Minneapolis Estate Planning and Probate Lawyer Blog
Monday, November 11, 2013
Minneapolis Estate Planning and Probate Lawyer Explains Why Your Estate Plan Needs Maintenance
When you buy a new car, everything works perfectly. (At least, you hope it does.) But then in 3,000 miles, it’s time for an oil change. Also, you must keep your eye on the level of coolant in the radiator, your transmission fluid, and your power steering fluid. You must make sure your alternator works to keep the battery charged.
What happens if you don’t maintain your car? Your engine could burn up. Your transmission could fail. Your car could overheat. Your battery could go dead. All of which mean you’re stuck on the side of the road trying to hitchhike to the nearest town.
Your estate plan is like your car. When you set it up, everything is current and accurate. But you need to keep your eye on your assets, insurance, Powers of Attorney, gifting program, distribution plan, successor trustees, beneficiaries, and so much more. That’s why it’s important that you meet with your estate planning attorney every year.
You wouldn’t think of going on a long trip without making sure that your car was in tip-top shape. Yet every day, people embark on the long trip we call life. And the problem with our “life trip” is that we’re never sure when that trip might end. It’s a good idea to review your estate plan with your lawyer every year or two to see if changes in your family’s circumstances need to be reflected in your estate plan.
For example: You should review your estate plan with your estate planning attorney any time (1) you get married, (2) you go through a break up or divorce, (3) your partner/spouse dies or becomes incapacitated, (4) your health changes, (5) you have or adopt a child, (6) your children marry or divorce, (7) a potential problem arises with a beneficiary, (8) the value of your assets changes, (9) your employment changes, (10) your business interests change, (11) you retire, (12) you acquire property in another state, (13) you move to a different state, or (14) something happens to a person named in your estate plan that could affect your relationship or the duties they are to perform on your behalf.
But wait. Is your estate plan really like your car? It’s more accurate to say it’s like a fire engine -- ready to handle any emergency at a moment’s notice. When your spouse has a heart attack, you want the paramedics -- right now! You don’t want to call 9-1-1 and have the dispatcher explain to you that the fire truck has a dead battery. Or a flat tire.
It would be ridiculous to buy a new fire engine, back it into the fire station where it waits for the next emergency, and then not have a mechanic check under the hood for a year. Do you know how many things can go wrong with a fire truck’s engine if it goes without service for a year?
Yet that’s exactly what people do with their estate plans. They invest hard-earned money to set up their plans. Then they put their plans in a drawer or safe deposit box where they gather dust for 2 years, 5 years, even 10 years -- often without updating the plan even once!
And then, when these people have an emergency, do you know what happens? They dig out their paper-work only to learn that their plan no longer works. You see, it was custom designed to fit their specific needs 5 years ago. But now their needs, and often the law, have changed -- and no one updated the plan. What a tragedy!
Your estate plan must be fully operational, ready to handle any emergency at a moment’s notice. If your spouse has a heart attack and cannot make medical decisions, you don’t want the nurse at the hospital to explain that the legislature changed the law and now your Powers of Attorney are no longer valid. Or, if your spouse dies, you don’t want the judge to tell you that your estate must go through probate because your Revocable Living Trust has not been properly maintained and updated.
You need your estate plan to be ready for any emergency -- 24 hours a day -- because you never know when you might need it.
An out-of-date estate plan isn’t worth the paper it’s written on. But a current estate plan that works precisely the way it should -- protecting your family and safeguarding your assets -- is the greatest gift of love you can give to your family, your spouse, and yourself. Your custom designed estate plan, created specifically for you -- combined with yearly maintenance meetings to keep your estate plan in tip-top shape -- are the best investment you’ll ever make. I guarantee it.
Tuesday, November 5, 2013
Minneapolis Estate Planning and Probate Lawyer Explains How to Protect Your Assets
Smart Way #1: Make a promise to yourself -- now. Make a personal commitment to yourself and your family that you will do everything possible to protect your family and your assets.
Smart Way #2: Identify your personal and financial goals. If you could have anything you want, personally and financially, what would it be? What are your dreams? How do you and your spouse want to spend your retirement years?
Smart Way #3: Discover which tools you can use to achieve those goals. You have many legal tools at your disposal that, when used correctly, will create exactly the plan you want for yourself and your family. Ask your estate planning attorney to explain the tools that will achieve your personal and financial goals.
Smart Way #4: Avoid probate and the Court system, as appropriate. Create a family estate plan that, upon your death, distributes your assets to your heirs without going through the Court-supervised process called probate. Most often a Revocable Living Trust is used for this purpose.
Smart Way #5: Reduce income taxes whenever possible. Create a family asset protection plan that eliminates unnecessary income and capital gains taxes and minimizes all other taxes. Without proper planning, much of your estate can be lost to various types of taxes.
Smart Way #6: Protect yourself with insurance. Lawsuits can quickly tie up your assets. And if the other party wins the lawsuit, the judgment against you could quickly deplete your funds. If you drive frequently, own rental property, or operate a business, buy an umbrella liability policy that protects your assets from lawsuits.
