A few years after Joan Rivers’ death in 2014, her family put hundreds of Joan’s personal items up for auction at Christie’s in New York.
As The Financial Times reported in “Why an art collector’s estate needs tight planning,” a silver Tiffany bowl, engraved with her dog’s name, Spike, made headlines when it sold for thirty times its estimated price. This shows how an auction house can generate a buzz around the estate of a late collector, creating demand for items that, had they been sold separately, might have failed to attract as much attention.
A common problem for some collectors of art and other valuable collectibles is that their heirs may feel much less passionately about the works than the person who collected them.
If you’re a collector, you can gift, donate, or sell during your lifetime. You can also wait until you pass away and then gift, donate, or sell posthumously. If you want to make certain your wishes are carried out or to eliminate family conflicts after your death, you can take the decision out of the hands of your family by placing your valuable collection into a trust.
Your trust will have your wishes documented in the agreement and you can choose the trustees – whether you choose trusted family members or independent advisers. You, as a collector, might like to seal your legacy by making a permanent loan or gift of art to a museum. However, your children or other family members can renege on these agreements if they’re not adequately protected by trusts or other legal safeguards after your death.
Even with a trust or other legal structure put in place to preserve a legacy, the key to avoiding a fight over a valuable collection after your death is to have frank discussions about estate planning with your family well before the reading of the Will or trust. This can ensure that your wishes are respected.
Winding down the financial aspects of the estate is one of the tasks done by the executor. The executor is identified in the decedent’s Will or appointed by a judge. If the decedent had a revocable living trust or an irrevocable trust, the trust document names a trustee who works in conjunction with the executor.
The executor is responsible for filing the federal income tax returns for the decedent’s personal income (Form 1040) as well as for the income generated by the estate or trust (Form 1041). The estate’s first federal income tax year starts immediately after the date of death. The tax year-end date can be December 31 or the end of any other month that results in a first tax year of 12 months or less. The IRS form 1041 is used for estates and trusts and the estate income tax return is due on the 15th day of the fourth month after the tax year-end.
For example, if a person dies in 2019 and the executor chooses December 31 as the tax year-end, the estate tax return would be due April 15, 2020. An extension is available, but it’s only for five and a half months. In this example, the due date could be extended to September 30.
There’s no need to file a Form 1041 if all of the decedent’s income-producing assets are directly distributed to the spouse or other heirs and, thus, bypass probate. This is the case when property is owned as joint tenants with right of survivorship, as well as with IRAs and retirement plan accounts and life insurance proceeds with designated beneficiaries.
Unless the estate is valued at more than $11.4 million in 2019, no federal estate tax (also known as the “death tax”) will be due.
But the executor needs to find out if the decedent made any large gifts before death. That means gifts larger than $15,000 in 2018-2019 to a single person, $14,000 for gifts in 2013-2017; $13,000 in 2009-2012, $12,000 for 2006-2008; $11,000 for 2002-2005 and $10,000 for 2001 and earlier. If these gifts were made, the excess over the applicable threshold for the year of the gift must be added back to the estate to see if the federal estate tax exemption has been surpassed. Check with the estate attorney or tax professional to ensure that this is handled correctly.
The unlimited marital deduction permits any amount of assets to be passed to a spouse – as long as the decedent was married to a U.S. citizen. However, the surviving spouse will need expert estate planning to pass the family’s wealth to the next generation, without a large tax liability.
While the taxes and tax planning are more complex when significant assets and estate taxes are involved, estate planning is perhaps even more important for those with modest assets as there is a greater need to protect the family and less room for error. An estate planning attorney can strategically plan to protect family assets even when the assets are not so grand.
In Part 1, we met Joe and Claire, now age 65, and reviewed their need for age-appropriate health care and decision-making documents. We left off with the question, “What planning can Joe and Claire do now to prevent losing everything in the event their health fails?”
The costs of long-term care can be staggering. According to the Genworth 2018 Cost of Care Survey, Florida home health aides can cost, on average, $46,904 per year, based on care provided 44 hours per week and a median hourly rate of $20.50. Nursing home care in Florida, on average, is nearly double that – $97,820 per year for a semi-private room.
