What Should I Know about Beneficiaries?

When you open most financial accounts, like a bank account, life insurance, a brokerage account, or a retirement account (e.g., a 401(k) or IRA), the institution will ask you to name a beneficiary. You also establish beneficiaries, when you draft a will or other legal contracts that require you to specify someone to benefit in your stead. With some trusts, the beneficiary may even be you and your spouse, while you’re alive.

Bankrate’s article entitled “What is a beneficiary?” explains that the beneficiary is usually a person, but it could be any number of individuals, as well as other entities like a trustee of your trust, your estate, or a charity or other such organization.

When you’re opening an account, many people forget to name a beneficiary, because it’s not needed as part of the process to create many financial accounts. However, naming a beneficiary allows you to direct your assets as you want; avoid conflict; and reduce legal issues. Failing to name a beneficiary may create big headaches in the future, possibly for those who have to deal with sorting out your affairs.

There are two types of beneficiaries. A primary beneficiary is first in line to receive any distributions from your assets. You can disburse your assets to as many primary beneficiaries as you want. You can also apportion your assets as you like, with a certain percentage of your account to each primary beneficiary. A contingent beneficiary receives a benefit, if one or more of the primary beneficiaries is unable to collect, such as if they’ve died.

After you’ve named your beneficiaries, it’s important to review the designations regularly. Major life events (death, divorce, birth) may modify who you want to be your beneficiary. You should also make certain that any language in your will doesn’t conflict with beneficiary designations. Beneficiary designations generally take precedence over your will. Check with an elder law or experienced estate planning attorney.

Finally, it is important to understand that a minor (e.g., typically under age 18 in most states) usually can’t hold property, so you’ll need to set up a structure that ensures the child receives the assets. One way to do this, is to have a guardian that holds assets in custody for the minor. You may also be able to use a trust with the same result but with an added benefit: in a trust you can instruct that the assets be given to beneficiaries, only when they reach a certain age or other event or purpose.

Reference: Bankrate (July 1, 2020) “What is a beneficiary?”

Why Is Walt Disney’s Grandson Unable to Claim his $200 Million Inheritance?

Los Angeles County Superior Court Judge David J. Cowan recently claimed that Walt Disney’s grandson Bradford D. Lund had Down Syndrome—despite being presented with DNA evidence proving the opposite. The judge also ruled Lund to be “unfit” to receive his $200 million inheritance from Walt Disney and appointed him a temporary guardian to make all his legal decisions. This was all ordered without a hearing. Lund’s legal team is now trying to contest the rulings.

Inside the Magic’s recent article entitled “Walt Disney’s Grandson Sues Judge Claiming He Has Down Syndrome Without Evidence, Blocking $200 Million Inheritance” says that in the complaint, Lund’s attorney Lanny Davis alleges that the probate court’s action is “all too reminiscent of a perspective where facts do not matter but alternative facts do, where the constitution does not matter…”

The alternative facts Davis spoke of are from a 2016 court decision by Superior Court Judge Robert Oberbillig from a 10-day trial brought on by “disgruntled relatives” against Lund. The trial came after seven years of litigation questioning whether Lund was required to have a limited guardianship. In that trial, Lund was examined by two court-appointed physicians, one court-appointed expert and by Judge Oberbillig himself in open court.

From the investigation, Judge Oberbillig rejected the family’s claims that Lund needed guardianship and ruled that Lund was “not incapacitated.” However, Judge Cowan ignored Oberbillig’s ruling and the DNA evidence that showed Lund doesn’t have Down Syndrome. Instead, Cowan stated from the bench: “Do I want to give 200 million dollars, effectively, to someone who may suffer, on some level, from Down syndrome? The answer is no.”

From this statement, Lund’s legal team brought an additional cause of action that claims Judge Cowan and the Los Angeles Court violated an anti-discrimination law, when Judge Cowan made this “indisputably false” statement and “perception.” They claim this resulted in discrimination against Lund and his loss of freedom regarding the right to counsel and property rights without due process of law.

