary duty to keep receipts and documentation for transactions made under your Power of Attorney, never to co-mingle funds with theirs, and to avoid conflicts of interest. If your agent does not follow your wishes, or acts against your best interest, your agent could be held liable for violating the law. What Happens Without a Power of Attorney in Place? If you become incapacitated and you never got around to signing a Power of Attorney, or because you were too fearful of trusting someone as your agent, the only option is guardianship. A guardianship proceeding is a very serious legal process in which another party is required to appear in court and prove to a judge with medical evidence that you are not able to manage your own finances. The judge may appoint a family member, a friend, or a lawyer (whom you never met before) to take control of your finances. The court proceeding itself, while not only emotionally difficult for those involved, is quite expensive and should be avoided if at all possible. It is crucial that the option of a Power of Attorney be discussed with your estate planning lawyer. You should take great care in considering not only who should fill the role as agent, but also which powers you may wish to grant the agent.
October 4, 2023
Estates and Trusts
Handwritten Wills and the Couch Cushions that Hide Them
No doubt, the basic scenario plays out every day across America. An elder loved one passes, and an adult child or children are left to deal with an estate and no plan in place — or at least no apparent plan. What to do with mom’s comfy chair? How much is that old couch worth? Should we just donate everything to charity? Who decides? The oldest? The one living closest? Do we all get a vote? Before anything gets decided about the couch (or any other furniture, for that matter), I suggest everyone take a breath and consider the recent case of Aretha Franklin‘s four kids… and definitely don’t rush to divvy up everything and especially do not just get rid of the old couch! Nearly five years after the Queen of Soul passed and, no doubt, many tens (more likely hundreds) of thousands in legal fees later, the fate of Aretha Franklin’s estate was decided by a Michigan jury, which determined that a four-page “holographic“ (i.e., handwritten) document in a notebook found stuffed under Aretha‘s couch cushion was her intended last Will. No matter that the four kids had already long since mutually consented and arranged to have an agreeable cousin serve as a third-party neutral to administer the estate. No matter that the lack of a will had meant all four would share everything equally and that they’d come to terms with that. No matter that one of the four separate potential final will documents was several times longer, more detailed, found in a locked cabinet, and notarized! The jury’s findings result in Clarence Franklin getting cut out completely and brother Kecalf, alone, receiving Ms. Franklin’s $1.1 million home and most of her “personality” (i.e., her physical stuff-including jewelry, furs, and numerous luxury cars). Impossible to know for sure what Aretha had intended. In fact, according to a New York Times report, the trial judge overseeing the trial has ruled that portions of one or more of the earlier signed documents might still end up being incorporated into what the jury determined to be the final document. (Note: This can happen in certain circumstances when one deals more completely / thoroughly with the disposition of all that one owns in one document before creating another, which inexplicably makes no specific reference to replacing or substituting for the former document). So, despite having endured nearly five years of legal wrangling and a jury trial publicly airing the family’s “dirty laundry” along with matters preferably kept private, the Franklin kids may yet be forced to endure additional delays as the lawyers face-off on potentially unresolved issues, and Clarence and the other siblings now receiving substantially less than the presumed 25%, are now forced to consider their potential appellate options, as well. Why leave such unnecessary heartache to your loved ones after you’re gone? Consult a legal professional, and have it done correctly—and the way you want it—the first time. And if you have recently lost a loved one – especially if you’ve been led to believe they had an estate plan in place (and doubly especially if the “plan” they told you about appears to differ substantially from the plan the decedent actually left behind (or the lack of a plan altogether), I would urge you again to consider the plight of the Franklins and rethink that couch donation . . . at least until someone’s had a chance to lift the cushions and run their hands through the frame. (Epilogue: True, not-totally-unrelated, anecdote . . . I discovered a $20 bill and a pair of Ray-Ban® sunglasses (sold on the spot for $75) in the back of an abandoned couch acquired during a brief stint co-owning/operating a used furniture/carpet going concern more than 30 years ago. I didn’t have to become an estate and trust litigator to appreciate the potential treasure trove those old cushions might unlock! “What’s a ‘treasure trove?’” you ask . . . and “How does one determine ownership of a treasure trove when discovered?” That’s a whole other topic for another day. For now, happy couch-surfing!)
September 14, 2023
Estates and Trusts
What’s a Healthcare Proxy and Why Should You Have One?
Originally posted on 12/10/2020, content updated on 09/13/2023 It is vital to have a proper health care directive in place in the event you become sick and cannot independently advise your health care providers of your wishes. In 1991, the New York Health Care Proxy Law established the right for an adult to nominate another person to make medical decisions for her in the event she is unable to effectively communicate her wishes independently. The goals of establishing this standard in New York was to avoid confusion when a medical decision needed to be made for someone who could not do it herself, to identify the person who could communicate those wishes, to ensure the wishes would be carried out, and most importantly, to withdraw treatment when the proxy decides that it would not be something that the patient would want or that continued care is not in the patient’s best interests. How the Health Care Proxy Works The Health Care Proxy document only goes into effect when you are unable to effectively communicate your wishes to your health care providers. The proxy allows for the appointment of two people, referred to in the document as “agents”, in the order in which they are named. The order of the proxies in the document determines the order in which medical personnel will consult with them about decisions that need to be made about your health. Agents are not permitted to act together in New York because joint action could lead to disagreement, which of course undermines the purpose of the document. The medical decisions that an agent might make on your behalf can range from the most basic like the dispensing of antibiotics to the suspension of artificial ventilation which might end your life. The Health Care Proxy also provides instruction regarding organ and tissue donation in the event of your brain death. How to Choose Your Agents Your agent must be 18 years of age and does not have to be someone related to you. While it is true that many choose a family member like a spouse or an adult child for the agent role, there is no requirement that your agent be related to you. In fact, some choose a close friend or trusted advisor to fill the role of an agent so that a family member’s emotion does not factor into a health decision, particularly a decision that could end your life. Others nominate their religious advisor so that treatment is based on their faith’s doctrine to guide the medical decision. Regardless of the individual you choose, it is imperative when considering someone for the role that you nominate a person who will speak for you regarding the type of care that you would choose for yourself, if you could articulate your own wishes: this person should not substitute thier wishes for your wishes. Instead, you should choose an agent who understands your wishes as they relate to any and all health care decisions, including life-saving measures, and who will articulate those wishes to your health care providers. This person should be someone who understands and