Grimaldi & Yeung

Dividing Heirlooms Among Family Members

When it comes to distributing your assets, investment accounts are easily divided.  However, tangible assets, especially those with sentimental value, can become emotional lightning rods for families.

Boomers are today confronting their own mortality, and that includes preparing to transfer their wealth to children and grandchildren. According to an article in Kiplinger, “Estate Planning Answers for 'Hard' Assets Like Art, Heirlooms,” this will be one of the largest transfers of wealth in U.S. history.

It’s pretty straightforward to pass along liquid assets like stocks, bonds and cash. However, “hard” assets like property, art and jewelry can present some problems. The reason for this is that families don’t maintain a good inventory of these assets, the value of the assets may be outdated or unknown, and family members may have different ideas of how to handle them. Many individuals are also reticent to discuss the issue with their heirs.

Because of this, hard assets can be totally overlooked, despite discussions about their potential value. Similar to liquid assets, illiquid assets must have a formal plan that starts with a dialog between the family decision-makers, your estate planning attorneys and an appraiser. To get the illiquid assets distribution discussion going, consider these three key questions:

What’s it worth? Begin with its fair market value, which is the first step for any plan. That’s because it attaches an actual, current dollar figure to an item that has probably changed in value over time.

When getting an appraisal for an asset, look for an experienced, certified appraiser—especially for artwork. The reason is that there’s a big financial risk of mispricing your assets. Don’t rely on online art price guides, advice from your brother who used to be a painter, or even the original seller (who may have a conflict of interest). The appraiser should be certified by one of the main accrediting bodies, like The Appraisers Association of America or the International Society of Appraisers. For a large collection, the cost of the appraisal is well worth it, so you will know its true value and how that value will impact your estate.

Which heir(s) want it? Along with the actual monetary value, consider the emotional or sentimental value of your hard assets. Your children may have strong attachments to specific assets. This should be taken into account.

If several heirs want the same asset, look at whether and how it can be divided. If it can’t be divided equally, think about how you can equitably divide other assets. If some, but not all, of your heirs want to keep the asset, look into an equitable buyout situation that transfers ownership to the heirs who’d like to keep it.

How do I pass it on? There are several ways to pass on illiquid assets. Typically, it’s best to let an heir inherit the asset itself. Illiquid assets get a step-up in cost basis that reduces or eliminates the capital gains tax, even if the heirs decide to sell it. You can also place the asset in a trust, family partnership, or LLC and formalize the transfer of ownership in a tax-efficient way, at the same time saving on future estate taxes. Finally, if you don’t think your heirs understand the asset enough to sell it for a fair price, you can sell it yourself, or authorize your executor to sell it at your death, or pay the appropriate taxes and distribute the sale proceeds in your estate plan.

Having this conversation may be as difficult as the one about your estate plan and wishes for your funeral. However, it is just as necessary. Consider it an opportunity to teach your children, even if they are adults.

Reference: Kiplinger (November 5, 2018) “Estate Planning Answers for 'Hard' Assets Like Art, Heirlooms”

Comedian Tim Conway’s Incapacity and Family Squabble Provides a Lesson

Few performers could match Tim Conway for making fellow actors break character and dissolve into giggles, as he did on The Carol Burnett Show in the 1970s. His ad-libs were enough to send everyone on stage and in the audience into uncontrollable laughter.

However, as funny as Conway was on screen, the last few years of his life were tragic. He was incapacitated by dementia, and the family fought over who had the right to make his healthcare decisions. A daughter from his first marriage and his second wife went at it in Los Angeles probate court for his conservatorship, as detailed in a recent article from Kiplinger, “Choose Agents for Power of Attorney, Health Care Proxy Carefully.”

Conway’s case illustrates that as more adults age with blended families in charge of their care, family disputes over decision-making authority are increasing. A person’s second spouse may be listed as health care proxy or the agent under the power of attorney. However, that doesn’t mean the adult children from the first marriage—who may have hard feelings—won’t start a legal challenge.  Siblings with different opinions on the costs and quality of care also may want to find a way to take control. This may result in a judge appointing a guardian or revoking a relative’s authority. This can only mean more resentment and more legal bills.