Smart Way #7: Provide for future health care and financial decisions. Your family estate plan should protect you and your spouse if the time comes when either of you cannot make decisions. Your estate planning attorney can make sure you have the legal documents in place so a competent, trusted person can make these important decisions according to your wishes.
Smart Way #8: Plan now to fund nursing home care. Sadly, many people think the only way they can pay for their nursing home care is by spending down their estate. But, in fact, you can fund your long-term care in ways that do not require that you spend down your estate. One common way is with long-term care insurance. Don’t wait until it’s too late to decide how to fund your nursing home care. Do it now, long before you need it.
Smart Way #9: Pay close attention to Alzheimer’s disease and its associated costs -- even if you have no reason to worry about it. Many people who never expect Alzheimer’s disease to strike have had to face its problems with no advance planning. So, plan for Alzheimer’s disease now, while you have time. This includes the need to address issues of backup decision-makers, assisted living, and nursing home care. If your children can care for you later in life, that’s fine. If they cannot, your advance planning will pay big dividends. Plan for the worst -- and hope for the best. Then, in either case, you will have all your bases covered.
Smart Way #10: Keep all control within your family. If you don’t plan properly, you could find that a friend or relative has petitioned the Court to intervene on your behalf. Once a judge gets involved, you have ongoing legal and accounting expenses, plus more problems and hassles than you would ever want to endure. The smart way to plan for your later years is to keep total control within your family.
Smart Way #11: Create your plan now, while everyone involved is competent to make decisions. Seniors often come to our office seeking help only to learn that they are too late to correct a terrible situation. We feel awful when we must tell them that the much-needed planning should have been done two, five or ten years earlier. Don’t wait until you need help to create your plan. By then, it’s too late.
Smart Way #12: Review your plan at least once a year. Every time your circumstances change or your goals change, you should change your estate plan. If your plan is not up to date, the unintended consequences to you and your family could be disastrous. Make an appointment at least every year to meet with your estate planning attorney. Then you can go over your plan and discuss any changes in your life circumstances.
Smart Way #13: Make proper decisions concerning your retirement benefit distributions. Make sure your estate plan maximizes income-tax-free deferrals and minimizes income and estate taxes.
Smart Way #14: Work closely with your physician about your Medicare coverage. Often skilled nursing services and home health coverage are terminated or denied with little or no input from your treating physician. Before you go without health care that could be covered by Medicare, talk with your physician about your concerns so that he or she can help you get the Medicare coverage you deserve.
Smart Way #15: Think about future housing options. Start from the perspective of where you would like to live. Then determine if you could afford this option by comparing your monthly income along with your life savings to the initial cost and the ongoing financial commitment you would have to make. Make sure you consider (1) your healthcare needs that will not be covered by insurance, (2) financial security for your surviving spouse, and (3) your desire to pass on a legacy to your children.
Smart Way #16: If you are in a second marriage, decide how you will handle the high cost of nursing home care. If you are not able to pay $5,000 per month to a nursing home and want your children from an earlier marriage to receive your property, a Marital Agreement alone will not do the trick. Medicaid ignores these contracts and considers all of the couple’s assets, whether owned jointly or individually, in determining Medicaid eligibility. A better choice is to include in your Marital Agreement a provision that requires each spouse to obtain and maintain long-term care insurance. Also, you can include additional provisions that clearly state that the healthy spouse is able to take all necessary steps to protect his or her separate property from a Medicaid “spend-down.”
Smart Way #17: Keep the lines of communication open within your family. If one of your children will be managing your finances, you should take specific steps to help him or her avoid conflict within your family. Insist that your child disclose to other family members what has been done on your behalf. You can do this by adding this instruction to your Trust or General Durable Power of Attorney. By doing this you accomplish two things: One, you keep everyone in the loop so feelings of distrust are eliminated. And two, you reduce the risks of financial abuse because other family members will know how your finances are being managed.
Smart Way #18: Don’t let incapacity put your family at risk for criminal or social worker investigations. Many professionals are responsible for protecting frail and elderly people from predators. If your legal documents don’t provide clear legal authority and guidance on how to manage your assets, the police or adult protective services could step in and question your children’s actions and motives. If authorities investigate your children’s actions, at worst, they could file criminal charges. At best, an investigation by adult protective services could return a “finding” of no current financial abuse. You can eliminate these risks to your children -- and avoid becoming a burden to your children -- with a competent estate plan.
Smart Way #19: Hire a competent, experienced estate planning attorney to create an estate plan. The areas of estate planning and elder law are far too complex to hire just any attorney. Often, strategies used in estate planning to minimize taxes directly conflict with strategies used in elder law planning to protect assets and achieve Medicaid eligibility for nursing home care. In situations where both goals are important, you and your family need a lawyer who has in-depth knowledge and experience with both sets of rules and strategies. Most attorneys are not qualified to provide these services. Make sure the estate planning attorney you hire has the knowledge, skill, judgment, and experience to create a competent plan for you and your family.
Monday, October 14, 2013
Advance Planning Can Help Relieve the Worries of Alzheimer’s Disease
The “ostrich syndrome” is part of human nature; it’s unpleasant to observe that which frightens us. However, pulling our heads from the sand and making preparations for frightening possibilities can provide significant emotional and psychological relief from fear.