respects your feelings about living and about dying, and fully comprehends the quality of life that you wish to live. In addition, the person should be comfortable advocating for you with health care providers and dissenting family members alike. How to Communicate Your Wishes The discussions that you have with your agent are so important because this is the information she will rely on to make decisions for you if the need arises in the future. These discussions with your agent often evolve over time. Your feelings about living and dying and the type of care that you may want are oftentimes influenced by age, a life-limiting diagnosis or even someone else’s health crisis that you have witnessed. Verbal discussions had with a proxy are legally sufficient for the agent to make a decision regarding any and all of your medical care, but many individuals take it a step further and also put a Living Will in place to illustrate certain wishes in writing. In short, Living Wills are documents that explain your thoughts about medical care and heroic measures. Often Living Wills go into detail about “heroic measures” to sustain your life including artificial nutrition, hydration, and ventilation. It is important to note that Living Wills are not substitutes for Health Care Proxies in New York and should only be used to supplement information provided to the agent. Who Should Have a Copy It is necessary that your agent not only know that she was appointed by you, but that she also has a copy of the document itself. With the prevalent use of cellphones, it is commonly recommended that your agent take a photo of the Health Care Proxy under which she is nominated so that it is readily accessible in any emergent medical situation. You should also provide copies of your Health Care Proxy to any of your treating physicians for their records, in addition. Finally, it should be noted that, even if after reading this article, you never get around to completing a Health Care Proxy, all is not lost. New York State passed the Family Health Care Decisions Act (“FHCDA”) in 2010 that gives guidance on what to do if someone does not have a Health Care Proxy in place. The FHCDA allows for family members to act as your “surrogate” and make health care decisions for you, including decisions to withdraw life-sustaining treatment. However, you are not able to choose which family member will speak for you, so it is not a sufficient substitute for a Health Care Proxy.
September 13, 2023
Estates and Trusts
Estate Planning for Professional Athletes: The Playbook for Success on and off the Field
Professional athletes are no strangers to the limelight, but beyond the enthusiastic cheers of the fans lies the need for careful planning that extends far beyond their playing days. Estate planning can easily be forgotten amid the hustle and bustle of a rigorous training schedule and a busy sports season. In this article, we will delve into the unique considerations that professional athletes should consider when crafting a comprehensive estate plan. The Play: Understand the Game of Estate Planning Estate planning involves more than just the drafting of a Last Will and Testament. A proper estate plan creates an overall strategy to manage the professional athlete’s hard-won assets during their lifetime. A well-drafted plan also ensures a smooth transition of assets to the athlete’s loved ones in the event of an injury or following one’s death. As a professional athlete, income streams, investments, intellectual property, and property ownership are customarily quite complex. Over the course of one’s career, an athlete may move frequently, acquiring assets in different jurisdictions with different laws along the way. They may also experience significant and volatile swings in their financial outlook that necessitate a review of an estate plan more often than most. In addition, due to the dynamic lifestyle of the professional athlete, close relationships may also change rapidly. It is vital that the professional athlete collaborates with tax professionals, financial advisors, and estate planners who have experience in handling the ever-changing and unique planning needs of athletes. The Starting Lineup: Wills and Trusts A Last Will and Testament is certainly one of the cornerstones of an estate plan. Most understand that Wills can assist in outlining how assets are distributed upon death. What many do not know is that Wills can also designate guardians for minor children and appoint a trusted advisor as the executor to carry the terms of a Will. Trusts are an even more powerful tool for athletes. Trusts provide much-needed privacy, minimize taxes, and allow for tailored distribution of assets to beneficiaries over time. The benefits of a Trust are often critical for an athlete, particularly if they have young children or heirs who require financial guidance. The MVPs: Powers of Attorney and Healthcare Directives One of the most challenging hurdles that athletes must face is injuries. More than any client, creating advanced directives is of the utmost importance for professional athletes who may face injury more regularly than others. Designating an agent under a power of attorney ensures that a trusted person nominated by the professional athlete can manage the likely complicated financial affairs in the event of injury or incapacity. Likewise, healthcare directives outline medical preferences and can empower a chosen individual to make medical decisions on behalf of the injured athlete if they cannot do so Game Strategy: Tax The substantial earnings of professional athletes are often subject to high tax rates. Those tax rates vary from state to state and from year to year. Implementing a tax-efficient estate plan can help minimize the tax burden on the professional athlete and their heirs. A properly created estate plan must include strategies like lifetime gifting, charitable giving, and utilizing trusts to preserve a professional athlete’s wealth and legacy. Protecting A Legacy: Intellectual Property Considerations An athlete’s brand, image rights, and related intellectual property assets continue to generate income long after the playing days are over. Including provisions in an athlete’s estate plan that address how these assets are managed and protected is essential. Harnessing this intellectual property involves setting up corporate structures to handle licensing and endorsement deals and ensuring a stream of income for the athlete’s beneficiaries – all of which must be appropriately allocated in an athlete’s estate plan. Team Collaboration: The Agent, the Manager, The Accountant, and the Lawyer Just as winning championships requires teamwork, a successful estate plan relies on effective and regular communication and collaboration between various trusted professionals. A professional athlete’s manager, agent, financial advisor, accountant, and estate planning attorney should work in tandem to ensure that all aspects of a professional athlete’s overall plan align with their goals and protect their interests and their family’s interests for years to come. Revise the Playbook: The Moving Target of an Estate Plan The life of an athlete is dynamic on nearly every level, and their estate plan is no different. Major life events, such as marriages, divorces, birth of children, disability, or even the death of a loved one, require the professional athlete to constantly assess their estate plan playbook. Changes in an athlete’s home state or playing career can immediately impact their financial circumstances, which will accordingly warrant adjustments to their estate plan. Professional athletes must regularly review and update their estate plans to reflect their current situation, location, and aspirations. Professional athletes spend their careers preparing for the “big game” — an estate plan is no different, but it requires a different kind of strategy. It is not just about preserving wealth, fame, and fortune; it’s about securing a legacy, providing for an athlete’s loved ones, and ensuring their hard-earned assets are properly managed. By assembling a winning team of experts and crafting a comprehensive estate plan, professional athletes can confidently stride into the future, both on and off the field. If you are a professional athlete, a loved one, or a sports agent, please contact me so that together, we can ensure that the professional athlete’s legacy and loved ones are secure for years to come.