On Feb. 27, 2020, Lund’s counsel also filed a federal civil rights case in the U.S. District Court for the Central District of California against Judge Cowan for alleged violation of Lund’s constitutional due process rights in the appointment of a limited guardian ad lit em.

Lund was supposed to have received his portion of his mother’s trust fund when he was 35, which was 15 years ago. He is now 50 years old.

Reference:  Inside the Magic (March 25, 2020) “Walt Disney’s Grandson Sues Judge Claiming He Has Down Syndrome Without Evidence, Blocking $200 Million Inheritance”

Preparing for an Emergency Includes Power of Attorney

Unexpected events can happen at any time. Without a backup plan, finances are vulnerable. The importance of having an estate plan and organized legal and financial documents on a scale of one to ten is fifteen, advises the article “Are you prepared to hand over your finances to someone in an emergency?” from USA Today. Maybe it doesn’t matter so much if your phone bill is a month late but miss a life insurance premium payment and your policy may lapse. If you’re over 70, chances are slim to none that you’ll be able to purchase a new one.

When estate plans and finances are organized to the point that you can easily hand them over to a trusted spouse, adult child or other responsible person, you gain the peace of mind of knowing you and your family are prepared for anything. Someone can take care of you and your family, in case the unexpected happens.

A financial power of attorney (POA) gives another person the legal authority to take financial actions on your behalf. The person you give this responsibility to, should be someone you trust and who will put your best interests ahead of their own. An estate planning attorney will be able to create a power of attorney that can be very specific about the powers that are granted.

You may want your POA to be able to pay bills, and manage your investment accounts, for instance, but you may not want them to make changes to trusts. A personalized power of attorney document can give you that level of control.

Consider your routine for taking care of household finances. Most of us do these tasks on autopilot. We don’t think about how it would be if someone else had to take over, but we should. Take a pad of paper and make notes about every task you complete in a given month: what bills do you pay monthly, which are paid quarterly and what comes due only once or twice a year? By making a detailed record of the tasks, you’ll save your spouse or family member a great deal of time and angst.

Is your paperwork organized so that someone else will be able to find things? Most people create their own systems, but they are not always understandable to anyone else. Create a folder or a file that holds all of your important documents, like insurance policies and investment accounts, legal documents and deeds.

If you pay bills online, naming someone else on the account so they have access is ideal. If not, then try consolidating the bills you can. Many banks allow users to set up bill payment through one account.

Keep legal documents and records up to date. If you haven’t reviewed your estate planning documents in more than three years, now is the time to speak with your estate planning attorney to ensure that your estate plan still reflects your wishes. Call your estate planning attorney to discuss your next steps.

Reference: USA Today (March 20, 2020) “Are you prepared to hand over your finances to someone in an emergency?”

Surprising Ways Beneficiary Designations Can Damage an Estate Plan

Naming a beneficiary on a non-retirement account can result in an unintended consequence—it can even topple an entire estate plan—reports The National Law Review in the article “Overuse of Beneficiary Designations: How They Can Derail a Client’s Estate Plan.” How is that possible?

In most cases, retirement accounts and life insurance policies pass to beneficiaries as a result of the beneficiary designation form that is completed when someone opens a retirement account or purchases a life insurance plan. Most people don’t even think about those designations again, until they embark on the estate planning process, when they are reviewed.

The beneficiary designations are carefully tailored to allow the asset to pass through to the heir, often via trusts that have been created to achieve a variety of benefits. The use of beneficiary designations also allows the asset to remain outside of the estate, avoiding probate after death.

Apart from the beneficiary designations on retirement accounts and life insurance policies, beneficiary designations are also available through checking and savings accounts, CDs, U.S. Savings Bonds or investment accounts. The problem occurs when these assets are not considered during the estate planning process, potentially defeating the tax planning and distribution plans created.

The most common way this happens, is when a well-meaning bank employee or financial advisor asks if the person would like to name a beneficiary and explains to the account holder how it will help their heirs avoid probate. However, if the estate planning lawyer, whose goal is to plan for the entire estate, is not informed of these beneficiary designations, there could be repercussions. Some of the unintended consequences include:

Loss of tax saving strategies. If the estate plan uses funding formulas to optimize tax savings by way of a credit shelter trust, marital trust or generation-skipping trust, the assets are not available to fund the trusts and the tax planning strategy may not work as intended.

