Blog Posts Page 24

Thinking of creating your own estate plan? You may want to think again. In Massachusetts, there are dozens of cases where a Will or Trust has been challenged because an error was made in the signing or the drafting of the actual document.  Most mistakes are because the now deceased person never consulted a lawyer.

Potential mistakes made in a do-it-yourself estate plan have the potential to cost your heirs much more than you might have saved yourself in legal fees. If there is a chance that someone may challenge the will or trust, you do not want to make it easier for them to succeed because of a mistake that could have been avoided.

Even simple estates are ripe with “oddball” things that can go wrong. Especially with wills and trusts, there are many details that a layperson simply wouldn’t think of. A recent article in Forbes chronicles one story of a layperson who ran into trouble after making a simple clerical error in creating his do-it-yourself living trust.

The man used a pre-made form to set up a living trust in 1984. When he deeded his house to the trust, however, he dated it 1983 (one year before the trust was created). In 2009 the mortgage on the house was fully paid off and the man, now 75 years old, wanted to borrow against it. Due to the mistake he made 25 years earlier, the bank wouldn’t provide a loan because the man didn’t have a clear chain of title to his home.

Two weeks and $2,000 in legal fees later, the man was able to take out a loan against his house. Had he hired a law firm to draw up the original trust in 1984 it would have been much less stressful and only cost him about half the amount he eventually paid in legal fees.

Additional Resources:

Farrell v. McDonnell, 81 Mass.App.Ct. 725 (2011) (Will execution was proper despite the fact testatrix did not verbally acknowledge her signature in the presence of witnesses).

Flynn v. Prindeville, 327 Mass. 266 (1951) (Will execution was not proper because testatrix did not acknowledge her signature or identify document as her Will  in the presence of witnesses).

Article about the Battle over artist Thomas Kinkade’s Estate 

The battle centers around two hand-written notes presented by the artist’s girlfriend – Amy Pinto-Walsh – that appear to give her Mr. Kinkade’s house and $10,000,000. Mr. Kinkade’s estranged wife, and the mother of his four children, disputes the validity of both notes.  Ms. Pinto-Walsh was not included in any of Mr. Kinkade’s other estate planning documents.

Many people have some type of Individual Retirement Account that should be reviewed as part of the estate planning process. Since an IRA is part of the ultimate distribution, it is a good idea to contact the company managing the IRA account and confirm that the beneficiary designations are up to date, and accurately reflect your wishes.  This is especially important if a spouse has passed away since the original form was filled out – you want to make sure that contingent beneficiaries are designated.

[Note: This is also a good time to check all beneficiary designations, including life insurance and annuities.]

Naming a Trust Beneficiary of an IRA

If I am preparing a trust for a client, they frequently ask whether their trust should be named the beneficiary of the IRA. The answer is, “No, No, No.”  The reason for this is that if a person is named as a beneficiary of an IRA, they get to stretch out the remaining funds over their lifetime, resulting in lower taxes. However, since a trust is not a “person” it has no life expectancy. Thus, the entire amount remaining in the IRA is distributed, and all taxes are due immediately. It may be possible to convince the IRS that the trust was simply a conduit, and the real beneficiaries are people, but trying to do that would cost the estate legal fees that can be completely avoided.

Naming Charities as Beneficiaries of an IRA

If a client has charitable intent, naming one or more charities as beneficiaries of an IRA can work out very well. Unlike individuals, a charity will probably be able to avoid any tax on the distribution, and the estate will be able to take full advantage of the charitable contribution if estate taxes are required.

Naming One Person as Beneficiary, But Wanting Something Else

 Name the people you actually want to receive the IRA. If you name one person, but tell them that you actually want them to distribute it to other people is a bad idea. First, the person named will have to cash out the entire IRA to follow your wishes. The will have to pay the taxes on the entire amount. Second, if they are the sole listed beneficiary, they do not have to cash it out at all. Finally, if they do cash in the IRA and pay the taxes, they may have trouble actually making the distributions. The IRS allows any person to gift $13,000 per year, so if the distributions are more than that, they person designated will have to file a Form 709 Gift Tax Return with the IRS.

IRAs can be an important part of the legacy handed down to children and grandchildren. If designated properly, payments from an inherited IRA may be made for decades to the listed beneficiaries. To ensure this happens, check that the current designations reflect your wishes, that they are up-to-date, and if you have named your trust as the beneficiary, contact your estate attorney for a review of your planning.

Additional Information:

Five Rules for Inherited IRAs (forbes.com)

What is an Inherited IRA?  (money manager.com)

WHEN TO UPDATE YOUR ESTATE PLAN 

As an estate planning attorney, I review lots of existing Wills and Trusts. Many of these documents were done years ago – and many of them still reflect the wishes of the client.

However, there are times when I get a call that goes something like this: “I think I need my Will/Trust changed. I just looked at it and it is not what I want anymore. I am going to [fill in exotic location] and I need it changed before I get on the plane.”

Documents done years before may have been perfect for the circumstances at that time. But, circumstances change: personal relationships evolve; assets may increase, so tax planning may be an issue not addressed in the prior documents; charitable bequests may be more important; or special needs planning for an heir may now be a necessary part of the plan.

Here are a few suggestions on when it may be time to have you documents changed – or at least reviewed:

1. You did not have children when your documents were prepared.
2. The executor or trustee you named is now over 70 years old.
3. A beneficiary named in your documents has – or may have – a disability.
4. A beneficiary named in your documents is in a nursing home.
5. You want to give specific personal property to specific people.

Many attorneys will be more than happy to review your documents to see if changes are really necessary. It may be that you existing documents are perfectly fine, but if not, better to start the updating process now than wait until the day before your scheduled flight.

Additional Reading:

When To Change Your Will

Five Reasons Baby Boomer Need To Review Estate Plans – And It’s Not About Taxes

TopRetirements.com released its 2012 list of the “Worst States to Retire.” It will probably come as no surprise to those of us that live here that Massachusetts finished fifth on the list – behind Connecticut, Illinois, Rhode Island, and Vermont. Among the reasons that Massachusetts made the list were high property taxes and the high cost of living. In the 2011 report, Massachusetts finished 8th.

Surprisingly – at least to me – was that Vermont finished in the fourth spot. In addition to the climate, the article cited very high property and income taxes as the reason. Only five factors were use to compile the list: fiscal health, property taxes, income taxes, cost of living, and climate. If those factors are not important to you, TopRetirement offers a site where you can customize your report.

The article acknowledged that there may be more important factors to people contemplating retirement: proximity to family and friends, social services, and the quality of medical care.

Additional Information:

• Worst Regions and Cities for Natural Disasters
• 100 Most Popular Places to Retire (2011)