September 8, 2023
Estates and Trusts
Estate Planning
Are you one of the many Americans putting off preparing an estate plan? Do you have an estate plan that you have not updated in several years? The following are just three reasons that you should get your estate plan prepared or updated. CONTROL. By developing your own estate planning documents, including, but not limited to, a last will and testament, a power of attorney, and an advanced medical directive, you are the one deciding how things will be done, rather than the state. Absent estate planning documents, an individual cannot influence what happens after their death and must rely on a combination of the state and their family. Entities and/or individuals that may not know your wishes. INHERITANCE. Estate planning documents direct the disposition of an individual’s personal and real property, but when an individual dies without these documents in place, the state will make that determination for the individual. Real and personal property is divided up and given to individuals based upon the given state’s methodology of intestate succession—something that may look completely different to what an individual would have desired. An estate plan allows you to ensure that you are the one to direct who inherits what after you pass, rather than allowing the state to decide for you. BURIAL. The topic of death and burial can oftentimes be a difficult subject to discuss with our loved ones, but as a result, our loved ones may not always know how exactly we would like our burial to take place. Whether an individual wishes for their burial to be religious, a-religious, simple, elaborate, austere, celebrative, or something entirely different, these are important decisions that should be denoted in an individual’s estate plan to ensure that they are followed. Seek legal counsel to ensure that your interests are protected. If you have any questions about this or Estate Planning/Estate Litigation topics, please contact me at austin.hinel@offitkurman.com or (703) 745-1899.
August 15, 2023
Estates and Trusts
What’s New in Estate Planning? Notable Local Law Changes
D.C. Adopts the Uniform Electronic Wills Act: Electronic Wills in D.C. – it’s the law! . . but should it be? As of March 10, 2023, the “Uniform Electronic Wills Amendment Act of 2022” (Law 24-296) became effective in the District of Columbia. With it, D.C.’s pandemic-inspired, emergency legislation allowing virtual will signings was formally replaced with a new Chapter 9 of Title 18, known officially as the “Uniform Electronic Wills Act” (D.C. Code § 18-901, et seq.). With its adoption of the Act and making permanent the previously interim measure, D.C. joins only six other states and the U.S. Virgin Islands[1] to have adopted the Act and made the leap legalizing will signing without ever putting pen to paper, or for that matter, without ever involving a pen or paper.[2]. In the District, to be legally enforceable, one’s will no longer needs to have been physically signed or reduced to paper. With the appropriate software and/or application, one can now finalize a will with a few keystrokes. Of course, there are some parameters, and one should not presume to have met all the criteria merely by tapping out a document on one’s laptop without consulting the Act . . . and a good lawyer! Nevertheless, the new law certainly makes it easier to make a testamentary disposition of one’s assets, i.e., direct who gets what when you die. I am left questioning the tradeoff; however, with the Pandora’s box of fraud schemes, this development undoubtedly unleashes. You can now create and sign your Will electronically in the District of Columbia . . . but should you? There has been no shortage of debate over the years as to steps minimally appropriate to make a legally enforceable will. While varying across jurisdictions and with only limited exceptions, certain minimum requirements regarding one’s “soundness of mind,” witnesses, notarization, signatures and related representations, for instance (see, e.g., DC Code § 18-102, et seq. and Va. Code § 64.2-403, et seq.), have universally been intended to assure both genuineness of a document and accuracy of one’s testamentary intentions on a document which only becomes legally operative after the testator is dead. With the advent and development of electronic communications (email, facsimile, text messaging, and the like) and, in recent years, the ever-improving ability to sign (or affix an equally individualized electronic mark), send, and store one’s electronically signed documents increasingly securely, the legal acceptability and enforceability of electronic signatures have become unexceptionally commonplace. Moreover, with the recent lessons of a global pandemic, including a new-found appreciation for conducting one’s affairs from a distance, the ability to “get one’s affairs in order” remotely became, for many, a life-preserving necessity. Time may reveal better the extent to which the inability to e-sign estate planning documents “forced” COVID-19 victims and countless others to die intestate, an argument I’ve heard posited in favor of easing and expediting signature requirements to this extent. In the District, emergency legislation made it possible, on a limited temporary basis, to execute wills without all of the “whistles and bells” otherwise required under the law. The primary argument for maintaining the physical signature requirement for wills, along with the physical presence of witnesses, generally centers on the significance of the finality of making testamentary disposition of one’s assets and not being around to assure that one’s intentions are carried out as we had intended. But with the general acceptance nowadays of e-signing in the context of so many acceptable alternatives to disposing of one’s assets without either invoking a will (trusts and contractual-based, third-party provider agreements such as life insurance and ERISA-qualified retirement plans, for instance) and/or the probate process pursuant to which one’s Will’s directions are administered and overseen, why should will-signing retain such an exceptionally high bar?. . or so the argument goes! With the advent of AI-generated, at times seemingly indifferentiable virtual “reality,” do we really need to ask “why?” Perhaps there will come a time when one’s “John Hancock” indelibly inscribed, notarially certified, and appropriately witnessed will no longer have any value at all. Perhaps. We’re not there yet, however, . . . at least not everywhere. Neither Virginia nor Maryland has yet to succumb to this latest modern trend towards allowing and trusting electronically signed will documents . . . although, it seems only fair to acknowledge in this regard that Virginia, for instance, has allowed exceptions to its strict signing/witnessing requirements in certain limited circumstances. [For more on “de facto wills” and the “Harmless Error Rule” in the Commonwealth, see my prior discussion regarding Virginia’s modified version of Section 2-503 of the Uniform Probate Code, Va. Code § 64.2-404.] Mind you, I am not suggesting that electronic evidence of a Will (including, for instance, a PDF copy of the purported Will itself) would not, per se, be devoid of probative value. By way of example, not too long ago, I found myself challenging whether an emailed copy of a document purporting to be a Will might itself be deemed a “de facto will” under Section 64.2-404 and the extent to which, if admitted into evidence, the electronic version of the document and the email transmitting it ought to be given weight by the judge when considering the decedent’s intended finality of the document at the time. Perhaps someday Virginia will fall lockstep into line in the march towards what may be an inevitably paperless, impersonal future. Maybe someday, sure, but I would take the “over” if anyone proposes a near-term adoption of such a risky proposition here in the Old Dominion. As of this writing, at least, D.C. stands alone in the “DMV” and with only a handful of other jurisdictions (in the mid- to Pacific West) formally allowing this dangerous practice. Over the years, I have counseled countless clients who have found themselves questioning the bona fides of a suspicious Will document or the circumstances and timing of the document’s creation. With what I perceive as the floodgates now opening, I suspect the next wave of litigation will involve many new variations on the theme requiring us to (dis)prove testamentary intent and whether certain 0’s and 1’s amount to an electronic signature of an improperly formatted, electronic document very loosely resembling what only some might consider a Will. You know where to find me! ___________________________________________________________________ [1] North Dakota and Washington enacted versions of the Act in 2021, and the U.S. Virgin Islands followed suit in 2022. D.C. joins Minnesota, Idaho, and Utah in enacting the Act in 2023, while Texas, Missouri, and New Jersey have introduced, but, as of this writing, have not enacted the Act. (Source: Uniform Law Commission, https://www.uniformlaws.org/committees/community-home?CommunityKey=a0a16f19-97a8-4f86-afc1-b1c0e051fc71, site visited on 8/8/2023) [2] Maryland has not adopted the Act but has adopted its own version of electronic will signing/witnessing. See Estates & Trusts §4-101, et seq. (Source: Maryland General Assembly, https://mgaleg.maryland.gov/mgawebsite/Laws/StatuteText?article=get§ion=4-101, site visited on 8/29/2023.) There may be other states that have gone this route as well.