Unintentional beneficiary exclusion. If all or a large portion of the assets pass directly to the beneficiaries, there may not be enough assets to satisfy bequests to other individuals or trust funds created by the estate plan.

Loss of creditor protection/asset management. Many estate plans are created with trusts intended to protect assets against creditor claims or to provide asset management for a beneficiary. If the assets pass directly to heirs, any protection created by the estate plan is lost.

Estate administration issues. If a large portion of the assets pass to beneficiaries directly, the administration of the estate—that means taxes, debts, and expenses—may be complicated by a lack of funds under the control of the executor and/or the fiduciary. If estate tax is due, the beneficiary of an account may be held liable for paying the proportionate share of any taxes.

Before adding a beneficiary designation to a non-retirement account, or changing a bank account to a POD (Payable on Death), speak with your estate planning attorney to ensure that the plan you put into place will work if you make these changes. When you review your estate plan, review beneficiary designations. The wrong step here could have a major impact for your heirs.

Reference: The National Law Review (Feb. 28, 2020) “Overuse of Beneficiary Designations: How They Can Derail a Client’s Estate Plan”

Not a Billionaire? Trusts Can Still Be Beneficial

You don’t have to be wealthy to benefit from the use of a trust. A trust is a legal arrangement by which one person transfers his or her assets to a trustee who will hold those assets in trust for third parties, explains the Stamford Advocate’s article “Trusts are not for the wealthy only.” As the person who created the trust, referred to as “the settlor,” you determine who the trustee is, as well as naming the beneficiaries.

There are many different types of trusts which serve different purposes. However, the two basic categories of trusts are revocable (also known as “living” trusts) and irrevocable trusts. Their names reflect two chief characteristics: the revocable trust can be changed and controlled by the settlor. The irrevocable trust cannot be changed, and the settlor gives up the control of the trust. However, it should be noted that the irrevocable trust has certain tax and other benefits not offered by the revocable trust.

A will is definitely necessary to pass assets on according to your wishes, but a trust can serve other purposes. Here’s a look at some common reasons why people use trusts:

  • Protect assets from creditors
  • Allow heirs to avoid probate of assets in the trusts
  • Avoid, minimize or delay estate taxes, transfer taxes or income taxes
  • Control how assets are disbursed or invested
  • Facilitate business succession planning and manage business assets
  • Shelter assets for descendants, if a spouse remarries
  • Establish a family tradition of philanthropy

Trusts allow assets to be passed on quickly and privately, while eliminating some expenses for heirs. They also permit closer management of who will benefit from your assets.

The cost of setting up a trust depends on the complexity of the trust and the estate, as well as other factors, like the number of beneficiaries and how many generations are being planned for. Bear in mind that the cost of setting up a trust should be measured against the future cost of not just taxes, but any litigation that might occur if the estate is probated and becomes public knowledge, or if family members are dissatisfied with the distribution of assets.

Speak with an estate planning attorney to first determine what kind of trusts are needed for your estate plan to achieve your wishes. Discuss the role of a Special Needs trust, if any family members have mental or physical needs that make them eligible for public assistance. An experienced estate planning attorney will know which planning strategies are best in your unique circumstances.

Reference: Stamford Advocate (Jan. 19, 2020) “Trusts are not for the wealthy only”

Why a Will Is the Foundation of an Estate Plan

An estate planning lawyer has many different tools to achieve clients’ estate planning goals. However, at the heart of any plan is the will, also known as the “last will and testament.” Even people who are young or who have modest levels of assets should have a will—one that is legally valid and up to date. For parents of young children, this is especially important, says the article “Wills: The Cornerstone of Your Estate Plan” from the Sparta Independent. Why? Because in most states, a will is the only way that parents can name guardians for their children.

Having a will means that your estate will avoid being “intestate,” that is, having your assets distributed according to the laws of your state. With a will, you get to determine who is to receive your property. That includes your home, car, bank and investment accounts and any other assets, including those with sentimental value.