What are Joe and Claire’s chances of needing long-term care? According to the Department of Health and Human Services, someone turning 65 today has a 70% chance of needing some type of long-term care services in their remaining years. This means Joe and Claire should be considering how they will pay for that care in the event one or both of them are part of that 70%.
Joe and Claire’s choices include: 1) paying out of their own pocket for care, 2) purchasing long-term care insurance, 3) qualifying for government assistance programs, or 4) any combination of these choices.
By planning early – before there’s a health care crisis – Joe and Claire can take advantage of all three options, yet protect their home and any other cash or assets they wish. This type of asset protection is done using a specially designed irrevocable trust. Only a portion of Joe and Claire’s assets would be transferred to the irrevocable trust, with the remainder either remaining in Joe and Claire’s name, or held in a revocable trust with special provisions for the surviving spouse.
By transferring assets to an irrevocable trust, those assets would not be counted in the future (in most cases, after 5 years) if Joe or Claire needed to qualify for government assistance to help pay for their long-term care. If Joe or Claire is a wartime Veteran, there are additional cash assistance programs available through the Veterans Administration that should be explored as another means to help pay for their care.
To round out the asset protection package, Joe and Claire would also complete their other estate planning documents, such as financial Powers of Attorney, Health Care Advance Directives, and Living Wills. They would also explore purchasing an appropriate long-term care insurance policy in the event one of them needed care sooner than expected.
By planning early, Joe and Claire have the documents and tools in place to protect their home and other assets should one or both of them need care in the future – and there is a 70% chance they will. Joe and Claire have also lessened the emotional and financial stress placed on a family when a health care crisis does happen. They’ve taken care of the heavy lifting with regard to their assets, so their family can just focus on what really matters – making sure they have the best care possible.
Twenty years ago, Joe and Claire, age 45 at the time, went on their first vacation without their kids since they were married. They had no estate planning documents in place, and had to scramble quickly to get a simple Will and Power of Attorney to make sure their kids would be taken care of should something happen to them. They owned a home with a mortgage, and had very little in savings.
The Will named a guardian for their minor children, and named a trustee to hold their children’s money in trust until they reached age 21. The Durable Power of Attorney only addressed basic financial issues, naming an agent to act in their place (paying bills, writing checks for the kids’ various activities) in the event they were unable to.
Joe and Claire did not prepare a Living Will, or any type of estate planning document that named another person to make healthcare decisions for them if needed. Their main focus was their children, and making sure the mortgage and other bills were paid if something happened to them while they were away.
Joe and Claire arrived home from their trip perfectly healthy, and the documents they signed sat in a safe deposit box for the next 20 years. Now age 65, Joe and Claire are nearing retirement and have accumulated a nice “nest egg” and just paid off their home.
However, they recently had a friend suffer a near-fatal heart attack and it was a sharp reminder to them of how precious life is. The topic of their Will from 20 years ago came up, and they both agreed it was time for an update.
Joe and Claire now need estate planning documents that address their current age and status – near retirement with substantial savings. The Durable Power of Attorney that worked for their purposes 20 years ago needs a major makeover. Joe and Claire need to consider who will step in and make financials decisions on all of their matters if they are unable to act due to incapacity.
Incapacity can be the result of a disease, like Alzheimer’s, or it could come from a more sudden health event, like a heart attack or stroke. As Joe and Claire grow older, the possibility of a debilitating health event increases. They have more assets than they did 20 years ago, including a number of online accounts that would need to be managed. A generic form is usually not enough to cover the complex issues that arise as we get older, and as we acquire more possessions.
This increasing possibility of a health crisis also sheds light on the need to have their medical wishes properly documented through a health care directive. What type of life-sustaining measures should be undertaken for them? Who will make health care decisions if they are unable to? The natural choice is to choose the other spouse as agent, but what if the other spouse is unable or unwilling to act?
