King & Wood, P.A.

What Happens when Homeowner Dies without Will?

“How do we move into probate, so we do not lose the house and bank accounts, while not killing ourselves in the process?”

When parents die suddenly, in this case due to COVID-19, and there is no will and no discussions have taken place, siblings are placed in an awkward, expensive and emotionally fraught situation. The article titled “My parents died of COVID-19 and left no will. My brother lives rent-free in their home and borrowed $35,000. What now?” from MarketWatch sums up the situation, but the answer is complicated.

When there is no will, or “intestacy,” there aren’t a lot of choices.

These parents had a few bank accounts, owned their home outright and left no debts. They had six adult children, including one that died and is survived by two living sons. None of the siblings agrees upon anything, so nothing has been done.

One of the siblings lives in the house rent free. Another brother was loaned $35,000 for a down payment on a mobile home. He now claims that the loan was a gift and does not have to pay it back. There are receipts, but the money was paid directly to the escrow company from the mother’s bank account.

How do you determine if this brother received a loan or a gift? What do you do about the brother who lives rent-free in the family home? How does the family now move the estate into probate without losing the house and the bank accounts, while maintaining a sense of family?

For starters, an administrator needs to be appointed to begin the probate process and act as a mediator among the siblings. In some states, the administrator also requires a family tree, so they can know who the descendants are. Barring some huge change of heart among the siblings, this is the only option.

If the parents failed to name a personal representative and the siblings cannot agree on who should serve, an estate administration lawyer is the sensible choice. The court may name someone, if there is concern about possible conflicts of interests or the rights of creditors or other beneficiaries.

A warning to all concerned about how the appointment of an administrator works, or sometimes, does not work. Working with an estate planning attorney that the siblings can agree upon is better, as the attorney has a fiduciary and ethical obligation to the estate. While state laws usually hold the administrator responsible to the standard of care of a “reasonable, prudent” individual, not all will agree what is reasonable and prudent.

One note about the loan/gift: if the mother helped a brother to qualify for a mortgage, it is possible that a “Gift Letter” was created to satisfy the bank or the resident’s association. Assuming this was not a notarized loan agreement, the administrator may rule that the $35,000 was a gift. Personal loans should always be recorded in a notarized agreement.

This family’s disaster serves as a good lesson for anyone who does not have an estate plan. Siblings rarely agree, and a properly prepared estate plan protects more than your assets. It also protects your children from losing each other in a fight over your property.

Reference: MarketWatch (April 4, 2021) “My parents died of COVID-19 and left no will. My brother lives rent-free in their home and borrowed $35,000. What now?”

What’s Happening to the Estate Tax?

“Under current rules, the federal estate tax won’t ever affect you, unless you’re quite wealthy. However, that could change rapidly, even if you are far from rich.”

Proposals now being considered by President Biden may expand the number of Americans who will need to pay the federal estate tax in one of two ways: raising rates and lowering qualifying thresholds on estates and increasing the liability for inheriting and selling assets. It is likely that these changes will raise revenues from the truly wealthy, while also imposing estate taxes on Americans with more modest assets, according to a recent article “It May Be Time to Start Worrying About the Estate Tax” from The New York Times.

Inheritance taxes are paid by the estate of a person who died. Some states have estate taxes of their own, with lower asset thresholds. As of this writing, a married couple would need to have assets of more than $23.4 million before they had to plan for federal estate taxes. This historically high exemption may be ending sooner than originally anticipated.

One of the changes being considered is a common tax shelter. Known as the “step-up in basis at death,” this values the assets in an estate at the date of death and disregards any capital gains in a deceased person’s portfolio. Eliminating the step-up in basis would require inheritors to pay capital gains whenever they sold assets, including everything from the family home to stock portfolios.

If you’re lucky enough to inherit wealth, this little item has been an accounting gift for many years. A person who inherits stock doesn’t have to think twice about what their parents or grandparents paid decades ago. All of the capital gains in those shares or any other inherited investment are effectively erased, when the owner dies. There are no capital gains to calculate or taxes to pay.