Families can avoid the time and expense of litigation, by attempting mediation of the problem before going to court. A geriatric care manager or a social worker, in combination with a trained mediator, often an attorney, can assess a loved one’s care needs and offer a professional opinion to assist a family looking for a solution. There are also other strategies you can try to avoid a fight.

To begin with, choose carefully when you give a person decision-making power over your finances and your health. It’s best to select a person who’ll try to get you the best care possible and not worry about their inheritance. A child with financial problems might not be the right choice for your financial power of attorney. For seniors living alone, there are of care-management individuals  that will act as agents for a fee. However, make certain that you understand the fees and costs involved.

Once you’ve designated an individual as your health care proxy, have a conversation with them about why you selected them.  You should be specific about what type of care you want to receive.

You can also guard against a potential battle, by adding terms in your will that say if your children unsuccessfully challenge your choice of agent or health care proxy, they could have their inheritance eliminated or reduced.

Every few years, review the documents and confirm that they reflect your wishes. Make clear to family members what your wishes are, and if appropriate, why. If you know that your family relationships are not great, consider writing a letter to explain your decisions for assigning power of attorney and health care proxy choices. If you can leave your family intact, even when you have departed, that may be some comfort to all concerned.

Our firm can help you to conduct a meeting with your appointed agents and other family members.

Reference: Kiplinger (November 29, 2018) “Choose Agents for Power of Attorney, Health Care Proxy Carefully”

How a QTIP Protects Heirs in Blended Families

Lucky enough to find love the second time around? Wonderful. Want to protect your children’s inheritance? Here’s one estate planning option to address this concern.

Estate planning for couples in second marriages, when each spouse has children from a prior marriage, requires a few extra planning steps.

When each spouse dies, they may want his or her children to receive an inheritance with the remainder going to the surviving spouse.

In many states, a surviving spouse can choose to receive a portion of the other spouses’ estate by filing a petition in Probate Court, if they have not received an equitable share needed for their support. New York calls these shares a spousal elective share. It is $50,000 and a statutory portion of the estate, whichever is greater. The share ranges from 1/3 to 1/2.

Another strategy is using a QTIP or "Qualified Terminable Interest Property" in one’s testamentary plan found in their will or living trust.  This is a type of trust designed to preserve the marital deduction for estates that may be subject to estate tax. The federal estate tax exemption is $11.2 million per person in 2018. In addition to federal estate tax laws subject to change down the road, some states also have their own state estate tax.

People in second marriages very frequently want to provide for their spouses when they die. However, they also want to be certain that their own children are able to inherit the remaining assets after the death of the second spouse. This can be done by creating a marital trust for the benefit of the surviving spouse with the remaining assets in the trust going to their children after the second spouse dies. A QTIP may not accomplish the objective of an immediate inheritance for children.  Our firm, Grimaldi & Yeung, can explore your specific family situation and determine if a QTIP or other trust would be favorable for you.

Another option to discuss is a postnuptial agreement, where the surviving spouse waives his rights to an elective share or executes wills or trusts that designate assets to children at their death. We can also craft your estate planning documents, so an amount equal to one-third of the augmented estate will go outright to the surviving spouse and have the balance distributed to the children. Finally, spouses may choose to designate their children as beneficiaries on IRAs and insurance policies, instead of the surviving spouse.

There are more than a few ways to make estate planning work in an equitable fashion for everyone in the new blended family. Grimaldi & Yeung LCP is ready to help you create the plan that will work best for your unique situation.

Reference: nj.com (October 10, 2018) “Second marriage? How to make sure your children get an inheritance”

Elder Abuse Case Claims Caregiver Manipulated Elderly Father

An unlikely marriage between a caregiver, who had already been married five times, to an aging man, resulted in claims of abuse and a lawsuit against the caregiver.

