Hey Dad, Can I Get an Advance on My Inheritance?

Most parents want to divide their estate equally among their heirs, but sometimes things just don’t work out that way. That’s especially the case when one child needs more help than another. Therefore, what parents will often do is count the distributions they make during their lifetime as advances against the child’s future inheritance. This doesn’t always go smoothly, says the article “Lifetime advances of inheritances” from Lake County News.

Equalizing distributions to some children to offset any substantial distributions made to offset the total distribution can lead to trouble, if certain legal requirements are not addressed. In California, the Probate Code is very specific. There are three different approaches in which lifetime distributions are counted as advances of inheritances at death:

  1. The instrument provides for deduction of the lifetime gift from the at-death transfer
  2. The transferor declares in a contemporaneous writing that the gift is in satisfaction of the at-death transfer or that its value is to be deducted from the value of the at-death transfer and
  3. The transferee acknowledges in writing that the gift is in satisfaction of the at-death transfer or that its value is to be deducted from the value at the at-death transfer.

In the first example, the decedent’s will, or trust expressly says that lifetime distributions are to be counted against the future inheritance. This may state a specific dollar amount or may refer to a ledger that tracks ongoing lifetime gifting. The ledger approach is often used when a child is dependent upon a parent for ongoing support, paying off school loans or paying a mortgage.

The second example, which involves a written record of the gift, was the subject of a recent appellate court decision. The deceased father kept track of all monetary gifts to his children. The father’s bookkeeper maintained a spreadsheet and was told by the father that the list was important, so that the payments would be deducted from inheritances. At the father’s death, the son had received more than $450,000 more than the daughter. The son contested the daughter’s request for equalizing the inheritance based on the ledger. The appellate court stated that the ledger met the requirements to serve as a contemporaneous written record. The court also found that the permanent ledger was property authenticated and entered into evidence, based on the daughter’s testimony that she found the ledger among her father’s papers and that it was written in her father’s handwriting.

In the third scenario, where there was a written acknowledgment by the person receiving the “advance” that the money was in satisfaction of the at-death transfer, the court found that the requirement was satisfied and the son had acknowledged that the assets given to him were advances on his inheritance.

A better scenario, and one that would have prevented some, if not all, of the litigation described above, would be to have estate planning documents that clearly state whether any disproportionate lifetime gifting to beneficiaries is to be offset with equalizing payments to the other beneficiaries at death. Your estate planning attorney will be able to create the best plan if your heirs need financial support, following the laws of your state.

Reference: Lake County News (March 14, 2020) “Lifetime advances of inheritances”

Suggested Key Terms: Inheritance, Beneficiaries, Equalizing Payments, Advance Gifting, Permanent Ledger, Decedent, Will, Trust, Estate Planning Attorney, Heirs

Do You Need a Revocable Trust?

A will lets you determine how your property will be distributed when you die, and a revocable living trust also accomplishes that task. However, the owner of the trust can make strict stipulations about how specific assets should be distributed, says Barron’s in the article “Revocable Living Trusts Can Help Your Heirs Avoid Probate. Here’s How They Work.” Another advantage of a revocable trust—avoiding probate, which gives the trust owner far more control over asset distribution.

Remember, probate is a process that takes place under the supervision of a judge in a court. Things don’t always happen the way the decedent may have wanted.

It’s best for individuals or couples with complex estate planning needs to meet with an estate planning lawyer, who will discuss whether a living trust is the right option. One question couples should ask: does it make sense for them to have a living will, and should it be a joint trust, or should it be two separate ones?

When a trust is created, it needs to be funded. Assets such as real estate, bank accounts, taxable non-retirement investment accounts all need to be retitled so they are owned by the trust. The person who creates the trust has no restrictions as to how the assets within the trust are used while they are alive. The trust can also be revoked during the owner’s lifetime, but it’s more common for owners to make tweaks to the trust.

Trusts are very popular in states like California and Massachusetts, which have more restrictive probate laws than other states. Trusts are very good for people who own property in multiple states and would otherwise have to deal with probate in multiple states. Trusts are also excellent for people who wish to maintain privacy about their assets, since the trust’s contents remain private. A will, once it enters the probate process, becomes a public document.