However, those capital gains taxes are lost revenue to the federal government. Eliminating the step-up rules could potentially generate billions in taxes from the very wealthy but is likely to create financial pain for people who have lower levels of wealth. A family that inherited a home, for instance, would have a much bigger tax burden, even if the home was not a multi-million-dollar property but simply one that gained in value over time.

Reducing the estate tax exemption could lead to wealthy people having to revise their estate plans sooner rather than later. Twenty years ago, the exemption was $675,000 per person and the tax rate was 55%. Over the next two decades, the exemption grew and the rates fell. The exemption is now $11.7 million per person and the tax rate above that amount is 40%.

Lowering the exemption, possibly back to the 2009 level, would dramatically increase tax revenue.

What is likely to occur and when, remains unknown, but what is certain is that there will be changes to the federal estate tax. Stay up to date on proposed changes and be prepared to update your estate plan accordingly.

Reference: The New York Times (March 12, 2021) “It May Be Time to Start Worrying About the Estate Tax”

Estate Battles Over Personal Property Distribution

“Personal property is a unique category of asset. Even in the simplest after-death distribution, personal property can become a hindrance to final distribution. There are a couple of reasons why.”

Creating and probating a last will and testament is rarely a simple task, but one of the most challenging aspects is the distribution of personal property, warns the article “Be clear about personal property distribution in your will” from The News-Enterprise. The nature of personal property—that it is relatively low in market value but high in sentimental value—is just part of the problem.

You’d be surprised how many families fight over a favorite ceramic dish or an inexpensive oil painting. However, those fights slow down the process of settling the estate and can create unnecessary costs.

The distribution of personal property is usually part of the residual estate, that which is left over when other assets, like a home, bank accounts, etc., have been distributed. Some families don’t even have a chance to select items, and instead find themselves in irrational bidding wars at estate sales.

This issue may be avoided by having precise language in the last will and testament about these items. First, the testator, the person who is creating the will, should outline the specific items they want to be given to specific people. Promised items should be listed and removed from the general pool of personal property.

Next, the testator names who should be included in the distribution of remaining personal property. While some people list the same recipients of the full estate, this is not always the case, particularly if there are no children or if property is being left to charity. One option is to limit the beneficiaries of personal items to only close family members.

Third, provide clear directions for how the remaining items will be distributed. Will beneficiaries take turns in a defined order? Should the property be appraised, and values being divided equally by the executor? Be as specific as possible.

If there are any unclaimed items, provide instructions for those as well. Do you want a collection of expensive cookware to be sent to a charitable organization? Clothing, furniture, and other items should be either donated to charity or sold at an estate sale, with the proceeds distributed between the beneficiaries.

Another way to avoid conflicts over personal property is to give away items, while you are living. Sentimental gifts are a good alternative for holiday gifts, especially for seniors on a fixed budget. This way the items are clearly out of the estate.

A warning for those who are thinking about taking the “sticky note” system: it rarely goes off without a hitch. Attaching stickers to items with the name of the person who you want to receive them is vulnerable to someone else removing the stickers. Similarly, naming one person to distribute all personal items could lead to strife between family members. There’s no legally enforceable way to ensure that they will follow your wishes.

Address the issue of personal property with your estate planning attorney. They will be able to help determine the least acrimonious means of ensuring that the people you want will end up with the things you want.

Reference: The News-Enterprise (Sep. 29, 2020) “Be clear about personal property distribution in your will”

What Does an Executor Do?

 

“My aunt recently asked me to be the executor of her will when she dies. I’m flattered that she asked, but I’m not sure what exactly the job entails.”

Being asked to serve as the executor of a loved one’s estate is flattering, but it is also a big responsibility and a lot of work. As the executor, you are responsible for taking care of all of the financial and legal matters of the estate, explains the article “An executor’s guide to settling a loved one’s estate” from Review Times. The job will require a lot of time and, depending upon the complexity of the estate and the family situation, could be challenging.

Some of the tasks include:

• Filing court papers to start the probate process to determine whether the will is valid.
• Making a complete inventory of everything in the estate.
• Obtaining an estate tax ID number, opening an estate bank account and using the estate funds to pay bills, including funeral costs and medical bills.
• If the estate includes a home, maintaining the home and paying the mortgage, taxes, etc.
• Terminating credit cards, notifying banks and government agencies—including Social Security—and the post office.
• Preparing and filing income tax returns for the last year of the person’s life, unless they filed them already, and for the estate.
• Distributing assets, as directed by the will.