August 14, 2023
Estates and Trusts
Unmarried Couples Win New Inheritance Rights
For more than a decade, the freedom to marry has been available to Maryland’s same-sex couples. Those who have approached the altar, the chuppah, or the courthouse and tied the knot enjoy legal benefits that were denied them as domestic partners. These include the right to receive an inheritance if one partner dies without a will, and to avoid Maryland’s hefty inheritance tax. Under the new legislation, these rights are now available to Maryland’s unmarried couples as well. By registering as domestic partners, unmarried couples can ensure that if one partner dies without a will, the survivor will be entitled to an inheritance equivalent to what a surviving spouse would receive. This could be as much as the entire estate or a lesser amount for couples who have children from a prior relationship. The surviving partner also has the right to serve as personal representative, or executor, of the deceased partner’s estate. Whether a partner dies with or without a will, this new law exempts the surviving partner from Maryland’s 10% inheritance tax on any property received from the deceased partner. The tax normally applies to any bequest left to someone who is not a spouse or close family member. By way of example, a registered couple would save some $30,000.00 in inheritance taxes if one partner died with $300,000.00 in assets, compared with an unmarried couple who had not registered. The law will also recognize children born to registered domestic partners as the legal descendants of both parents. Registration Requirements Beginning October 1, 2023, a couple can register as domestic partners by completing an affidavit with their names and address. Each partner must be at least 18 years old, unmarried, and in no other domestic partnership. The signed and notarized form must then be submitted to the Register of Wills in their county of residence with a $25.00 payment either in person or by mail. A registry is available to same-sex and opposite-sex couples alike. Once their application is approved, the couple will receive a certificate of domestic partnership. The Registers will all be able to access the records of the other registers, so a couple will be able to move to a different Maryland county without having to re-register. An unmarried couple who have registered with the state can terminate their partnership in four ways—by the mutual agreement of the partners, by one partner who has been abandoned by the other partner for at least six months, or upon the death or marriage of either partner. Not a Substitute for Estate Planning Couples who register should consider taking additional steps to ensure that they are prepared for the unexpected, including the death or disability of a partner. Have an attorney draw up your estate-planning documents, including a will, financial power of attorney, and advance medical directive. Your partner may be your primary beneficiary under your will, but you might want to include gifts to your children, nieces and nephews, or charitable organizations as well. A well-thought-out will also says who inherits and who settles the estate if you and your partner are both deceased. If your beneficiaries include children, your will could include a trust for their benefit. Placing a child’s inheritance into a trust will help ensure that the assets go toward worthwhile purposes, such as college, medical care, or maybe the down payment on a house. A will can also name guardians to look after any children who may be under the age of 18 when both parents are gone. If you or your partner becomes unable to manage your own finances or medical care, having a power of attorney and advance directive will help ensure that someone you trust is authorized to make these decisions on your behalf. At a time when fewer people than ever are getting married, and even fewer prepare a will before they die, having the right to register as domestic partners is a huge win for Maryland’s unmarried couples. If you and your partner decide to register, be sure to finish the job by having an estate plan prepared to help you navigate some of life’s biggest uncertainties. Lee Carpenter is an Estates & Trusts attorney at the law firm of Offit Kurman, P.A., and can be reached at (410) 209-6426 or Lee.Carpenter@OffitKurman.com. This article is intended to provide general information about legal topics and should not be construed as legal advice.