If Joe and Claire haven’t designated their agent through proper legal estate planning documents, then a court may be left to decide for them – an expensive and sometimes lengthy process that can be very stressful on the family.
Another issue that is important to discuss is what type of care should be provided if Joe or Claire need it? Does Joe wish to stay home and receive care there? If so, who should provide that care? Do both of them want to transition to independent living at some point when keeping up a home and yard becomes too much? If the conversation isn’t held while Joe and Claire are healthy, then other family members and friends are left to guess what they would have wanted.
As shown above, age-appropriate estate planning documents that address health care and financial decision-making are critical. The other critical planning concern is what will happen to all of Joe and Claire’s possessions if one or both of them get sick and need substantial care on a long-term basis?
In our next article: What steps can Joe and Claire take to prevent losing everything in the event their health fails?
The cause of sleepless nights for many baby boomers now comes from worrying about their aging parents instead of their young children. As parents age, it becomes more important to talk with them about a number of “someday” issues, advises Kanawha Metro in the article “Preparing for someday.” As their lives move into the elder years, your discussions will need to address housing, finances, and end-of-life wishes.
Where do your parents want to spend their later years? It may be that they want to move to an active retirement community not far from where they live now, or they may want a complete change of scenery, perhaps in a warmer climate.
One family made arrangements for their mother to take a tour of a nearby senior-living community after their father passed. By showing their mother the senior-living community, they made an unknown, slightly intimidating thing into a familiar and attractive possibility. Because she saw the facility with no pressure, just a tour and lunch, she knew what kind of options it presented. The building was clean and pretty, and the staff was friendly. Therefore, it was a positive experience. She was able to picture herself living there.
Money becomes an issue as parents age. If the person who always handled the family finances passes away, often the surviving spouse is left trying to figure out what has been done for the last five decades. A professional can help, especially if they have had a long-standing relationship.
However, when illness or an injury takes the surviving spouse out of the picture, even for a little while, things can get out of control fast. It only takes a few weeks of not being able to write checks or manage finances to demonstrate the wisdom of having children or a trusted person named with a power of attorney to be able to pay bills and manage the household.
As parents age and their health becomes fragile, they need help with doctor appointments. Having a child or trusted adult go with them to speak up on their behalf, or to explain any confusing matters, is very important.
Having an estate plan in place is another part of the business of aging that needs to be accomplished. It may be helpful to go with your parents to meet with an estate planning attorney to create documents that include a Last Will and Testament, Durable Power of Attorney and advanced health care directive. Without these documents, executing their estate or helping them if they become incapacitated will be more complex, and more costly.
Eliminate a scavenger hunt by making sure that at least two siblings know where the originals of these documents are.
One of the more difficult conversations has to do with end-of-life and funeral arrangements. Where do your parents want to be buried, or do they want to be cremated? What should be done with their remains? What do they want done with their personal belongings? Are there certain items that they want to be given to certain members of the family, or other people they care for?
Finally, who do they want to care for their pets? If there is a family member who says they will take their parent’s pet, can that person be trusted to follow through? There needs to be a Plan A, Plan B, and Plan C so that the beloved pet can be assured a long and comfortable life after their owner has passed.
Yes, these are difficult conversations. However, not having them can lead to far more difficult issues. Knowing what your loved ones wish to happen, and making it enforceable with an estate plan, provides everyone in the family with peace of mind.
For many decades, people assumed cognitive decline was inevitable with advanced age. Medical experts said people stopped making new brain cells as adults, so when we lose cells through injury or deterioration, there are no “spare parts” to replace them. As a result, it seemed logical that cognitive impairment was only a matter of time.
The nagging doubt about this theory was the fact we all know people who remain mentally sharp well into their nineties and even past the age of 100. As it turns out, you were not the only one who might have wondered about the accuracy of the long-held assumption of inevitable age-related cognitive decline. A recent study reveals we can grow new brain cells well past retirement age.
Columbia University and the New York State Psychiatric Institute worked together on a study designed to explore this issue. They performed autopsies soon after death on the brains of 28 people ranging in age from 14 to 79. The subjects had all been healthy prior to sudden death. None of them had cognitive decline during their lives.