Your first task is to locate the will and any important documents and financial information. You will need the will, deeds, titles, brokerage statements, insurance policies, etc..

If the estate is complicated, you will want to work with an estate planning attorney, who can guide you through the process. The estate pays for the attorney, and you work closely with them. Every state has its own laws and timetables for the executor’s responsibilities, which the attorney will be familiar with.

If possible, find out if there are any family conflicts, before the loved one passes. If there are potential problems, it may be better for the loved one to tell who will be inheriting what before they die. If there is no plan for asset distribution, the person who is asking you to be the executor needs to meet with an estate planning attorney as soon as possible and have a plan created, with all of the documents necessary for your state.

The executor is entitled to be paid a fee, which is paid by the estate. In most states, that fee is set at a percentage of the estate’s value, depending on the size and complexity of the estate. If you are both an executor and a beneficiary, you may want to forgo the fee, because fees are taxable, but in most states, inheritances are not.

Reference: Review Times (Sep. 6, 2020) “An executor’s guide to settling a loved one’s estate”

 

Searching for Lower Taxes? Check State Laws

“Some states are great to live in, but not so great to die in.”

If you are among the many Americans making a move because of economics, a recent article from MarketWatch titled “Thinking about moving to a state with lower taxes? These are the mistake to avoid” has the information you need about the tax impact of your prospective new home state.

Moving to a state with no personal income tax is not the quick and easy answer it seems. You’ve got to look at ALL the taxes that apply to residents, from property taxes to estate and inheritance taxes.

Here’s a good example: Texas has no personal state income tax. Colorado has a flat 4.63% personal state income tax. Therefore, if you are working and have a good income, it makes sense that Texas would be your best option, right? Wrong.

The property tax rate on a home in some Colorado Springs neighborhoods is about 0.49% of the property’s actual value. Let’s say you move to one of these areas and buy a home for $500,000. Your annual property tax bill: $2,450. Let’s say your taxable income is $200,000. Your Colorado state income tax bill would be $9,260, and with the property tax, your tax bill would be $11,710. For that same $500,000 home in Dallas—your property tax would be $21,200 or about $17,800 if you are over age 65 or a surviving spouse. The higher property tax means that your annual tax bill is lower in Colorado.

What about after you die? Seventeen states and the District of Columbia impose their own estate tax or inheritance tax, and Maryland imposes both. Exemptions from the state estate tax are way below the current federal estate tax exemption. However, if you move to the wrong state, your estate could shrink dramatically from the state’s death taxes.

To clarify, an estate tax is charged against the entire taxable estate, regardless of who inherits from the estate. An inheritance tax is charged against people who receive inheritance. The rate usually depends upon their relationship to you.

Here are a few state estate taxes to consider:

• Connecticut’s top estate tax rate is 12%, with a $5.1 million exemption allowed for 2020. The exemption increases to $7.1 million in 2021, and $9.1 million in 2022. Above $15 million of the estate tax value, the tax rate drops to 0%.
• Hawaii’s top estate tax rate is 20%, and in 2020, there is a $5.49 million exemption.
• In Illinois, the top tax rate is 16%, with a $4 million exemption in 2020.

Review the entire tax picture, before making this important decision. You should also confer with your estate planning attorney to learn how your estate’s structure—trusts and other estate planning tools—would work in a different state. Keep in mind that all of these tax exemptions, including the federal one, are likely to change as local, state and federal governments respond to the increased costs and lowered revenues brought about by the COVID-19 pandemic.

Reference: MarketWatch (Aug. 30, 2020) “Thinking about moving to a state with lower taxes? These are the mistake to avoid”

 

How Can We Save Our Inheritance from Taxes, if Dad Won’t Create an Estate Plan?

“If a person doesn't want to create an estate plan, you can't force them.”

Here’s a common situation that’s faced by adult children: Dad is in his 90s and has informed his four sons that they’ll receive an inheritance of roughly $250,000 each. Dad was a blue-collar worker who saved his entire life—just to benefit his boys. However, and this is the real common part, he doesn't want anyone to know he’s “rich.” Because of this, he’s never worked with an estate planning attorney.