The family of James Donald Hess recently filed a petition in San Diego probate court accusing his former caregiver and new wife of abuse and undue influence. The family believes that not only did she marry him to get his money but that she is doing him physical harm to hasten his death.

ABC 10 News San Diego reports in its story, “Family questions elderly father's marriage to caregiver,” that Don Hess isn’t in the best health. The petition states that his "health steadily declined" after Don's second wife passed away in February 2016 and that he suffered from "depression and loneliness" and became dependent on in-home caregivers.

The family claims that a caregiver named Nicky convinced Hess to marry her after just a few months. Hess and Nicky Shepard—now Nicky Hess—were married in October 2017. Hess was 86-years-old. Nicky was 64. Don’s daughter told the TV station that when Nicky met her dad, she was married.  However, she was a newlywed. Two weeks after her divorce was final, she married her father.

The investigation discovered that Nicky had been divorced at least five times. The family alleged Nicky convinced her new elderly husband to "withdraw large sums of money from his investment accounts" and that she "forged [his] name on documents," according to the petition.

The petition also states that Nicky placed his health "in extreme danger," by altering his medication. Don is now hospitalized, and the family said his heart stopped for several minutes. He has also suffered from renal failure and pneumonia.

The battle has the parties in probate court, where the judge acknowledged the difference of opinion regarding Mr. Hess's marriage.

"I know that you have very different views about whether this is on one hand, a recent marriage of an elderly person to his caregiver and the vulnerability that that can present and the possibility of financial abuse versus, on the other hand, a person who is engaging in his right in his older years to find love and get married," said Judge Julia Kelety.

The petition asked that Don be removed from the new trust made late last year. The children claim Don wasn’t competent at the time. The petition said the new trust all but disinherits his children in favor of Nicky.

The judge has temporarily suspended Nicky as successor trustee, until another court appearance.

This is hardly an isolated case. The National Council on Aging reports that approximately one in ten Americans over the age of 60 have experienced some type of elder abuse. Most cases go unreported, despite the enormous number of cases of fraud and abuse of seniors.

Reference: ABC 10 News San Diego (March 29, 2018) “Family questions elderly father's marriage to caregiver”

How a Trust Works as Part of Your Estate Plan

It’s clear that everyone needs to have a will, but the increasing use of trusts in estate planning have many people wondering how trusts fit into an estate plan.

If you learn anything about a celebrity’s wealth after they die, chances are it’s because they had a will and their estate went through probate and the will became a public document. One of the benefits of creating a trust, is that personal information about assets remains private. Estates that incorporate trusts are often settled more quickly than those without.

The New York Times recently published an article, “Life After Your Death? Here’s Why You Should Have a Trust” that explains that trusts have often been thought of a way for wealthy people to dispose of their assets.

However, some trusts can be useful for those who are not ultra wealthy. One of those is a revocable trust, which can be changed during a person’s lifetime. A properly funded revocable trust can avoid the need for probate after death.

If assets that have been titled in one name, are retitled in the name of the trust, the payment of any bills will continue without interruption in the individual’s lifetime. This can work in any situation, where financial support is given to family members.

Unlike an irrevocable trust, where assets are dispersed with more permanency, a revocable trust can be changed during the holder’s lifetime, if she decides to handle her assets differently.

If that person’s financial situation changes or if she believes that she’s made a mistake, she can close the trust and void the arrangement.

The trust is similar to a will but is more private.  It isn’t subject to outside review or approval. A will may need court approval, and every state has its own probate laws.

Think carefully before deciding who you would like to serve as a trustee. They’ll need to be a person who has knowledge about finances and is responsible enough to be trusted with the task. Remember that revocable trusts are really used for planning while you are alive, so it also needs to be someone you know you work well with.

Reference: The New York Times (March 22, 2018) “Life After Your Death? Here’s Why You Should Have a Trust”

Why You Need to Review Your Estate Plan This Year

Even if the Trump tax law had not passed, other factors make it wise for estate plans to be reviewed this year. Putting it off, may become costly for you and your heirs.