When it comes to Alzheimer’s disease and other forms of dementia, more Americans fear being unable to care for themselves and burdening others with their care than they fear the actual loss of memory. This data comes from an October 2012 study by Home Instead Senior Care, in which 68 percent of 1,200 survey respondents ranked fear of incapacity higher than the fear of lost memories (32 percent).
Advance planning for incapacity is a legal process that can lessen the fear that you may become a burden to your loved ones later in life.
What is advance planning for incapacity?
Under the American legal system, competent adults can make their own legally binding arrangements for future health care and financial decisions. Adults can also take steps to organize their finances to increase their likelihood of eligibility for federal aid programs in the event they become incapacitated due to Alzheimer’s disease or other forms of dementia.
The individual components of advance incapacity planning interconnect with one another, and most experts recommend seeking advice from a qualified estate planning or elder law attorney.
What are the steps of advance planning for incapacity?
Depending on your unique circumstances, planning for incapacity may include additional steps beyond those listed below. This is one of the reasons experts recommend consulting a knowledgeable elder law lawyer with experience in your state.
Write a health care directive, or living will. Your living will describes your preferences regarding end of life care, resuscitation, and hospice care. After you have written and signed the directive, make sure to file copies with your health care providers.
Write a health care power of attorney. A health care power of attorney form designates another person to make health care decisions on your behalf should you become incapacitated and unable to make decisions for yourself. You may be able to designate your health care power of attorney in your health care directive document, or you may need to complete a separate form. File copies of this form with your doctors and hospitals, and give a copy to the person or persons whom you have designated.
Write a financial power of attorney. Like a health care power of attorney, a financial power of attorney assigns another person the right to make financial decisions on your behalf in the event of incapacity. The power of attorney can be temporary or permanent, depending on your wishes. File copies of this form with all your financial institutions and give copies to the people you designate to act on your behalf.
Plan in advance for Medicaid eligibility. Long-term care payment assistance is among the most important Medicaid benefits. To qualify for Medicaid, you must have limited assets. To reduce the likelihood of ineligibility, you can use certain legal procedures, like trusts, to distribute your assets in a way that they will not interfere with your eligibility. The elder law attorney you consult with regarding Medicaid eligibility planning can also advise you on Medicaid copayment planning and Medicaid estate recovery planning.
Monday, October 7, 2013
Minneapolis Estate Planning Lawyer Cautions Clients on Joint Ownership of Property
One of the most common questions I am asked is whether someone should add another person to the deed to their home (or other property). Below I discuss some of the concerns I have with joint ownership of property.
“Joint Tenancy With Right of Survivorship” means that each person has equal access to the property. When one owner dies, that person’s share immediately passes to the other owner(s) in equal shares, without going through probate. We’ve all been told that Joint Tenancy is a simple and inexpensive way to avoid probate, and this is sometimes true. But the tax and legal problems of Joint Tenancy ownership can be mind-boggling. The dangers of Joint Tenancy include the following:
Danger #1: Only Delays Probate. When either joint tenant dies, the survivor -- usually a spouse or a child -- immediately becomes the owner of the entire property. But when the survivor dies, the property still must go through probate. Joint Tenancy doesn’t avoid probate; it simply delays it.
Danger #2: Two Probates When Joint Tenants Die Together. If both of the joint tenants die at the same time, such as in a car accident, there will be two probate administrations, one for the share of each joint tenant in the Joint Tenancy property as well as any other property they each may own.
Danger #3: Unintentional Disinheriting. When blended families are involved, with children from previous marriages, here’s what could happen: the husband dies and the wife becomes the owner of the property. When the wife dies, the property goes to her children, leaving nothing for the husband’s children.
Danger #4: Gift Taxes. When you place a non-spouse on your property as a joint tenant, you make a gift of property every time that joint tenant takes property out of the account. For example, when a mother retitles her $80,000 home in Joint Tenancy with her son, she makes a gift to her son every time he makes withdrawals. This may not be the most efficient use of her $14,000 annual exclusion. The main point is that the gift is unintentional and not well planned. Worse, Minnesota now has a state gift tax that requires the person giving a gift of more than $14,000 in a year to file a state gift tax return.
Danger #5: Right to Sell or Encumber. Joint Tenancy makes it more difficult to sell or mortgage property because it requires the agreement of both parties, which may not be easy to get.
Danger #6: Financial Problems. If either owner of Joint Tenancy property fails to pay income taxes, the IRS can place a tax lien on the property. If either owner files for bankruptcy, the trustee can sell the property even though the other joint tenant is not otherwise involved in the bankruptcy.
Danger #7: Court Judgments. If either joint tenant has a judgment entered against them, such as from a car accident or business dealings, the holder of the judgment can execute the judgment against the Joint Tenancy property.
Danger #8: Incapacity. If either joint owner becomes physically or mentally incapacitated and can no longer sign his name, the Court must give its approval before any jointly owned property can be sold or refinanced -- even if the co-owner is the spouse.