Without a will, your property will be distributed to your closest blood relatives, depending upon how closely related they are to you. Few individuals want to have the state making these decisions for their property. Most people would rather make these decisions for themselves.

Property can be left to anyone you choose—including a spouse, children, charities, a trust, other relatives, a college or university, or anyone you want. There are some limits imposed by law that you should know about: a spouse has certain rights to your property, and they cannot be reversed based on your will.

For parents of young children, the will is used to name a legal guardian for children. A personal guardian, who takes personal custody of the children, can be named, as well as a property guardian, who is in charge of the children’s assets. This can be the same person, but is often two different people. You may also want to ask your estate planning attorney about using trusts to fund children’s college educations.

The will is also a means of naming an executor. This is the person who acts as your legal representative after your death. This person will be in charge of carrying out all of your estate settlement tasks, so they need to be someone you trust, who is skilled with managing property and the many tasks that go into settling an estate. The executor must be approved by the probate court, before they can start taking action for you.

There are also taxes and expenses that need to be managed. Unless the will provides directions, these are determined by state law. To be sure that gifts you wanted to give to family and loved ones are not consumed by taxes, the will needs to indicate that taxes and expenses are to be paid from the residuary estate.

A will can be used to create a “testamentary trust,” which comes into existence when your will is probated. It has a trustee, beneficiaries and directions on how distributions should be made. The use of trusts is especially important, if you have young children who are not able to manage assets or property.

Note that any assets distributed through a will are subject to probate, the court-supervised process of administering and proving a will. Probate can be costly and time-consuming, and the records are available to the public, which means anyone can see them. Many people chose to distribute their assets through trusts to avoid having large assets pass through probate.

Talk with an experienced estate planning attorney about creating a will and the many different functions that the will plays in settling your estate. You’ll also want to explore planning for incapacity, which includes having a Power of Attorney, Health Care Proxy, and Medical Directives. Estate planning attorneys also work on tax issues to minimize the taxes paid by the estate.

Reference: Sparta Independent (Dec. 19, 2019) “Wills: The Cornerstone of Your Estate Plan”

Mistakes to Avoid when Planning Estates

Because estate planning has plenty of legal jargon, it can make some people think twice about planning their estates, especially people who believe that they have too little property to bother with this important task.

Comstock’s Magazine’s recent article entitled “Five Mistakes to Avoid When Planning Your Estate” warns that without planning, even small estates under a certain dollar amount (which can pass without probate, according the probate laws in some states) may cause headaches for heirs and family members. Here are five mistakes you can avoid with the help of an experienced estate planning attorney:

Getting Bad Advice. If you want to plan an estate, start with a qualified estate planning attorney. There are plenty of other “experts” out there ready to take your money, who don’t know how to apply the law and strategies to your specific situation.

Naming Yourself as a Sole Trustee. You might think that the most trustworthy trustee is yourself, the testator. However, the estate plans can break down, if dementia and Alzheimer’s disease leave a senior susceptible to outside influences. In California, the law requires a certificate of independent review for some changes to trusts, like adding a nurse or an attorney as a beneficiary. However, this also allows family members to take advantage of the situation. It’s wise to designate a co-trustee who must sign off on any changes — like a trusted adult child, financial adviser, or licensed professional trustee, providing an extra layer of oversight.

Misplacing Assets. It’s not uncommon for some assets to be lost in a will or trust. Some assets, such as 401(k) plans, IRAs, and life insurance plans have designated beneficiaries which are outside of a last will and testament or trust document. Stocks and securities accounts may pass differently than other assets, based upon the names on the account. Sometimes people forget to change the beneficiaries on these accounts, like keeping a divorced spouse on a life insurance policy. When updating your will or trust, make certain to also update the beneficiaries of these types of assets.

Committing to a Plan Without Thinking of Others. When it comes to estate planning, there’s no one-size-fits-all solution. For example, for entitlement or tax reasons, it may make sense to transfer assets to beneficiaries, while the testator is still living. This might also be a terrible idea, depending on the beneficiaries’ situation and ability to handle a sum of money. He or she may have poor spending habits. Remember that estate planning is a personal process that depends on each family’s assets, needs and values. Work with an experienced estate planning attorney to be sure to consider all the angles.