Unless you are in the minority of people who actually pay the federal estate tax, for most people the new tax law may not have a major impact on your family. However, not all of the reasons to review your estate plan have to do with taxes. A recent article in Forbes, “7 Reasons To Revisit Your Estate Plan, Trump Tax Law Aside,” notes the reasons why a review is a smart idea.

The disposition of your assets. Even with a revocable trust in place, a will often serves as the primary means for communicating your wishes. The provisions of a will can state how assets will be transferred, which can include an outright transfer to beneficiaries; to an existing trust (inter vivos trust) or into a new trust that will be created under the provisions of the will (testamentary trust). A testamentary trust in a will can specify the ages of beneficiaries or other terms that determine when beneficiaries will receive assets. Wills also contain specific bequests of financial and nonfinancial assets, like family heirlooms. In addition, charities are often named as recipients of bequests.

Administration and financial management. When a person passes away, an estate is created. The person or institution managing the affairs of the estate is the executor or personal representative, who is tasked with the taking care of the decedent’s assets and liabilities, working with the probate courts, and disposing of the assets in accordance with the will.

Guardianship for children. If an individual has minor or disabled children, the will must designate your choice of a guardian and a successor guardian.

Trusts. Trusts give the creator some level of control over assets and their use through distributions. This can be especially important when leaving assets to those with financial issues, a person with a disability or an addiction, or a financially unsophisticated spouse. Trusts can also shield assets from divorce and the claims of creditors and predators. There are many types of trusts. An experienced estate planning attorney will be able to help you to select the right kind of trust and make sure they are set up correctly.

Other Estate Planning Documents. In addition to the will, an individual should have a health care proxy, health care directives (living will) and a general durable power of attorney over financial matters. One additional document is a letter of intentions.

Taxes. With “portability,” a vehicle that lets any unused credit from the first spouse to die pass to the surviving spouse to use, your current estate plan should be revisited. Consider state estate tax provisions that do not follow the federal tax, which could result in no federal estate taxes, but still a significant state tax.

Gifting. The ability to make lifetime gifts has also doubled. Gifting has many tax savings opportunities.  However, it can also create complications from the impact of the gifts on the recipient. Work with an attorney for any sizable gifts.

Bear in mind that you may not need a complete overhaul of your estate plan.  However, a review will provide you with a chance to make sure the estate plan still aligns with your life choices and to see if any changes, since the last time you did your will, are available to reduce your tax liabilities.

Reference: Forbes (March 15, 2018) “7 Reasons To Revisit Your Estate Plan, Trump Tax Law Aside”

Power of Attorney Statute Comes Under Scrutiny in Virginia Supreme Court Matter

A surprising conclusion at the end of this estate battle is in that in this case, the attorney-in-fact is not liable for the misuse of his or her property by a third party. Neither is the attorney-in-fact responsible to act to recover that property, even if it has been stolen.

Leroy Mangrum was appointed as attorney-in-fact by a general power of attorney for Bobbie Wynder in 2010. Three years later, she died. One year after that, her four stepchildren, beneficiaries under her will, filed a lawsuit against Leroy Mangrum. They wanted full disclosure of all transactions and financial records from the time that he was attorney-in-fact for Wynder.

From the partial accounting he provided, the stepchildren saw several transactions for which they sought more information. One was a withdrawal by Mangrum's wife, Doris, of $36,000 from a savings account held jointly with survivorship by Wynder, Doris, and Brenda Chavis, one of the stepchildren, and Mangrum's surrender of Wynder’s $116,000 annuity. The annuity proceeds were initially deposited in Wynder's checking account but were then withdrawn and deposited into Mangrum's own account. The plaintiffs also sought an order that Mangrum restore any assets transferred in violation of state law.

The Supreme Court of Virginia explained in the case of “Mangrum v. Chavis” that the circuit court found that Doris's withdrawal was improper and that Mangrum improperly surrendered the annuity. In its order, the court found that he "failed to account properly with care, competence and diligence" as required by the state’s power of attorney act. The court awarded judgment to the stepchildren, ordered Mangrum to restore $152,000 to Wynder's estate, and to pay $19,000 in attorney's fees.