Monday, September 30, 2013
Minnesota Estate Planning Attorney Discusses Frequent Issues/Concerns that Arise When Handling Someone's Estate
Problem #1: Probate. Probate is the Court-supervised process of passing title and ownership of a deceased person’s property to his or her heirs. The process consists of assembling assets, giving notice to creditors, paying bills and taxes, and passing title to property when the judge signs the order. Probate can cost your loved ones a sizeable portion of your estate. The biggest portion of the costs are the fees charged by attorneys and personal representatives for their services for the estate, in addition to filing fees, costs of publication, fees for copies of death certificates, filing and recording fees, bond premiums, appraisal and accounting fees, and so on. Often the fees of attorneys and personal representatives are based on a hourly rate, and while they can tell you what their hourly rate is, they cannot tell you the number of hours their services will take, so they cannot tell you what their total fees will be. Like surgery, probate can be simple and easy, but frequently probate can have very drastic and damaging results. Accordingly, like surgery, because of its uncertainty in terms of both the potential for problems and high costs and fees, probate is something best to prepare for if you can. You can avoid a substantially larger probate process by having an estate planning lawyer set up and fund a Revocable Living Trust. Since the Trust actually owns your assets, no significant probate of the estate will be required, saving your family many thousands of dollars.
Problem #2: Lawsuits and Creditors. Protect the property you leave to your partner/spouse and children from the claims of their creditors, ex-spouses, and the IRS. This can best be done with proper creditor protection provisions in a Revocable Living Trust.
Problem #3: Estate Taxes. For married couples, protect your assets from state and federal estate taxes by setting up and funding a tax-saving Credit Shelter Trust. Under current law, a Credit Shelter Trust will completely protect your assets from estate taxes for estates valued up to a certain amount will have to pay federal estate taxes. What is that amount? No one knows right now. The current exemption is $5,000,000 a person or $10,000,000 for a married couple.
Further, in Minnesota, the estate limit is $1,000,000 so your estate will pay taxes TO THE STATE for anything over $1,000,000. The tax rates generally comes out to 10% of the assets over that 1,000,000 mark.
Most couples don’t realize that the value of their estate for purposes of determining estate taxes includes their life insurance death benefit proceeds. Your estate includes EVERY asset you own at the time of death: real estate; cash, stocks, bonds, life insurance, retirement accounts, automobiles and personal property. It is not difficult to reach the $1,000,000 mark once all these assets are added up.
A well-designed estate plan costing between $3,000 and $6,000 will save a significant amount in federal estate taxes. Other ways you can avoid or reduce estate taxes include setting up (1) an Irrevocable Trust for your children, grandchildren or other heirs, (2) an Irrevocable Life Insurance Trust, (which detaches your life insurance benefits from your estate), (3) a Charitable Remainder Trust, and (4) Second-to-die Life Insurance so you can pay estate taxes for pennies on the dollar.
Problem #4: Income Taxes. A family can lower its overall income taxes by setting up a Family Limited Partnership to own income-producing property. A parent can do this by setting up a Family Limited Partnership and making gifts of limited partnership interests to the other limited partners, normally their children or grandchildren who pay income tax at lower tax rates. A Family Limited Partnership is an excellent tool to shift income to partners who pay taxes at lower rates. It is also an effective way to make gifts and still keep total control of the property owned by the partnership.
Problem #5: Lawsuits. Protect your assets from lawsuits by doing any or all of the following, as appropriate: (1) purchasing an umbrella liability insurance policy, (2) setting up a Family Limited Partnership, (3) setting up a program for lifetime gifting, (4) setting up a Limited Liability Company, and (5) incorporating. Further, you can protect your children from lawsuits by putting their inheritances into a Discretionary Trust. This is especially important if your children are likely to become professionals subject to potential malpractice actions or, on the other hand, are spendthrifts!
Problem #6: Inexperienced Beneficiaries. Protect your assets from being wasted by young or inexperienced family members. Most beneficiaries spend their entire inheritances in less than two years, regardless of the size of the estate or the heir’s socio-economic background. Your lawyer can set up your Family Trust with protective provisions that provide guidance and safeguard your life savings.
Problem #7: Guardianships. Protect your assets from the high costs of incapacity by (1) setting up a Living Trust so you avoid the need for a guardianship, (2) drawing up an Advance Healthcare Directive, and (3) drawing up a Health Care Power of Attorney.
Problem #8: Nursing Home Care. Protect joint assets from the high costs of nursing home care. Buy insurance that covers nursing home care and provides a death benefit that returns the money spent on nursing home care to your heirs.
Problem #9: Unwanted Medical Care. Protect your assets from unwanted and costly medical care by having an Advance Healthcare Directive and Health Care Powers of Attorney that spell out your instructions, including which medical care, treatment and procedures you want -- and which you don’t want.
Problem #10: Unwanted Emergency Care. Protect your assets from unwanted emergency care. If you have a terminal illness, you can draw up and sign a Pre-hospital Medical Directive that will tell emergency personnel not to resuscitate you in the event of a medical emergency. This directive is often referred to as a “Do Not Resuscitate Order”.