Reference: Comstock’s Magazine “Five Mistakes to Avoid When Planning Your Estate”

How Did Alzheimer’s Impact the Estate Planning of These Famous People?

Forbes’ recent article, “Top 7 Celebrity Estates Impacted By Alzheimer’s Disease” looks at seven celebrity estates that were affected by Alzheimer’s disease.

  1. Rosa Parks. The civil rights icon died at 92 in 2005. She was suffering from Alzheimer’s disease. Legal battles over her estate continue to this day. Her estate plan left her assets to a charitable institution she created. However, her nieces and nephews challenged the validity of her will and trust, due to her mental deficiencies and allegations of undue influence. That claim was settled, but there have been fights over broken deals and leaked secrets, claimed mismanagement of her estate and assets, allegations of bribery and corruption and a battle over Rosa’s missing coat that she wore at the time of her famous arrest at the Alabama bus stop in 1955.
  2. Gene Wilder. Wilder’s widow–his fourth wife, Karen–and his adopted daughter didn’t fight over Gene’s estate after he died, which shows good estate planning. Wilder makes the list because of how his widow used her husband’s struggle—which she kept private while he was alive—to bring attention to the terrible disease, including permitting his Willy Wonka character to be used in a campaign to raise awareness.
  3. Aaron Spelling. The Hollywood producer left behind a reported fortune worth $500 million. His death certificate listed Alzheimer’s disease as a contributing factor. Spelling changed his estate plan just two months before he died, reducing the share to his daughter, actress Tori, and his son, Randy, to $800,000 each.
  4. Etta James. Legendary blues singer Etta James passed away in 2012, at 73. Her family said she had been struggling with Alzheimer’s disease for several years, and her illness ignited an ugly court battle between her husband of more than 40 years and her son from a prior relationship, over the right to make her medical and financial decisions, including control of her $1 million account. Her husband, Artis Mills, alleged that the power of attorney she signed appointing her son as decision-maker was invalid, because she was incompetent when she signed it. Mills sued for control of the money to pay for Etta’s care. After some litigation, Etta’s leukemia was determined to be fatal, which led to a settlement. Mills was granted conservatorship and permitted to control sums up to $350,000 to pay for Etta’s care for the last few months of her life.
  5. Peter Falk. The Lieutenant Columbo actor died at 83 in 2011, after living with Alzheimer’s disease for years. His wife Shera and his adopted daughter Catherine fought in court for conservatorship to make his decisions. Shera argued that she had power of attorney and could already legally make Peter’s decisions for him, which included banning daughter Catherine from visits. The judge granted Shera conservatorship, but ordered a visitation schedule for Catherine. However, a doctor, who testified at the hearing, said that Falk’s memory was so bad that he probably wouldn’t even remember the visits.
  6. Tom Benson. The billionaire owner of the New Orleans Saints and Pelicans was the subject of a lengthy and bitter court battle over control of his professional sports franchises, and hundreds of millions of dollars of other assets. Prior trusts, that he and his late wife established, left the sports franchises and other business interests to his daughter and two grandchildren. One of granddaughters operated the Saints as lead owner, until she was fired by her grandfather. Tom decided to take the controlling stock of the teams out of the trust and substitute other assets in their place, taking over control of the teams. However, his daughter and grandchildren fought the move. A 2015 court ruling declared Benson to be competent, despite allegations he suffered from Alzheimer’s disease. Benson then changed his will and trust and left everything to his third wife, Gayle. They all settled the dispute in 2017, leaving other assets to the daughter and grandchildren—but ultimately leaving Gayle in control of the Saints and Pelicans, after Benson’s death in 2018 at age 90.
  7. Glen Campbell. Campbell’s 2007 estate plan left out three of his adult children. They sued to challenge their disinheritance after he died. They dropped the case in 2018, without receiving a settlement. The fact that Campbell’s final will was drafted several years prior to his Alzheimer’s diagnosis was a critical factor in the outcome of the lawsuit.