With their mom already passed away, how can the four sons protect themselves from unnecessary taxes?

nj.com’s recent article asks simply, “My dad refuses to create an estate plan. Can I save my inheritance from taxes?” The article suggests that maybe the father in this scenario will change his mind, when he understands that estate planning will actually protect his privacy, although he’ll have to share his information with an attorney.

The reason is probate, the court-supervised legal process that gives an executor—typically the surviving spouse or another close family member—the authority to collect the deceased person's assets, pay debts and taxes and then transfer assets to the people who inherit them.

The process can be more complicated, if the deceased person didn't have a valid will but is otherwise similar. The probate process is part of the public record, and so is the father’s will. However, a person would have to proactively search for the records.

In light of this, the best way to keep financial information private is to make certain that the assets are transferred outside of the probate process. One very simple way to transfer assets outside of the probate process, is by using transfer-on-death accounts. A senior completes forms at his bank or brokerage firm, so that his assets will automatically (and privately) transfer to the children when he passes away. Likewise, life insurance, IRAs, and 401(k)s will also pass outside of probate, provided the beneficiary designations are not payable to his estate or left incomplete.

Joint tenancy with the right of survivorship accounts are also useful to avoid probate. However, they are typically only used between spouses. A living trust is another option to keep assets out of probate, especially if the parent owns any real estate.

As far as estate taxes, any inheritance left to a spouse is exempt from estate tax. However, an inheritance left to a non-spouse could be subject to estate tax, when it exceeds a threshold called an "exemption.” The federal exemption is now $11.4 million.

It’s best to speak with an attorney, who specializes in estate planning, to prepare a will and other documents, such as a trust, power of attorney and advance healthcare directive. However, none of these strategies will help, unless the dad in our scenario agrees to see a qualified estate planning attorney to help him accomplish his goals.

Reference: nj.com (February 28, 2019) “My dad refuses to create an estate plan. Can I save my inheritance from taxes?”

Planning for the Death of a Spouse

“Of all the risks couples face in retirement, the death of a spouse is a certainty.”

According to a Merrill Lynch and Age Wave study on widowhood, people aren’t really planning for this certainty. USA Today’s recent article, “Before the death of a spouse, here's how to prepare a financial plan for living alone,” reported that 53% of widows say they and their spouse didn’t have a plan for what would happen, if one of them passed away, and 76% of married retirees say they wouldn’t be financially prepared for retirement, if their spouse died. After the death of a spouse, half of all widows experience a household income decline of 50% or more.

Here’s what couples should do to better prepare for the loss of a spouse.

There are about 20 million widows in the U.S., and 1.4 million new widows annually, according to the study. Nevertheless, most married couples don’t like discussing or planning for death. Nonetheless, it’s best to address this difficult subject head-on, because of the potentially dire consequences.

If you need assistance, speak with a qualified elder law attorney. A new widow also should put together a comprehensive financial evaluation and plan with an analysis of potential cash flow issues that emerge after the death of a spouse.

An experienced and knowledgeable elder law attorney can conduct a thorough inventory of the available financial resources and help integrate Social Security, Medicare, Medicaid, veteran’s benefits, and other programs to maximize the benefits you will receive. An experienced estate planning attorney can also then determine, if any asset protection/wealth preservation strategies are necessary to qualify for and preserve government benefits. For instance, an income-only trust to make sure an individual qualifies for Medicaid may be needed to qualify for Medicaid.

Ask yourself if you have enough life insurance because it’s important to get the necessary amount of insurance, in case of an unexpected or premature death. Calculate how much to purchase using any number of methods—human life, financial needs, and capital retention.

A widow needs planning, not products. This is where estate planning attorneys and elder law attorneys can maintain the focus on planning and help protect widows financially.

The key to planning properly for the death of a spouse, is to determine exactly what the available financial resources are and figure out the financial needs.

The next step is to plan on the best way to maximize those resources, while getting additional funds through government benefit programs.

Reference: USA Today (September 26, 2018) “Before the death of a spouse, here's how to prepare a financial plan for living alone”

Don’t Make These Estate Planning Mistakes

“As if dying isn't bad enough, imagine your ex (your no-good, lying, cheating ex!) rolling in all the money that you left behind.  Even worse, your beloved family is fighting it out in court to get what they can. Time to update your estate plan, right?”