August 3, 2023
Estates and Trusts
Trusts and Estate Planning Tips for the LGBTQ+ Community
Pride Month is an important time for celebrating the LGBTQIA+ community and promoting equality, acceptance, and visibility. Estate planning is a crucial aspect of personal financial planning for individuals and families, regardless of their sexual orientation or gender identity. Here are six trusts and estate planning tips for the LGBTQ+ community that may be particularly relevant during Pride Month: Wills and Trusts: Creating a will or a trust is essential for ensuring that your assets are distributed according to your wishes after your passing. Without a valid will or trust, your estate will be subject to intestacy laws, meaning New York State will determine who will inherit from you and in what proportion. The rules of intestacy may not align with your intentions or benefit your chosen beneficiaries. By creating an estate plan, you have the opportunity to specify how you want your assets to be distributed, including to your chosen family, friends, or organizations. Beneficiary Designations: Review and update your beneficiary designations on all of your financial accounts, including retirement accounts, life insurance policies, and other financial accounts. Ensure that the named beneficiaries reflect your current wishes. If you are in a relationship that is not legally recognized, it’s imperative that your loved one is designated as a beneficiary. Healthcare Directives: Consider creating advance healthcare directives such as a healthcare proxy and a living will. These documents allow you to appoint someone to make medical decisions on your behalf and outline your preferences regarding medical treatments and end-of-life care. Selecting a trusted person who will respect your wishes, including your chosen family or partner, is crucial to ensure your healthcare wishes are honored. If you do not have these documents in place, many states, like New York, allow your next of kin to make end-of-life decisions for you. Guardianship for Your Children: If you have children or dependents, it is vital to establish guardianship arrangements in case something happens to you. Ensure that your estate plan specifies who you want to care for your children and provide for their well-being. This is especially important for couples who are not legally married or who may face additional legal complexities in some jurisdictions due to the lack of protection or recognition of LGBTQ relationships. Your Local LGBTQ+ Laws: Understanding the laws and regulations regarding LGBTQ+ estate planning in your jurisdiction is so important. Laws can vary by country, state, or even local jurisdiction, and they may impact your ability to protect your chosen family, distribute assets, or claim inheritance rights. Consulting with an estate planning attorney who has experience in LGBT estate planning is imperative. Nondiscrimination Language: When drafting estate planning documents, you should consider including non-discriminatory language to ensure that your wishes are carried out without prejudice or discrimination based on sexual orientation or gender identity. This will help protect your loved ones from potential challenges to your estate plan based on discriminatory interpretations or actions. Please feel free to contact me to navigate the legal complexities of LGBTQ+ estate planning and to ensure that your estate plan aligns with your goals and values.
June 27, 2023
Estates and Trusts
Special Care with Special Needs Trusts (SNTs)
Providing Security and Care for our Disabled Loved Ones I was inspired to write about Special Needs Trusts (SNTs), a legal tool that can provide security and care for our disabled loved ones, as I was waiting to cross Madison Avenue. I stood beside a woman in a wheelchair as the traffic whizzed by, impatient pedestrians hovered and huffed to move around her chair and I thought of how vulnerable she must have felt at that moment – or maybe more accurately, how vulnerable I felt on her behalf. It made me think of so many of us when planning for our loved ones with special needs: financial security and long-term care can be especially triggering. Years ago, family members had to disinherit their disabled loved ones to ensure that their public benefits were not disturbed by an inheritance. Funds meant to support the disabled loved ones were left to someone else to manage, which often led to disaster. As a result, the concept of Special Needs Trusts (SNTs) was born. SNTs became a powerful tool to address these concerns and ensure that individuals with disabilities could maintain their eligibility for government benefits while maintaining access to the necessary financial resources. What is a Special Needs Trust (SNT)? A Special Needs Trust, also known as a Supplemental Needs Trust, is a legal document that holds funds for the benefit of a disabled person; the funds in an SNT are not “counted” by the government. The primary purpose of an SNT is to enhance the disabled person’s quality of life by supplementing government benefits without jeopardizing their eligibility for essential programs such as Medicaid and Supplemental Security Income (SSI). Three Types of Special Needs Trusts First-Party Special Needs Trust: A First-Party SNT is funded with the disabled individual’s own assets, such as an inheritance, personal injury settlement, or accumulated savings. The trust allows the individual to maintain eligibility for means-tested benefits. Upon the disabled person’s death, any remaining funds must reimburse the government for benefits received during the disabled person’s life. Third-Party Special Needs Trust: A Third-Party SNT is created and funded by someone other than the disabled individual. Parents, grandparents, siblings, or any other loved one can establish a Third Party SNT. Unlike a First Party SNT, there is no requirement to reimburse the government for benefits received upon the beneficiary’s passing – known as a “pay-back provision.” All remaining funds can be designated for the disabled beneficiary’s heirs, the third party’s heirs, or charitable organizations. Pooled Special Needs Trust: Pooled SNTs are administered by nonprofit organizations. Pooled SNTs allow multiple individuals with special needs to “pool” their resources into one SNT. Each beneficiary then has a separate account within the SNT, and a professional trustee from the charity manages the investment and disbursement of funds. This option is particularly beneficial for those without substantial assets or when family members cannot assume the responsibilities of managing a trust. Benefits of Special Needs Trusts Preserving Government Benefits: One of the primary advantages of an SNT is that it enables individuals with disabilities to continue receiving crucial government benefits. The assets held in a properly drafted SNT allow the disabled individual to maintain eligibility for these programs, thus ensuring access to vital healthcare services, income support, and other assistance like housing allowances. Supplementing Basic Needs: SNTs provide a supplemental source of funds that can be used to enhance the beneficiary’s quality of life. These funds may cover expenses not typically covered by government benefits, such as education, therapy, specialized equipment, home modifications, transportation, and recreational activities. Professional Management: Trusts require careful management to ensure compliance with legal and financial regulations. Professional trustees handle investment decisions, disbursements, and record-keeping responsibilities, alleviating the burden of family members and ensuring the trust is managed effectively and in the beneficiary’s best interest. Peace of Mind: By establishing an SNT, families gain peace of mind knowing that their disabled loved one will have the necessary financial resources and care even after they are no longer around. Establishing an SNT can provide a sense of security for both the beneficiary and their family. SNTs play a vital role in securing the future of individuals with disabilities by providing them with financial resources, care, and an enhanced quality of life. SNTs provide families a means to protect their disabled loved ones' eligibility for government benefits while supplementing those needs. If you would like more information on Special Needs Trusts (SNTs) and how these and other legal tools can provide security and care for your disabled loved ones, please feel free to contact me. If you want to learn more about how you can benefit your favorite charity while creating an income stream for you or your beneficiaries, check out my post on Charitable Remainder Trusts by clicking here.