On appeal, Mangrum contended that the circuit court erred by ordering him to restore $36,000 to Wynder's estate as a result of Doris's withdrawal of that amount from the joint savings account. He argued that the circuit court expressly found that Doris alone made the withdrawal—not that he was responsible for it. The stepchildren also acknowledged that Doris acted alone. He claimed there was no evidence that he ever had authority over the money after it was withdrawn. The withdrawal didn’t arise from or depend upon his power of attorney for Wynder.

The stepchildren argued that he had duty to preserve Wynder's estate plan and a duty not to act in a way that would create a conflict of interest. They argued that he breached these duties by not preserving the funds in the joint account—even if he didn’t withdraw them himself. The stepchildren also argued that he had knowledge of the transaction and benefitted from it, which created a conflict of interest.

The Supreme Court explained that Doris, as a joint account holder, was Wynder's agent for the purposes of the funds Wynder owned in it and was liable as an agent for any breach of fiduciary duty. But this agency relationship between Wynder and Doris was separate from, and foreclosed liability under, the agency relationship between Wynder and Mangrum.

The trial court expressly found that only Doris withdrew the $36,000, not that Mangrum directed or participated in the withdrawal (even if he benefited from it). Because his agency relationship was established by the power of attorney, and Doris's agency relationship was established separately by her status as a joint account holder, they didn’t owe their fiduciary duties to Wynder jointly. Thus, as a separate agent, Mangrum couldn’t be liable for Doris's acts, unless he had a duty to supervise her.

Virginia Code § 64.2-1612(B) doesn’t imposes such duties, the Supreme Court said. The laws states that an attorney-in-fact must "[a]ct so as not to create a conflict of interest that impairs the agent's ability to act impartially in the principal's best interest," and that an attorney-in-fact must "[a]ttempt to preserve the principal's estate plan, to the extent actually known by the agent, if preserving the plan is consistent with the principal's best interest based on all relevant factors, including [t]he value and nature of the principal's property."

The Supreme Court found that the provisions of the act didn’t make an attorney-in-fact liable for the alleged misuse of his or her principal's property solely by a third party (including by a separate agent over whom he or she has no express authority).

The plaintiffs were awarded $36,000, the amount of Doris’ withdrawal from the joint savings account, and portions of the circuit judgment were reversed by the Supreme Court.

Reference: Supreme Court of Virginia (March 1, 2018) “Mangrum v. Chavis”

What Business Owners Can Accomplish with the Right Estate Plan

Business owners know that they should have an estate plan in place, but not all of them will take the necessary steps. Many find it challenging to imagine that the business will continue after they are gone, but with the right plan in place, it’s possible. No plan? Not likely.

A recent article in Hotel Management, “How to handle estate planning for continued business growth,” advises business owners that a good estate plan can help distribute wealth and minimize estate taxes. However, a good estate plan will also increase the changes of the business surviving when the owner has passed.

One reason is that it lets the owner maintain control of the business beyond his or her lifespan.  Estate plans can also insulate owners against lawsuits and the impact of divorce. They direct the distribution of assets, communicate owners’ health-care wishes, decrease estate tax liability at the state and federal levels and help create a legacy.

A primary reason to implement estate planning in any business, is to limit estate tax exposure. Paying for or decreasing federal and state taxes are two key reasons for estate planning.

The new tax law says the federal estate tax threshold is $11.2 million per person. That means owners can pass a total of $11.2 million to their beneficiaries tax-free. Any amount over that cut-off is taxed at 40% on the federal level. Remember that, absent future political action, this exemption will revert to $5 million per person indexed for inflation after 2025.

Estates can also be taxed on the state level, which can create some complications.

Some states have estate taxes, and some have inheritance taxes. A few have both estate and inheritance taxes, like New Jersey and Maryland. Tax thresholds and percentages vary based in each state.

Establishing a will or revocable living trust is important, because these legal tools allow you to designate assets to certain heirs and helps to avoid probate judges making decisions on an owner’s behalf.