Kiplinger’s gives us some real life miscues from the world of entertainment in its article, “6 Estate-Planning Mistakes Celebrities Made.” Out-of-date documents, beneficiary miscues and other estate-planning errors can keep your assets tied up in probate court for years. It can also mean that taxes and legal fees will take up a sizeable part of your estate and give inheritances to people you didn't like or hardly knew.

A person with a simple estate or someone with substantial net worth, numerous assets and a team of advisers can make estate planning missteps that have far-reaching consequences. You’ve read that Aretha Franklin is the latest celebrity in a long line to die without a will. Let’s look at some other well-known people who made estate-planning mistakes that affected their intended heirs.

No Estate Plan Whatsoever. Right after Prince's 2016 death, we found out that he didn't have a will. If you die without a will (known as dying “intestate”), the task of dividing your assets is left to the state court. A Minnesota judge was left to distribute Prince's $200 million in assets, among his six siblings and half-siblings. Now two years after the singer’s death, bankers, lawyers and consultants have earned millions (so far) and his heirs haven't received a dime. Instead of letting a judge make the decisions on who gets your property, draw up a will. Work with a qualified estate planning attorney.

Not Removing Beneficiaries From Your Estate Plans. When singer Barry White died in 2003, he was separated, but not yet divorced from his second wife. She inherited everything. His live-in girlfriend of several years and nine children received nothing. White's girlfriend, his daughter, and son filed lawsuits. During the divorce, your options for limiting your soon-to-be ex's inheritance are limited. For example, if your spouse is the beneficiary of your 401(k) plan, federal law won't allow you to disinherit him or her, without his or her signature. Any other changes can also complicate divorce proceedings. Check with both your estate planning attorney and divorce attorney. You can update your financial and your health care power of attorney to make certain that your soon-to-be ex won't be the person making financial or medical decisions on your behalf, if you're unable to do so. Make sure to update the rest of your estate plans after the divorce.

Failing to Add Beneficiaries to Your Estate Plans. When Heath Ledger died at age 28 in 2008, his will left everything to his parents and three sisters.  That is O.K., but his will was written before his daughter, Matilda, was born. As a result, the then 2-year-old and her mother, actress Michelle Williams, got nothing (Ledger's family gave all the money from the estate to Ledger's daughter). A life-changing event should make you act to review and update your estate-planning documents and the beneficiaries who are named on your financial accounts. Work with an estate planning attorney to help avoid these pitfalls.

Hiding the Whereabouts of Your Estate Plan. Even if your estate plans have the details covered, it won’t help anyone if no one can find the originals. Olympic sprinter Florence Griffith-Joyner was thought to have had a will, when she died in 1998. However, her family couldn't find it! Years of legal battles followed, as Joyner's husband and her mother couldn't agree on whether or not she said her mother could continue to live rent-free in the couple's condominium for the rest of her life. Most estate planning lawyers will keep a copy of your will or trust on file. However, you should also have the original documents in a safe, accessible location. Let at least two people know where to find the documents. One of these people may be the executor of your estate or a trusted family member.

Failing to Put Promises in Writing. When actor Marlon Brando died in 2004, he left most of his $26 million estate to his producer and other friends. His longtime housekeeper said that he’d promised her that she’d inherit his home, when he died. However, the actor either never promised her the home or never put the promise in writing. She later sued Brando's estate for the value of the home, plus $2 million in damages (the case was settled in 2007 for $125,000). Put each of your wishes in writing and update your estate planning documents to include new promises or beneficiaries.

Not Funding a Trust. Michael Jackson's 2009 death created numerous legal battles over his $500 million estate. One issue was that, to protect his estate, he’d created a revocable living trust that was supposed to transfer his wealth to his children and his mother when he passed. However, Michael forgot to fund the trust. As a result, his entire estate was left outside the trust. The estate had to go through the probate process, while his children and his mother lived off an allowance (of $8 million a year) managed by the estate's executor and a judge for several years. During the probate process, the estate saw legal challenges from creditors and other members of Jackson's family. A trust can be an excellent tool to streamline the process of transferring assets to your heirs and avoiding probate. It also keeps the details of your estate private. However, if you don't retitle your assets in the name of that trust, it's practically worthless.