May 23, 2023
Estates and Trusts
“de facto” Wills and the Harmless Error Rule - Part 2
Virginia maintains a signature requirement even for “de facto” wills With its added signature requirement, Virginia’s version of the Harmless Error Rule differs materially from the proposed uniform version of the Rule. The first part of the Virginia statute, Section 64.2-404(A), expressly permits writings not executed in compliance with the statutory attestation requirements [i.e., without all the whistles and bells] to be admitted to probate under the relevant circumstances. It was and remains the primary purpose of the Harmless Error Rule’s adoption and continued application. Virginia’s version of the Rule adds the language of Section 64.2-404(B), which (except in two very discreet situations) refuses to protect as harmless error “compliance with any requirement for a testator’s signature” and, in this respect, differs materially from the uniform code provision. The uniform code’s version of the Harmless Error Rule would overlook as “harmless” in appropriate circumstances not only the attestation requirements but also the signature requirement itself. Virginia legislators were collectively unwilling to be nearly as forgiving in this regard. With the addition of Section 64.2-404(B) and its signature requirement, the General Assembly clearly circumscribed the list of potentially “harmless errors” capable of being overlooked to allow an otherwise non-compliant will document to be accepted for probate. In one of several litigated matters relating to the Estate of Marvin Sacks, an Arlington circuit judge had occasion to address multiple facets of the statute, including not only alterations to an existing will but also to the Section 64.2-404(B) signature requirement itself. At the threshold, the respondent in Sacks sought to prevent the probate of a “de facto will” by challenging the testator’s failure to execute the document in compliance with all the attestation whistles and bells. As the Arlington court recognized, however, although Section 64.2-404 specifically references a “testator’s signature” requirement, it would be self-defeating for the statute to require “execution” of the writing in question by the testator as would otherwise be mandated by Section 64.2-403 (i.e., the whistles and bells section). Had the General Assembly intended the “testator’s signature” reference in Section 64.2-404(B) to mean a document “executed in compliance with § 64.2-403,” they would have thereby negated the purpose of the Harmless Error Rule itself. Failure to satisfy the attestation whistles and bells can only be corrected if a judicial ruling is sought within one year from the testator’s death. The right afforded under the Harmless Error Rule statute to have a court intervene to deem a non-compliant will legally enforceable has a limited lifespan. The protections otherwise afforded under Section 64.2-404(B) only survive the testator by one year. There is no exception. With the addition of subpart B to the Harmless Error Rule statute, the General Assembly saw fit to impose a time limit, what is known as a statute of limitation, by which time a proponent of a non-compliant will could otherwise seek the help of the court in having such a will declared legally enforceable is limited to the first anniversary of the testator’s death. In other words, an attestation error, otherwise deemed harmless and correctable under the Rule, ceases to be harmless one year after death. What constitutes clear and convincing evidence in this context? Prior to the 2007 adoption of the Harmless Error Rule in Virginia, all wills and changes to wills had to meet all the statutory attestation whistles and bells to be legally enforceable. Section 64.2-404 opens the door to allowing potentially harmless errors from preventing enforceability but affords such allowances only if the proponent of a will without all the requisite whistles and bells meets an elevated burden of proof regarding the testator’s intentions reflected therein and the signature appearing thereon. So what evidence is needed to meet the elevated clear and convincing standard? I include here a non-exhaustive list of factors to consider when evaluating whether a document without all the attestation whistles and bells might nevertheless be upheld as a “de facto” will. One should consider evidence of the following factors along with any other evidence tending to support or refute whether the document in question truly reflects the decedent’s testamentary intentions (and not merely draft considerations) at the time the document was made: (i) the preparation and signing of the document itself (how, where, and under what circumstances did the document come into being and/or come to be signed); (ii) witnesses to the de facto will (did they formally “witness” (i.e., sign) or were they mere coincidental observers); (iii) the temporal proximity of the de facto will to the onset of testator’s terminal condition or death; (iv) questions or concerns regarding capacity of the testator (including age of the testator and possible undue influence); (v) motivation(s) and/or (dis-)incentive(s) for the de facto will proponent to lie; (vi) the level of independence of the source of information to be considered; and (vii) the status of the documentation of testator’s most recent prior known testamentary disposition(s). Additionally, evidence of consistencies and/or inconsistencies with the following are all potentially relevant considerations as well: (i) the de facto will provision(s) compared to the testator’s previously articulated intentions; (ii) the manner of document creation compared to prior testamentary dispositions (e.g., typed or holographic; physical or mental impairments impacting writing); (iii) the manner of document creation compared to current changed circumstances (e.g., typed or holographic; physical or mental impairments impacting writing); and/or (iv) the manner of maintaining/storing the de facto will be compared to prior known testamentary disposition documentation (e.g., nightstand v. bank safe deposit box). 10 “clear and convincing” evidentiary factors: Testator Capacity/Undue Influence Testator Age/Health Signature Circumstances Witnessing Formalities Temporal Proximity – Will/Death Proponent’s Self-interestedness Source(s)’ Independence Prior Will(s) (In)consistencies – time, place, manner, and intent Finality When setting forth one’s intentions regarding the disposition of one’s property when one dies, certain formalities are expected to be followed, and with good reason. At least two witnesses together in the same place at the same time to observe the signing of a will is not an unreasonable expectation when the resulting document is intended to affect the disposition of property only upon the death of the person willing it to be so. It is, after all, for the testator’s own protection that we generally require all the whistles and bells, all the pomp and circumstance, associated with a formal will signing because the testator will not be around to answer questions about their intentions after they are dead – the only time the language of the will actually has any legal impact. When such formalities have all been adhered to, we can be sufficiently certain that the resulting document validly reflects with sufficient certainty the final wishes of the testator. The Harmless Error Rule, as set forth in Virginia Code Section 64.2-404, is there as a safety net for when things don’t always go exactly as planned or for circumstances when, despite the best of intentions, people make changes to a will without understanding or appreciating that any such edits might serve to nullify the formalities they had previously paid to achieve. This work is intended for the non-lawyer wondering whether to involve a lawyer in the preparation of one’s will or a change to one previously made (you absolutely should!) and for family members or friends of departed loved ones who discover a document which you think might or could have been an attempt by the dearly departed to express their testamentary wishes in a form and manner that may or may not be legally sufficient to be accepted as the final will of the decedent. If you happened upon this article while conducting online legal research on the subject, I commend you to the prior publication. The earlier piece was intended for legal practitioners, complete with case and statutory citations and cross-references to scholarly sources upon which I relied at the time. Since publishing the original work, I have continued to be involved in cases with ever-evolving fact patterns of situations where proponents and opponents legally battle over the legal enforceability of documents which may or may not have been intended as testamentary dispositions, i.e., will documents seeking to dispose of one’s property at death.