The estate planning of these celebrities show the importance of proper estate planning, before it is too late. Wills and trusts that are created or changed after someone is diagnosed with Alzheimer’s disease, dementia, or similar conditions are more apt to be challenged in court.

Click here If you are interested in learning more about estate planning, elder law, or long-term care planning.

Reference: Forbes (November 25, 2019) “Top 7 Celebrity Estates Impacted By Alzheimer’s Disease”

What Estate Planning Documents Do You Need?

Wouldn’t your children be relieved to learn that you’ve done all the necessary advance planning so that if you should become incapacitated, someone has been properly appointed to help with health care and financial decisions? The Tennessean suggests that you “Give your loved ones peace of mind with legal documents” so that your spouse and your family will be able to take the necessary steps to give you the care and dignity you (and they) deserve.

Here’s a checklist of the documents that everyone should have in place:

Power of Attorney for Health Care. When you have mental capacity, you can make your own decisions. When you do not, you need someone to be appointed who knows your beliefs and wishes and has the ability to advocate for you. Ideally, you should name one person to be your agent to minimize arguments. Talk with your family to explain who has been named your power of attorney for health care, and if need be, explain why that person was chosen.

Power of Attorney for Finances. There are different kinds of POA for finances. The goal of the POA for finances is so they can make decisions on your behalf, when you become incapacitated. Some states use “springing” POA—but that may mean your family has to go through a process to prove you are incapacitated. Check with an estate planning elder law attorney in your state to see what the laws are.

Advance Directive. This describes what kind of life sustaining treatment you do or do not want if you are in a coma, are terminally ill or have dementia. You can direct whether you want CPR, tube feeding, and other life-sustaining procedures to be withheld, if your quality of life is diminished and there is no hope of improvement. This will help your family to know what you want in a time when emotions are running high.

Last Will and Testament. Have a will created, if you don’t already have one. This directs distribution of your assets to your wishes and does not leave them to the laws of your state. Not having a will means your family will have to go through many more court proceedings and people you may not want to receive your worldly possessions may get them.

Trusts. Talk with your estate planning attorney about placing assets in trust, so they are not subject to the public process of probate. Your wishes will be followed, and they will remain private.

Reference: Tennessean (Nov. 16, 2019) “Give your loved ones peace of mind with legal documents”

It’s Like Going to the Dentist: You Need to Get Your Estate Plan Ready

This is one of those things that you know you should do, but you keep finding reasons not to. After all, says the article Estate planning: How to quit stalling and write your willfrom The Orange County Register, none of us likes to think about dying or what might occur that would require someone else to raise our children.

What do you need to get motivated and stop procrastinating?

Remember who you are creating a will for. Think of it as a love letter to those you leave behind. You want to provide specific instructions for the people you love about what you want to happen to your minor children, beloved pets and possessions. You are saving them the worries of trying to guess what you would have wanted, and the cost of having to pay attorneys to clean up a mess after you have died.

Legal visualization. Think about what will happen in the absence of a will. Without an estate plan, a court will decide who will raise your children. State law determines who inherits your possessions, and maybe the laws won’t follow your wishes. Every estate planning attorney has stories of people who die without planning. A spendthrift heir can easily spend a lifetime’s work in less than two years. A trust can be used to control how and when money is distributed.

Simple works. Don’t let the term “estate plan” throw you. A basic estate plan is not as complicated or as expensive as you might think. An experienced estate planning attorney will guide you through the process. You should also think about the short-term: what do you want to happen, if you die sometime in the next five years? You can always update the plan, if things change.

Give yourself a realistic timeline. Setting specific dates for tasks to be done and breaking the project out into smaller parts, can make this easier to address. Start by getting an appointment with an attorney on your calendar. Then, set a date to have a conversation with your family members about guardians, charities and other intentions for your legacy. That might take place around Thanksgiving, when families have extended time together. By December 1, clarify and confirm your documents, and get them signed before the holidays. You should also make sure to retitle any assets that are being moved into trusts.

If you were to start today, you could be done by New Year’s Day, 2020. Wouldn’t that feel great?

Reference: The Orange County Register (October 1, 2019) Estate planning: How to quit stalling and write your will