Problem #11: Ineffective Estate Plans. Protect your assets from an ineffective estate plan. Don’t depend on pre-printed “cookie cutter” form kits or document preparation services for your estate plan. Contrary to what you may have heard or read, one size does not fit all! You may think you have precisely what you need. But you will never know -- because your family members will have to clean up the mess. You see, after you die, your family members will try to use your documents to settle your estate. And if the documents weren’t drafted correctly, they will cause additional expense and long delays because a probate will have to be done to convey title to your assets.
Problem #12: Unqualified Lawyers. Many attorneys are getting into estate planning because it’s less stressful than other areas of law. Not surprisingly, most of these newcomers focus on the needs of senior citizens and almost never deal with issues affecting young families. If you have young children, make sure you choose an independent attorney who focuses their law practice on asset protection and estate planning for young families. This will help insure that the lawyer you choose has the knowledge, skill, experience and judgment necessary to fully protect your family and your assets, and to give you advice and counsel that is in your best interests.
Monday, September 23, 2013
Problem #1: Choosing the wrong trustee. Many people believe that you must name your bank as your trustee, but this is not the case. You act as your own trustee (if you are married, your spouse can serve as a co-trustee) during your lifetime so you continue to manage and invest your assets, just as you do now. If you do not choose to serve as trustee, you may hire a professional fiduciary who is not affiliated with a bank or trust company.
Problem #2: Leaving your Trust empty. A Revocable Living Trust is like a safe deposit box. It’s a good place to put your valuables, but it won’t do any good if you leave it empty. It’s not uncommon for people to have a lawyer draw up their Trust and then, years later, still have to go through probate. Why? Because the client never put their assets into the Trust and the attorney didn’t bother to help the clients with funding the Trust. Your property must be put into the Trust. But don’t worry. The process of retitling assets is easier than you think.
Problem #3: Initial cost. A Revocable Living Trust is more expensive to set up than a simple Will. But, in the long run, the cost will probably be much less because the Revocable Living Trust allows you to avoid probate, Court supervised estate administration, guardianships and conservatorships.
Problem #4: The potential for poor management. You could find that the person you selected to man-age your affairs is not a good manager. Your choices for successor trustee(s) should be family members or friends you can trust. Corporate trustees, such as banks, are also an option. But, even if you don’t put your assets into a trust, you could still have a problem with management of your assets.
Problem #5: Refinancing real estate may be inconvenient. Some mortgage companies and banks re-quire that you take real estate out of your Trust before they will place a new mortgage on your property. Once the financing is complete, then you simply transfer the property back into your Trust. Unique Estate Law assists clients who encounter this situation without additional fees.
Problem #6: Keeping a list of assets in your Trust. Some people don’t like to keep track of assets they put into their Trust. Others don’t mind this small amount of extra work. When you want to add some-thing to your Trust, you simply title it in the name of the trustees and add it to your list. I assure you the benefits of having a Revocable Living Trust far outweigh these minor inconveniences.
Problem #7: Opening a new bank account. Some banks will require you to close your current bank account and open a new bank account if you transfer the account into a Trust. This is a matter of the bank being uninformed. If you have substantial direct deposits or automatic debits, it will be necessary to see that the new account is functioning properly before closing the old account.
Problem #8: Imprinting on your checks. Some banks will require that you put the name of your Trust and trustees on the checks. You can respond to this in one of three ways. (1) The name of your Trust and trustees can very closely match your own name and be abbreviated in many respects. (2) You can order checks from a printing company with anything on them that you choose. Or (3) you can print your own checks with very simple and inexpensive computer software packages.
Monday, September 16, 2013
A Minnesota Estate Planning Attorney Explains Why You Need to do More Than Draft a Will
A basic last will and testament cannot accomplish every goal of estate planning; in fact, it often cannot even accomplish the most common goals. This fact often surprises people who are going through the estate planning process for the first time. In addition to a last will and testament, there are other important planning tools which are necessary to ensure your estate planning wishes are honored.
Do you have a pension plan, 401(k), life insurance, a bank account with a pay-on-death directive, or investments in transfer-on-death (TOD) form?
When you established each of these accounts, you designated at least one beneficiary of the account in the event of your death. You cannot use your will to change or override the beneficiary designations of such accounts. Instead, you must change them directly with the bank or company that holds the account.
Special Needs Trusts
Do you have a child or other beneficiary with special needs?
Leaving money directly to a beneficiary who has long-term special medical needs may threaten his or her ability to qualify for government benefits and may also create an unnecessary tax burden. A simple vehicle called a special needs trust is a more effective way to care for an adult child with special needs after your death.
Conditional Giving with Living or Testamentary Trusts
Do you want to place conditions on some of your bequests?
If you want your children or other beneficiaries to receive an inheritance only if they meet or continually meet certain prerequisites, you must utilize a trust, either one established during your lifetime (living trust) or one created through instructions provided in a will (testamentary trust).
Estate Tax Planning
Do you expect your estate to owe estate taxes?
A basic will cannot help you lower the estate tax burden on your assets after death. If you think your estate will be liable to pay taxes, you can take steps during your lifetime to minimize that burden on your beneficiaries. Certain trusts operate to minimize estate taxes, and you may choose to make some gifts during your lifetime for tax-related reasons.