Reference: Kiplinger (August 31, 2018) “6 Estate-Planning Mistakes Celebrities Made”

Auction of Robin Williams Estate Finally Scheduled Four Years After His Death

“Artwork, memorabilia, personal possessions and other ephemera from the collection of actor Robin Williams and his former wife Marsha will hit the auction block in October, with a portion of proceeds benefiting causes they supported, Sotheby’s said on Friday.”

The “Creating a Stage” auction will take place in October at Sotheby’s. It will feature some of Robin Williams’ more noteworthy sculpture and contemporary art, as well as more personal items, such as bicycles, wristwatches, and Hollywood memorabilia, including Williams’ Hollywood Walk of Fame Award.

The Oscar-winning star of “Good Will Hunting,” who was beloved for his manic humor, died in August 2014 at age 63 in a suicide in his Northern California home.

The New York auction will encompass works and items spanning the couple’s “diverse interests and careers, all reflecting their shared passion for collecting,” the auction house said in a statement.

Marsha Williams, a producer, was the actor’s second wife. They divorced in 2010.

Some of the estate collections’ highlights up for bid, include a Hogwarts School robe worn by Daniel Radcliffe in the first “Harry Potter” movie, estimated at $10,000 to $15,000, and a Deborah Butterfield horse sculpture, “Madrone (Cody),” estimated at $220,000 to $280,000. Experts say that Hollywood memorabilia has historically soared to many times the presale estimates.

Sotheby’s also says that the estate will also offer for sale autographed scripts, awards, props, and wardrobe associated with projects from across the Williams’ careers, as well as furniture from the couple’s homes and decorative items, including art by British graffiti artist Banksy.

Some of the proceeds from the estate sale will benefit The Juilliard School, Wounded Warrior Project, the Challenged Athletes Foundation and the Christopher and Dana Reeve Foundation.

A public exhibition will open at Sotheby’s on September 29 in New York.

Williams, known for hit films including “Mrs. Doubtfire,” “Good Morning, Vietnam” and “Dead Poets Society,” died of asphyxia after hanging himself at his home, local authorities said.

An autopsy on the actor/comedian revealed that Williams was suffering from Lewy body dementia, which causes a progressive decline in mental ability.

Reference: Reuters (July 20, 2018) “Collection of Late Actor Robin Williams Hits Auction Block 4 Years After Suicide”

Adult Children Tasked With Caring For Their Parents

“In addition to the legal details, adults helping elderly parents downsize, must also help decide what to do with all of their possessions, furniture and stuff.”

Adult children may one day need to provide care for their aging parents. This may include helping them downsize their home and assist with complex legal matters. It’s frequently an overwhelming and emotional process that is filled with tough decisions.

For some, that process begins when an adult child and parent decide that she needs to move in with the adult child and his family. In its recent article, “Helping an elderly parent downsize,” The Best of New Orleans reports that a senior’s active lifestyle can often stop with a serious fall requiring hospitalization.

There are also legal issues associated with becoming a parent's caretaker. It’s important to obtain power of attorney (POA) documents to make an adult child or other trusted person the primary decision maker for a parent's medical and financial matters.

Those in this type of situation would benefit from calling an estate planning attorney.

Estate planning concerns handling people's estates after they pass away. Estate planning attorneys work with executors in dealing with the affairs of the deceased and distributing assets to heirs.

A POA states who will act on the person's behalf, when he or she is incapacitated or simply needs assistance in handling certain affairs. The power of attorney can apply to financial or medical matters (or both). A living will tells your family and the medical staff what your wishes are regarding end-of-life medical issues.

When someone dies, going through their lifetime of belongings is an overwhelming and emotional major task. It's hard to make progress with items of sentimental value and family heirlooms.

Some will distribute furniture and other belongings among grandchildren. For others, an estate sale ensures a second life for those objects—and can bring in some money. Many people are happy knowing that the personal items they’ve treasured through the years are going to good homes.

Reference: The Best of New Orleans (October 30, 2017) “Helping an elderly parent downsize”