Someone who does not own his or her own home and has limited assets may prefer to use a will, which is less expensive and simpler than a trust. Once they do own a home and have more extensive assets, they can always have a trust created.

A living trust is part of a larger estate plan. Other estate planning documents are still needed, including a durable power of attorney for finances, an advance health care directive, a nomination of guardianship for families with minor children and a living will.

People who have revocable trusts should ask their estate planning attorney about something called a “pour-over” will. This is a will that ensures that any assets accidentally left out of the trust are added to the trust after the death of the owner. If the majority of assets are in the trust, the probate of the pour-over will should be much simpler and there may even be a “fast-track” option for assets under a certain dollar level.

Reference: Barron’s (February 22, 2020) “Revocable Living Trusts Can Help Your Heirs Avoid Probate. Here’s How They Work”

What’s Better, A Living Trust or a Will?

Everyone knows what a last will and testament is. However, a will is not always the best way to distribute your assets, explains the Times Herald-Record in the article “Living trusts are better choice than wills.” Most people think that by having a will alone, they will make it clear who they want to receive their assets when they die. However, wills are used by the court in a proceeding called “probate,” if the only estate plan you have is a will. The court proceeding is to establish that the will is valid. Depending upon where you live, probate can take a year before assets are distributed to beneficiaries.

Certain family members must receive notifications, when a will is submitted to probate. Some people will receive notices, even if they are not mentioned in the will. This can lead to all kinds of awkward situations, especially from estranged or unknown relatives. The person who is the executor of the will is required to locate these relatives, and until they are found and notified, the probate process comes to a standstill.

There are instances where a judge will allow a legal notice to be published in a local newspaper, after valid attempts to find relatives aren’t successful. If there is a disabled beneficiary, a minor beneficiary, a relative or beneficiary who can’t be located, or a relative who has been incarcerated, the judge often appoints lawyers to represent these parties’ interests and the estate pays for the attorney’s fees.

Depending on the situation, the executor may be required to furnish a family tree, or a friend of the decedent must sign an affidavit attesting that the person never had any children.

Thinking of disinheriting a child? Anyone who is disinherited in a will, receives a notice about that and is legally permitted to contest the will. That can lead to years of expensive litigation, including discovery demands, depositions, motions and possibly a trial. Like most litigation, will contests usually end in a settlement. The disinherited relative often gets a share of the inheritance, even when the decedent didn’t want them to get anything.

For many families, a living trust is a better alternative. They also serve as disability planning, naming people who will manage the assets of the trust, in case of incapacity. They are private documents, so their information does not become public knowledge, like the details of a will.

A qualified estate planning attorney will help you determine what estate planning tools will work best to achieve your goals, while maintaining your privacy and ensuring that assets pass to heirs in a discrete manner.

Reference: Times Herald-Record (Oct. 26, 2019) “Living trusts are better choice than wills”

Estate Planning, Simplified

Estate planning attorneys hear it all the time: “My children will have to figure it out,” “Everything will go to my spouse, right?” and “It’s just not a priority right now.” But then we read about famous people who don’t plan, and the family court battles that go on for years. Regular families also have this happen. We just don’t read about it.

A useful article from The Mercury titled “Estate planning basics and an estate attorney meeting preparation” reviews the basics of estate planning and explains how following the advice of an experienced estate planning attorney can protect families from the financial and emotional pain of an estate battle.

Estate planning is not just concerned with passing property and assets along to heirs. Estate planning also concerns itself with planning for incapacity, or the inability to act or speak on one’s own behalf. This is what happens when someone becomes too ill or is injured, although we usually think of incapacity as having to do with Alzheimer’s disease or another form of dementia.

Lacking an estate plan, all the assets you have worked to accumulate are subject to being distributed by a court-ordered executor, who likely doesn’t know you or your family. Having an estate plan in place protects you and your family.

Living Will or Advanced Directive. A living will provides directions from a patient to their doctor, concerning their wishes regarding life support. This alleviates the family from having to make a painful and permanent decision. They will know what their loved one wanted.

Springing Durable Power of Attorney. This document will allow someone you choose to make financial and legal decisions on your behalf, if you are not able to. Some attorneys prefer to use the Durable Power of Attorney, rather than the Springing POA, since the Springing event may need a physician to state that the individual has become incapacitated, and it may require the court becoming involved. Powers of attorney can be drafted to be very limited in nature (i.e., to let one single task be accomplished), or very broad, allowing the POA to handle everything on your behalf.