Joint Tenancy with Right of Survivorship
Do you own a house with someone “in joint tenancy”?
“Joint tenancy” is the most common form of house ownership with a spouse. This form of ownership is also known as “joint tenancy with right of survivorship,” “tenancy in the entirety,” or “community property with right of survivorship.” When you die, your ownership share in the house passes directly to your spouse (or the other co-owner). A provision in your will bequeathing your ownership share to a third party will not have any effect.
Monday, September 9, 2013
Misconception #1: A Will avoids probate. No. A Will is the primary tool of the probate system. Your Will is like a letter to the Court telling the Court how you want your property distributed. Then you must make sure that you prove to the Court that all your property is collected and appraised, and all your bills and taxes are paid, before your property can be distributed to your heirs.
Misconception #2: A Testamentary Trust avoids probate. No. A Testamentary Trust is a Trust contained within a Will that holds property for a specific purpose. For example, one purpose would be to hold property until minor children turn 18, when they can legally own property -- or until children reach the age when you believe they are mature enough to responsibly handle the property. A Testamentary Trust is not a Revocable Living Trust. It is part of a Will and takes effect only when the Will is probated.
Misconception #3: Probate costs and the costs of administration of the estate are small. Not necessarily. Such costs can be very substantial. The real problem is, no one can tell you how much the costs will be until the probate has been completed, which often can take several years. The biggest portion of the costs are the fees charged by attorneys and personal representatives for their services for the estate, in addition to filing fees, costs of publication, fees for copies of death certificates, filing and recording fees, bond premiums, appraisal and accounting fees, and more. Often the fees of personal representatives are based on an hourly rate, and while they can tell you what their hourly rate is, they cannot tell you the number of hours their services will take, so they cannot tell you what their total fees will be. Like surgery, probate can be simple and easy, but frequently probate can have drastic and damaging results. Accordingly, like surgery, because of its uncertainty in terms of both the potential for problems and high costs and fees, probate is something best to avoid if you can.
Misconception #4: Property can be distributed according to the terms of your Will in only a few weeks. In Minnesota, the administration usually takes 12 to 15 months. During this time, the deceased person’s property must be inventoried and appraised. Heirs must be notified. Estate and inheritance taxes, if any, must be paid. Contested claims, if any, must be settled. Creditors must be notified and paid. If all of this is not done before the estate is distributed to the beneficiaries of the estate, the personal representative will be personally responsible for those claims. As a result, most personal representatives won’t distribute property until they are sure all claims have been settled.
Misconception #5: Your Will and your assets remain private. No. Because probate is a public legal proceeding, your estate may become a matter of public record. This means that anyone -- including nosy neighbors and salespeople -- can go to Court to find out the balance in your savings account, the value of your stocks, even the appraised value of your diamonds.
Misconception #6: A Will helps you avoid taxes. No. A simple Will does nothing to lower your taxes. A Will simply tells how you want your property distributed, and who you want to act as guardian for your minor children in case you and your spouse die in a common accident. A skilled lawyer can use a Will to plan complicated estates that require tax planning, but the cost of the complex plan will be comparable to the cost of a Revocable Living Trust plan. Plus, the Will-based plan will still have to go through probate.
Misconception #7: Your permanent family home and your vacation home can be handled through the same probate and qualification. Yes, but only if they are in the same state. If you own property in different states, a second probate, called an ancillary administration, will need to be opened, which means your estate may need to hire another attorney. This will increase the overall estate administration expense. And if you own real estate in other states, probates will need to be opened in those states as well.
Misconception #8: A Will prevents quarrels over assets. Wrong. Wills are among the most contested legal documents in the United States. Today, it is common for unhappy relatives to challenge a Will. This results in higher attorneys’ fees and even more delays. Wills actually encourage challenges over assets because a petition must be filed in Court to probate them, which is like filing a lawsuit. As a result, since a lawsuit has already been filed to probate the Will, a contesting party can simply file their claim in Court without instigating their own lawsuit.
Misconception #9: Estranged family members do not need to be notified of a probate if the Will excludes them from an inheritance. In Minnesota, the Court may require that all heirs be notified of the probate even if they are excluded from the Will. Certain aspects of the probate process can be avoided and financial responsibility can be mitigated through the use of various trusts and other types of financial planning.
Misconception #10: A Will from one state is not legal in another state. Wrong. If the Will is legal in the state where it was prepared, it is legal in all 50 states. However, Wills do not travel well from state to state and should be reviewed by an attorney and very likely changed whenever you move to a new state. This is because the Will’s language may not mean the same in other states as it did in the state where it was signed. In addition, many states require witnesses to the Will signing. If proper procedures are not followed, you may need to produce those witnesses in order to probate the Will.
Misconception #11: A Will helps you when you become physically or mentally incapacitated. No. A Will is totally ineffective until death, and, therefore, does nothing to help you through incapacity and disability. Your family or friends may have to go to Court to start costly guardianship or conservatorship proceedings.
Misconception #12: You must name your attorney as your personal representative. No. You may name anyone you choose.