The researchers examined the hippocampus area of the brain. The hippocampus processes learning and memory and grows new brain cells to replace those we lose through daily attrition. In particular, the scientists looked at the neurons (nerve cells) and blood vessels within the hippocampus.
Although the brains of the older subjects in the study did not form as many new blood cells and their new neurons might not have been able to make as many connections as the brains of the younger subjects, the study revealed a startling fact. The brains of healthy older people continue making new brain cells, just as well as the brains of younger healthy people.
There was no difference in the volume of new brain cells between the younger and older brains. Since the hippocampus does not stop making new brain cells as long as you stay healthy, the researchers concluded many seniors do not suffer cognitive or emotional decline, despite the common assumption to the contrary.
Take-Aways from the Study Findings
Seniors do not get the respect they deserve in American society. One excuse people get for being dismissive of their elders, is the widely held belief that old people become mentally feeble. This research challenges this idea and shows that healthy older people can be just as sharp as people in their youth.
The common belief about seniors having cognitive decline can be a self-fulfilling prophecy. If a person believes cognitive decline is an automatic part of aging, the person might not try to prevent this result. We all know people who suddenly start to act older after they hit a milestone birthday, as if living up to their expectations for a person of that age.
Now that we know there is no such thing as automatic cognitive decline because of age, we can do something about it. You can stay sharp as long as you stay healthy. Keep learning and reading. Study a foreign language. Learn to play a musical instrument. Do word puzzles. Stay socially active and involved in your community. Take a walk every day to get regular physical exercise. Eat nutritious food.
And above all, avoid things that damage brain cells, particularly the hippocampus. Misusing drugs, even prescription ones, drinking too much alcohol and smoking can all damage the hippocampus and cause cognitive decline. If the hippocampus isn’t healthy, you won’t be able to continue making new brain cells as you age.
When the timeshare company hears of the owner’s death, they may keep sending letters to him for his expenses. Is there any way that the owner’s children could be held responsible for the expenses?
Legally speaking, a timeshare is an agreement or arrangement in which parties share the ownership of or right to use property. Each owner is entitled to use the property for a specific period of time. Some examples of timeshare ownership are a vacation club at a tropical resort or a villa at a ski destination.
There are three basic types of timeshare programs: fee simple, leasehold, and right-to-use (‘RTU’). In addition, there are some variations of RTUs, like points systems and fractional/private residence clubs.
The executor or administrator of the estate will need to contact the timeshare company and/or locate a copy of the owner’s contract to find out what the financial and legal obligations are under the contract. In addition, the executor may decide to contact an estate planning attorney, especially if the property is out-of-state. This is important as the laws concerning timeshare agreements and inheritances vary from state to state.
The next-of-kin and estate beneficiaries do have the option of declining an inheritance, including a timeshare. If they want to do this, they’ll typically be required to sign and file an inheritance disclaimer document. If the property is disclaimed, it would pass to the next individuals or entities with a right to inherit.
If the estate fails to make the payments on the timeshare while the owner’s estate is being probated, fees and penalties may accrue. At that point, the timeshare company and the property manager may file a lawsuit against the estate to get their money due them pursuant to the agreement.
However, if the property is disclaimed by all of the heirs, the property manager may likely foreclose on the timeshare, so any accrued debt would be paid from the estate’s assets. That foreclosure shouldn’t impact the credit of any heir who disclaimed the property.
One 78-year-old woman wanted to compete in a triathlon, so she headed over to the pool at her retirement community and joined a training team. Another 86-year-old woman logs 10 miles twice a week on one of the same retirement community’s spin bikes. That’s what a senior living community that also offers assisted living and skilled nursing care looks like today, reports considerable.com in the article “The rise of ‘cool’ senior living communities.”
Other communities have been created on or near college campuses, where residents can take classes, attend school concerts or sports games, hang out with students and get care if and when they need it. There are also the upscale high-rises that feel more like resorts or healthcare spas.