In some states, if you own an asset when you pass away, and if it’s not clearly written in a will or a revocable living trust that it goes to your intended heir (your daughter or grandson, for example), the probate judge will determine who will get the asset based on state intestacy law.

In addition, a will or revocable living trust can allow for equalization of the estate. For instance, if one child wants to continue the business, but another wants to do something else, then their parents can make sure they are both treated equally in the will or revocable living trust.

Reviewing and updating estate plans is particularly important for business owners, because assets tend to be larger and there’s more at risk. Changes in tax law and changes in your life also call for reviews to ensure that your wishes are followed, and your family is protected.

Reference: Hotel Management (February 13, 2018) “How to handle estate planning for continued business growth”

Everyone’s Favorite Topic: Funeral Planning

Some people don’t care what happens after they die, but some people would rather their spouses not do anything too creative. You know who you are!

If you disagree with your spouse about party planning, decorating or vacation decisions, you might want to take a little time to plan your own funeral. If you don’t have a spouse, the state will select a funeral director for you, and they will make all the decisions.

You have an option: a funeral directive.

Investopedia’s recent article, “Estate Planning: Why You Need a Funeral Directive,” says that if a spouse doesn't intend to carry out your wishes or if he or she has other plans for your funeral, your wishes will most likely be ignored.

Of course, your family can ask the court to have your wishes respected.  However, it’s an expensive and stressful experience. In fact, your body might be cremated or buried before your family can get to the courthouse!

To avoid this situation, use a funeral directive and select the person you want to make these decisions for you. This document lets you grant someone the legal authority to carry out your funeral plan. This can be a stand-alone document, but most people include it in their will. A funeral directive allows your agent to arrange memorials, restrict the guest list and decide how you’re laid to rest. It doesn’t have to be your spouse.  It can be any person with the strength and diplomacy to order your cremation, despite any family objections.

Work with an experienced estate planning attorney to memorialize your wishes and grant your nominee adequate legal authority. This may avoid unnecessary conflict and expensive litigation.

After you sign your funeral directive, make certain to provide sufficient funds to carry out your plans. Don't put your heirs in the position of deciding between paying for your funeral or inheriting the money. If you have something specific planned, your agent must have access to enough funds to pay the funeral bill.

Finally, remember that funerals are costly. You can make arrangements for the funeral expenses to be covered, either by setting aside funds or purchasing an insurance policy for that specific purpose.

Reference: Investopedia (February 8, 2018) “Estate Planning: Why You Need a Funeral Directive.”

What Happens to an Estate Plan After a Divorce? Nothing!

Attention current and future divorced people: your divorce does not have any relationship to your will. Unless you want your ex to get it all, you need to update your will. Now, if not sooner.

It’s extremely important to understand that the same way a beneficiary’s name on an insurance policy does not change because you are divorced, neither does your will. Your best bet: start working on a new estate plan, while you wait for your divorce to become finalized.

If your will leaves everything to your spouse when you die, regardless of your marital status, that person, whether you are separated or divorced, will still get it all. There is no automatic exclusion created by the divorce.

Hometown Life’s recent article, “After divorce, examine all aspects of estate planning,” says that this gentleman definitely should redo his estate plan.

If he leaves his estate plan as it is, it could mean a fight over interpretation.

In most states, the probate court typically may find that because he failed to make a change after his divorce, it was the man’s intent to continue to have his ex as his beneficiary.

He should speak with his estate planning attorney—and soon—to make things crystal clear and to remove the risk of fights and costly legal battles.

At the same time when he’s redoing his will, he should also review his medical and durable powers of attorney.  People often forget to change their beneficiaries on insurance policies, IRAs or investment accounts. These also need to be updated.

For individuals, whenever you have a change in your family situation, like a birth, adoption, death, or divorce, you should review your estate plan.

If you have been divorced or are newly separated, chances are good you need to redo your estate plan.

Reference: Hometown Life (February 7, 2018) “After divorce, examine all aspects of estate planning.”