Misconception #13: The cost of your estate plan is only the cost of drawing up the documents. No. The cost of your estate plan is both the cost of drafting the documents and the cost of distributing property to your heirs. Simple Wills are less expensive to set up, but potentially expensive when they go through probate and there is qualification on the estate and estate administration. Revocable Living Trusts may initially cost more than a simple Will, but the overall cost of settling your estate is often substantially less.
Misconception #14: Revocable Living Trusts are only for large estates. No. Revocable Living Trusts are for anyone who wants to avoid costly conservatorship and probate proceedings. In appropriate cases, people with small estates can benefit from a Revocable Living Trust. People with larger estates can benefit even more.
Misconception #15: A Revocable Living Trust is a public document. No. Your Revocable Living Trust can remain private because it does not have to be recorded or published in any way. The only people who will know about your Trust are the people you choose to tell. However, some professionals may need to review your Trust to confirm that your trustee is authorized to take a particular action. This review is for the protection of all beneficiaries of the Trust.
Misconception #16: A Revocable Living Trust cannot be changed. Wrong. You can change and even revoke your Revocable Living Trust any time you wish. The decision is entirely up to you.
Misconception #17: A Revocable Living Trust must have a separate tax return. No. As long as you are a trustee or co-trustee of your Revocable Living Trust, it does not need a tax return of its own. Your personal tax return, which uses your social security number, is sufficient for the IRS.
Misconception #18: When you set up a Revocable Living Trust, you lose control of your assets. No. When you set up your Revocable Living Trust, you simply name yourself and/or your spouse as Trust managers, called “trustees.” In this way, you never give up control.
Misconception #19: The best way to transfer assets to your Revocable Living Trust is through a pour-over Will. No. A pour-over Will can be used to clean up the transfer of any miscellaneous assets to your Revocable Living Trust, but in order for that to take place, the Will must be probated for the assets to be transferred to the Revocable Living Trust. A better course of action is to transfer the assets to your Trust while you are still healthy and able. Not only will you get the peace of mind that comes from knowing the transfer was made properly, you will also get an accurate inventory of your estate.
Misconception #20: There are no costs associated with administering a Trust at the death of the original settlor of the Trust. Not true. While people commonly think that only the probate system costs money and takes time, they fail to understand that administering a Trust, distributing Trust assets to beneficiaries named in the Trust, and terminating the Trust can result in fees and costs. Trustees may also charge fees for their service, and many trustees hire attorneys and accountants. These costs are paid by the Trust before beneficiaries receive their inheritances.
If you have any questions or concerns relating to a will or trust, please contact our office.
Monday, September 2, 2013
A Minnesota Probate Attorney Explains the Difference Between Informal and Formal Probate
As stated in my prior posts, there are many different paths to choose when an estate needs to go through probate in Minnesota. One key decision is whether to take the formal or informal path. The terms informal and formal refer to the type of procedure used to appoint a personal representative to handle the decedent’s affairs and to accept a Will for probate.
Informal probate is the most commonly used form, and is easiest for parties to use when the assets are straightforward and when everyone involved gets along.
You should consider filing for a formal probate proceeding if any of the following apply:
problems with the will
high probability for dispute between heirs
when there are expected to be problems with the administration.
if the estate is insolvent (meaning there is more debt than assets)
no one is trustworthy enough to handle matters
The informal probate process
The informal probate process commences when an applicant presents an application to a registrar instead of a judge. The application asks the registrar to appoint the personal representative and accept the will, if there is one. The registrar then approves the estate to proceed informally and makes sure the paperwork (e.g the will, petition for informal probate, affidavit of acceptance by personal representative, list of interested persons) is complete. The registrar is not involved between when the estate is approved and when the final accounting is due. This process has less oversight by the court and additional costs from hearings are not incurred.
The formal probate process
The formal process starts with a probate attorney filing a petition with the court on behalf of a petitioner asking a judge to: 1) determine the heirs of the deceased; 2) verify the validity of the will; and 3) appoint a personal representative. Counties differ on whether the petitioner and attorney in a formal probate must appear in front of a district court judge so check with a probate attorney to verify the requirements in your county. After deciding to file for formal probate, a petitioner must also determine whether the estate should be supervised, meaning the court must sign off on any distributions to heirs before they are made, or unsupervised, meaning the personal representative does not need the court to approve anything before closing the estate.
Upon receipt of the petition for formal probate, the court reviews the paperwork and approves the Personal Representative. At that point, the personal representative is able to work to resolve all outstanding issues in the estate. Keep in mind that commencing a formal probate proceeding provides the petitioner with access to the judge later on if a judge’s signature is required on matters subsequent to the appointment of a personal representative. The formal process is generally more expensive due to consistent attorney intervention in obtaining the court’s approval and signature and in attending any required hearings.
The probate process can be complicated and confusing so it is a good idea for family members to meet with an experienced probate attorney to assist with making a decision on which probate process to pursue. Further, to minimize court involvement and ensure your "stuff" goes to the people of your choice, you must have a will. Don't leave things to chance - or the State - and don't leave your loved ones with the added stress, and expense, of trying to figure out what you wanted. Protect your family with an estate plan designed to limit hassle, delay and expense so decisions like choosing informal versus formal probate are easy allowing those left to focus on more important matters.