Durable Power of Attorney for Health Care. This lets a person you name make health care decisions for you, if you are not able to do so. The decision-making power is limited to health care only.

Should Your Health Care POA and Your Financial/Legal POA be the Same Person? Deciding who to give these powers to can be difficult. Is the person you are considering equally skilled with health care, as they are with finances? Someone who is very emotional may not be able to make health care decisions, although they may be good with money. Think carefully about your decision. Just remember it’s better that you make this decision, rather than leaving it for the court to decide.

Last Will and Testament: This is the document people think of when they think about estate planning. It is a document that allows the person to transfer specific property, after they die in the way they want. It also allows the person to name a guardian for any minor children and an executor who will be in charge of administering the estate. It is far better that you name a guardian and an executor, than having the court select someone to take on these roles.

The estate planning process will be smoother, if you spend some time speaking with your spouse and family members to discuss some of the key decisions discussed above. Talk with your loved ones about your thoughts on death and what you’d like to have happen. Think about what kind of legacy you want to leave.

Estate battles often leave families estranged during a time when they need each other most. Spend the time and resources creating an estate plan with a qualified estate planning attorney. Leaving your family intact and loving may be the best legacy of all.

Reference: The Mercury (Oct. 27, 2019) “Estate planning basics and an estate attorney meeting preparation”

Smart Women Protect Themselves with Estate Planning

The reason to have an estate plan is two-fold: to protect yourself, while you are living and to protect those you love, after you have passed. If you have an estate plan, says the Boca Newspaper in the article titled “Smart Tips for Women: Estate Planning,” your wishes for the distribution of your assets are more likely to be carried out, tax liabilities can be minimized and your loved ones will not be faced with an extended and expensive process of settling your estate.

Here are some action items to consider, when putting your estate plan in place:

If you have an estate plan but aren’t really sure what’s in it, it’s time to get those questions answered. Make sure that you understand everything. Don’t be intimidated by the legal language: ask questions and keep asking until you fully understand the documents.

If you have not reviewed your estate plan in three or four years, it’s time for a review. There have been new tax laws that may have changed the outcomes from your estate plan. Anytime there is a big change in the law or in your life, it’s time for a review. Triggering events include births, deaths, marriages, and divorces, purchases of a home or a business or a major change in financial status, good or bad.

If you don’t have an estate plan, stop postponing and make an appointment with an estate planning attorney, as soon as possible.

Your estate plan should include advance directives, including a Durable Power of Attorney, Health Care Surrogate, and a Living Will. You may not be capable of executing these documents during a health emergency and having them in place will make it possible for those you name to make decisions on your behalf.

Anyone who is over the age of 18, needs to have these same documents in place. Parents do not have a legal right to make any decisions or obtain medical information about their children, once they celebrate their 18th birthday.

Make a list of your trusted professionals: your estate planning attorney, CPA, financial advisor, your insurance agent and anyone else your executor will need to contact.

Tell your family where this list is located. Don’t ask them to go on a scavenger hunt, while they are grieving your loss.

List all your assets. You should include where they are located, account numbers, contact phone numbers, etc. Tell your family that this list exists and where to find it.

If you have assets with primary beneficiaries, make sure that they also have contingent beneficiaries.

If you have assets from a first marriage and remarry, be smart and have a prenuptial agreement drafted that aligns with a new estate plan.

If you have children and assets from a first marriage and want to make sure that they continue to be your heirs, work with an estate planning attorney to determine the best way to make this happen. You may need a will, or you may simply need to have your children become the primary beneficiaries on certain accounts. A trust may be needed. Your estate planning attorney will know the best strategy for your situation.

If you own a business, make sure you have a plan for what will happen to that business, if you become incapacitated or die unexpectedly. Who will run the business, who will own it and should it be sold? Consider what you’d like to happen for long-standing employees and clients.

Smart women make plans for themselves and their loved ones. An estate planning attorney will be able to help you navigate through an estate plan. Remember that an estate plan needs upkeep on a regular basis.

Reference: Boca Newspaper (March 4, 2019) “Smart Tips for Women: Estate Planning”