May 22, 2023
Estates and Trusts
LGBTQ+ Home Care Law Set to Go Into Effect in New York Next Month
It is no surprise to LGBTQ+ individuals and their allies that nine out of ten of those who identify as LGBTQ+ fear discrimination in medical settings. According to Services and Advocacy for Gay, Lesbian, Bisexual, and Transgender Elders (SAGE), LGBTQ+ people are two times as likely to age alone and four times less likely to have children who might otherwise serve as caregivers and advocates. This means the LGBTQ+ population is even more vulnerable as they age. As a result, and at long last, Governor Hochul signed a law that is intended to address this discrimination related to the medical care received by the LGBTQ+ community in the home care and nursing home setting. Beginning next month, New York State will require that all home health aides, certified nurses’ aides, and personal care aides – essentially the backbone of a senior’s long-term care team– will receive training focused on providing care to patients of diverse sexual orientations, expressions, and gender identities. This ambitious and much-needed law includes several components that will be incorporated into the training program. Much of the training relates to the education of the caregivers to provide comprehensive explanations of various terms related to the LGBTQ+ community. It provides an understanding of why patients with diverse sexual orientations and gender identities or expressions may conceal their identities. The goal of the training is, of course, to incorporate the concerns of these patients and ensure that they receive “person” directed care and to address the unique healthcare needs of LGBTQ+ patients. In light of the nearly 400 anti-LGBTQ+ legislative actions pending in the states across the country, it’s heartening that New York is taking the lead to combat this discrimination, especially for the most vulnerable in the LGBTQ+ population.
May 15, 2023
Estates and Trusts
Charitable Remainder Trusts: A Way of Giving Back by Paying it Forward
Many of our clients look to explore the ways in which they can give back to their favorite charities. One of the avenues worth considering is using a charitable remainder trust (CRT). CRTs are an excellent way to support your favorite charities in the future while providing an income stream now for yourself and your heirs and reducing the estate tax burden to your heirs in the future. How Charitable Remainder Trusts Work A CRT is an estate planning document, similar to a trust, that you might create to manage your assets and avoid probate. To set up a CRT, you transfer the chosen asset(s) to the trust, which a trustee then manages. You can serve as the trustee of a CRT; you could also appoint your spouse, your child, or even the charity. The trustee is responsible for investing or managing the donated assets and distributing income to you and your other income beneficiaries for your lifetime or a specified period. At the end of the trust term, the remaining assets are transferred to the charitable organizations of your choice as a charitable contribution. Types of Charitable Remainder Trusts There are two primary types of CRTs: charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs). A CRAT pays a fixed income stream based on the initial value of the trust assets, while a CRUT pays a variable income stream based on the value of the assets determined each year. Which type of trust you choose will depend upon your personal financial goals and circumstances. A CRAT may be a better option if you want a fixed income stream and are more concerned about the stability of that income. In comparison, a CRUT may be a better option if you wish to add assets over time, are more comfortable with fluctuations in income, and wish to potentially benefit from increases in the value of the trust assets over the trust term. Benefits of Charitable Remainder Trusts Clearly, one of the primary benefits of a CRT is that you can receive income from the trust while also benefiting your favorite charity. The reason why CRTs are particularly useful is because many of our clients have highly appreciated assets with a low-cost basis, such as stocks or real estate. Instead of selling those assets, paying capital gains taxes, and then donating what is left of the proceeds to the charity, a CRT allows you to donate the highly appreciated assets to the CRT and have the CRT sell the asset, thus avoiding the capital gains tax entirely. Moreover, you are entitled to take federal and possibly a state income tax deduction for making the charitable donation to a CRT. Additionally, CRTs can provide significant estate planning benefits. Because the assets in the trust are ultimately transferred to a charitable organization, they are removed from your estate, reducing estate taxes for your heirs. CRTs can be an excellent way to support a charity while also receiving financial benefits. If you are interested in setting up a CRT, it is important to work with a qualified estate planning attorney who can help you determine the best course of action for your individual circumstances.
May 12, 2023
Estates and Trusts
“de facto” Wills and the Harmless Error Rule – Part One
This is the first of a two-part article on “de facto” wills based in substantial part on a piece I previously published several years ago in the Virginia State Bar’s Trusts and Estates Section Newsletter, Vol. 22 No. 13. In part one, I explain the basics of the statutory Harmless Error Rule and how when timely seeking a court’s application of the Rule, an otherwise non-compliant, legally deficient will might nevertheless be deemed to be legally enforceable in certain circumstances. Is a document that is not valid will capable of being deemed a will – a “de facto” will, if you will? Yes, a document intended to be a will, but failing to satisfy all the statutory requirements for being automatically accepted as such, might nevertheless be capable of being deemed a will in appropriate circumstances. To understand what I mean by a “de facto” will, it is first necessary to appreciate what it takes to be a valid will. Not every state applies the same test for recognizing a valid or “self-proving” will, i.e., a document that is legally accepted as a will without the need for any additional evidence. If all the necessary signature attestation requirements have been followed (for instance, notarized signatures, witnesses’ signatures, etc.) -- what I like to refer to simply as all of the attestation “whistles and bells,” a document will be accepted officially without the need for anyone to testify or otherwise establish the specifics as to how it was prepared, who was present at the time, etc. The will, in effect, proves itself! Not every document intended as a will meets all the statutory requirements, however. Formerly, a document intended as a will without all the whistles and bells was simply rejected as if it had never been written. Nowadays, with the adoption of the so-called “Harmless Error Rule,” or, simply, “the Rule,” an otherwise legally deficient document determined to have been intended as a will (or an improperly carried out change to an otherwise proper will) may be upheld as a valid testamentary disposition in certain circumstances. In other words, even if you screw it up, legally speaking, the law now allows for certain screw-ups to be overlooked or overcome with sufficient evidence as to what you really meant to do. Section 64.2-404 calls upon a will proponent to establish by clear and convincing evidence that the decedent intended the document or writing as or to accomplish one of several possible outcomes: adding to, altering, or revoking an existing will; making a new will; or reviving a previously revoked will in whole or in part. Virginia Code Section 64.2-404, derived from Section 2-503 of the Uniform Probate Code (UPC), is Virginia’s enactment of the Harmless Error Rule. In effect, the Rule states that certain defects may be forgiven if sufficient proof can be shown at trial that the testator intended the faulty document to be the testator’s will. One