Monday, August 26, 2013
A Minnesota Probate Attorney Covers the Different Proceedings Available to Handle an Estate
As discussed in my prior post, the personal representative starts a probate proceeding by filing an application or petition with the probate court. But, prior to commencing probate, the personal representative must make a decision on what type of probate process to pursue. Minnesota provides several different types of probate proceedings to address the variety of issues and needs which might arise. The type of proceeding to commence depends on such issues as determining the decedent’s heirs, the validity of a will, the types of assets in the estate and their value, the potential for disputed claims, and the desire to have a court oversee the personal representative’s actions. When more than one type of proceeding is permissible, it is important to select the one that best fits the specific needs of the decedent’s estate. There are five common types of probate proceedings in Minnesota. This post will discuss three of them and the next post will address the remaining two.
Collection by Affidavit for Small Estates
Where the probate assets in an estate are $50,000 or less (and do not include any real estate), Minnesota allows a special process for you to collect those assets. Under this procedure, known as Collection by Affidavit, the person entitled to receive the property signs a legal form stating that he or she is legally entitled to receive the specific asset listed in the Affidavit. When the properly executed affidavit is presented to the person, or institution, in possession of the property, those holding the asset are then authorized to deliver the property and be fully discharged of any further responsibility. This process can be complicated by the existence of creditors’ claims and therefore should not be done without legal counsel. Because a Collection by Affidavit can’t be used for real estate, you should contact an attorney to properly transfer the property.
Determination of Descent
If a person died more than three years ago and no probate proceeding was ever started, you may need to initiate a Determination of Descent proceeding before you will be able to transfer the decedent’s probate property. No personal representative is appointed. Instead, an attorney files a Petition for Determination of Descent with the court who then issues a decree ordering the property to be transferred according to the decedent’s will or, if no will, by statutes. This procedure is commonly used where the decedent is still in title to real property long after his or her death and the property was never transferred to the appropriate individuals.
Some probate assets are exempt from the claims of creditors. When all the probate assets of the estate are exempt from creditors and the value of the assets do not exceed certain limits specified by law, summary administration may be available. Summary administration avoids a lengthy administration as no one needs to give notice to creditors. The statutes authorizing summary administration are quite restrictive. Because of this, it is infrequently available for a decedent’s estate.
The next post will explain what is meant by formal vs. informal probate proceedings.
Monday, August 19, 2013
As I have received an increasing number of calls to assist family members and heirs in working through a loved ones estate, I decided to draft a series of blog posts directed at assisting you with handling things for someone who has died.
Step 1: Locate a will
This step in the journey begins with locating a will as the will contains the decedent’s instructions on the persons to be involved in the probate process. Specifically, the will should nominate a personal representative to carry out the deceased’s wishes and provide the names of those chosen to receive assets.
Please note that these steps are largely the same whether or not a will is located. What’s different then? The difference is in the outcome. With a will, the deceased’s stated wishes rule the day. Without a will, the Minnesota State Legislature’s wishes trump any unwritten desires the deceased may have had.
Step 2: Choose the type of probate proceeding that’s most appropriate.
Next, a decision must be made as to the type of probate needed to carry out the person’s last wishes. The types of probate are formal versus informal and supervised versus unsupervised. We will discuss each of the types of probate in a later post in this series, but just know that the type of probate process chosen largely depends on how much court oversight may be needed in carrying out the decedent’s wishes.
Step 3: Filing with the court
Once the decision is made as to whether to proceed formally or informally, an interested person (i.e. one who has a tangible interest in the outcome of the process) must file a petition/application with the probate registrar/court together with the original will. Most likely, the person nominated as personal representative in the will files these documents.
The probate court will then review will to verify that it meets the requirements to be a valid legal will. If there is doubt about the signature on the will, those who witnessed its execution may be forced to appear in court. As explained in prior posts, this can be avoided with the use of a self-proving affidavit.
The probate court will also look to the will to determine the deceased person’s choice for personal representative. If there is no will, then the courts will appoint a personal representative. The court will then issue a Notice of Probate.
Step 4: Provide Notice of Probate
Upon receipt of the Notice from the court, the personal representative must provide that Notice to all heirs, regardless of whether they are named in the will, and to all those listed – individuals and charities – to receive assets.
The personal representative must also publish notice of the probate for two weeks in an approved newspaper. It is through this announcement that creditors are informed of the deceased’s death. They have four months to announce claims to the monies belonging to the deceased. Proof of publication and notice must be filed with the court. A later post will discuss claims and challenges to an estate.
Step 5: The Court Appoints a Personal Representative
Once the court accepts all the filings and verifies compliance with other requirements (e.g. notice and publication), the personal representative will be appointed with proof being provided by a document called the Letters Testamentary. This document provide authorization to the personal representative – and reliance by institutions - to move forward in handling the deceased’s legal and financial matters.
The next post will address the various types of probate proceedings and the factors involved in determining the best way to proceed.
From within Hennepin County Unique Estate Law represents clients throughout Minnesota, including Minneapolis, Edina, Bloomington, St. Louis Park, Minnetonka, Plymouth, Wayzata, Maple Grove, St. Paul, and Brooklyn Park.