seeking to have such a document upheld as a will, known as the “proponent” of the will, must present clear and convincing evidence to establish that the testator intended the document (or alteration) to effect a final testamentary disposition, that is to say, a transfer at death. A key word here is “final.” The actual statutory language allows a writing not executed with all the proper attestation whistles and bells to be admitted to probate as a will if it is supported by clear and convincing evidence of intentionality and finality. The purpose of the Rule is to allow a judge to excuse certain otherwise harmless errors in creating a will in much the same manner as has long been allowed for similar mistakes made with other important end-of-life documents such as with life insurance beneficiary designations, for example. Case studies and evidence considered during the development of the statutory Rule suggested that the remedial impact of the Rule would primarily apply in situations either where witness signatures were lacking or instances where the testator marks up an otherwise valid will (for example, inserting/adding a provision or crossing out one term or name and replacing or substituting another in its place). Let it be said here for emphasis -- one should not make such changes to a properly executed final will document. Don’t do it! As should be plain from context, doing so potentially invalidates the entire document. Minimally, it calls into question the finality of the document as a whole and raises questions as to the timing of the change, the capacity of the person at the time of making the change, and, absent proper witnessing, whether the change was made by the testator him- or herself (or perhaps with some form of “gun to the head” when doing so!). One of the key factors to be considered if a court is to be convinced that any missing whistle or bell is, in fact, harmless error is the extent to which the proponent can establish convincingly the circumstances at the time the testator created the less than perfect document or made any changes to an existing document. What about handwritten (or holographic) wills -- the exception to the exception? It is true that, at least in Virginia, a signed will prepared entirely in the handwriting of the testator is legally sufficient as a will, even without all the attestation whistles and bells. A fully handwritten will does not need to be witnessed or notarized to be valid and enforceable. Such an exception is still subject to burdens of proof imposed on the will’s proponent. For instance, a proponent of such a will faces the burden of establishing sufficiently that the handwriting and signature are that of the testator. In part 2, I will address Virginia’s non-uniform additions to the Harmless Error Rule (the signature requirement and one-year limitations period); what one might look for when trying to meet the heightened “clear and convincing” evidentiary burden. This work is intended for the non-lawyer wondering whether to involve a lawyer in the preparation of one’s will or a change to one previously made (you absolutely should!) and for family members or friends of departed loved ones who discover a document which you think might or could have been an attempt by the dearly departed to express their testamentary wishes in a form and manner that may or may not be legally sufficient to be accepted as the final will of the decedent. If you happened upon this article while conducting on-line legal research on the subject, I commend you to the prior publication. The earlier piece was intended for legal practitioners, complete with case and statutory citations and cross-references to scholarly sources upon which I relied at the time. Since publishing the original work, I have continued to be involved in cases with ever-evolving fact patterns of situations where proponents and opponents legally battle over the legal enforceability of documents which may or may not have been intended as testamentary dispositions, i.e., will documents seeking to dispose of one’s property at death.
April 27, 2023
Estates and Trusts
Can Your Spouse Disinherit You? How Marriage Protects the Family
It’s the stuff of low-budget movies. The grieving widow, dressed in black with her face veiled, sits in the attorney’s oak-paneled conference room for the reading of the will. Mystery surrounds the proceedings. Who among the family members present will inherit the patriarch’s vast estate? The gray-headed attorney breaks the will’s wax seal and begins to read. Dramatic music swells as he utters phrases like “being of sound mind,” “heirs of the body,” and “give, bequeath, and devise.” The widow’s gaze intensifies as the attorney comes to the words she has been waiting for: “And to my wife of many years, I leave . . . nothing.” Audible gasps are heard as the widow faints in despair and is carried to a nearby sofa. Had her years of dutiful service meant nothing to the man she loved? So much fiction. In the real world, there is no reading of the will (the beneficiaries will likely receive a copy by email). Women seldom wear veils. And a would-be disinherited spouse has options. One of the benefits of marriage is protection from disinheritance. In fact, one of the benefits of marriage is protection from disinheritance. In Maryland, a surviving spouse can “elect against the will” by taking a “spousal share.” This usually amounts to one-half or one-third of the estate, depending on whether there are children. But conniving spouses were known to game the system. Some would transfer their property into a trust or name someone other than their spouse as the beneficiary on assets like retirement accounts and life insurance, which transfer outside the will. Maneuvers such as these placed the assets beyond the reach of the spousal share, and surprisingly enough, they were perfectly legal. To protect the surviving spouse from such attempts at disinheritance, Maryland has expanded the pool of assets that are subject to the elective share. A surviving spouse can now take a share of the “augmented estate.” This includes both the “probate” assets of the estate and any “non-probate” assets, which transfer outside the will. Probate and Non-probate Assets Probate assets include any property a deceased person owned in his or her name alone, such as a bank account, house, or investment portfolio. This property is controlled by the person’s will and generally goes to the beneficiaries named in the document. Non-probate assets, on the other hand, include things like retirement accounts and life insurance policies, which generally name a beneficiary directly on the asset. The beneficiary will receive the account or death benefit regardless of what the will might say. Non-probate assets also include most jointly owned property—whether real estate or bank accounts—which passes outside the will to the surviving owner. Assets the late spouse put into a trust are non-probate as well, as are any accounts that name a “transfer on death” or “pay on death” beneficiary. Before Maryland changed its laws protecting the surviving spouse from disinheritance, he or she was generally limited to a portion of the probate assets when taking an elective share. By adding the non-probate assets to the mix under the augmented estate, the law allows for a larger distribution to the surviving spouse when he or she would otherwise receive little or nothing under the will. This change to the augmented estate would seem to be a vast improvement over the older setup. There can be times, however, when disinheriting a spouse is completely appropriate. For example, someone who has children from a prior marriage might want them to inherit their entire estate, rather than their new spouse. In this circumstance, a prenuptial agreement can help ensure that the prior children receive their intended inheritance. The rules surrounding the augmented estate are complex and include many exceptions. Whether you want to leave your entire estate to your spouse or not, consulting with an Estates & Trusts attorney is an essential first step.
April 24, 2023