Today’s seniors don’t want a bland community, and their children don’t want to see their parents in one. Senior providers know that if they want to succeed, they must stand out from the competition. They’ve got their eye on the 76 million baby boomers who are prospective residents. They know that these prospects are radically redefining aging, just as they have every other stage of life.
An even bigger challenge — most people want to age in their own homes and not move at all.
More senior living communities are also offering opportunities for residents to interact with people of all ages. One community has programs for all ages, a Saturday pop-up café, and more than 40 organizations meet at the center regularly. The community has positioned itself as a gathering place for all members, young and old, to combat isolation and bring people together.
Some retirement communities are built on properties that are mixed-use with the same purpose of not isolating seniors. One community in Alabama will have a center for well-being, open to residents and the public, with physicians, nutritionists, wellness coaches, chiropractors and alternative therapies from salt rooms to infrared saunas. A co-working area and research space for partnerships between healthcare providers, local medical schools and universities and biotech companies will be offered.
For those with seawater in their veins, there is a cruise ship that has been retrofitted with more than 600 condo living units. For wine enthusiasts, one company in California’s Sonoma wine country is partnering with a Zen center to build a facility that will offer meditation classes, workshops and retreats, as well as independent and assisted living and memory care.
No matter what your interests are, chances are there’s a new, cool retirement community with your interests and lifestyle in mind.
It’s true that an effective estate plan should be simple and straightforward, if your life is simple and straightforward. However, few of us have those kinds of lives. For many families, the discovery that a Will that was created using a basic form is invalid leads to all kinds of expenses and problems, says The Daily Sentinel in an article that asks “What is wrong with using a form for my will or trust?”
If the cost of an estate plan is measured only by the cost of a document, a basic form will, of course, be the least expensive option — on the front end. On the surface, it seems simple enough. What would be wrong with using a form?
Actually, a lot is wrong. The same things that make a do-it-yourself, basic form seem attractive are also the things that can make it very dangerous for your family. A form does not take into account the special circumstances of your life. If your estate is worth several hundreds of thousands of dollars, that form could end up putting your estate in the wrong hands. That’s not what you had intended.
Another issue: any form that is valid in all 50 states is probably not going to serve your purposes. If it works in all 50 states (and that’s highly unlikely), then it is extremely general – so much so that it won’t reflect your personal situation. It’s a great sales strategy, but it’s not good for an estate plan.
If you take into consideration the amount of money to be spent on the back end after you’ve passed, that $100 basic form Will becomes a lot more expensive than what you would have invested in having a proper estate plan created by an estate planning attorney.
What you can’t put into dollars and cents is the peace of mind that comes with knowing that your estate plan – including a Will or Trust, power of attorney, and health care power of attorney – has been properly prepared. As such, your assets will go to the individuals or charities that you want them to go to, and your family will be protected from the stress, cost, and litigation that can result when Wills or Trusts are deemed invalid.
Here’s one of many examples of how a basic, inexpensive form created chaos for one family. The father had decided to forego seeing an attorney and executed a do-it-yourself Will. After he died, chaos ensued because his intentions weren’t clear. The father had properly filled in the blanks but used language that one of his sons felt left him the right to significant assets. The family became embroiled in expensive litigation, and became divided. The litigation has ended, but the family is still fractured. This was not what their father had intended.
Other issues that may not be properly addressed when basic forms are used: naming the proper executor, guardians and conservators, caring for companion animals, dealing with blended families, addressing Payable-on-Death (POD) accounts and end-of-life instructions, to name just a few.
Avoid the “repair” costs and meet with an experienced estate planning attorney in your state to create an estate plan that will suit your needs.
No-contest, or in terrorem, clauses have been used in Wills for centuries. These clauses usually state that if a beneficiary under the document contests the validity of the document and loses, that beneficiary receives nothing. Of course, if the beneficiary wins, the document is invalid and so is the clause. These clauses were almost always upheld because, under the common law (non-statutory law created by custom and courts), there was no legal right to inherit anything. A bequest was a gift made by the deceased person, who had complete discretion as to how and when to leave that gift. So any action taken by a beneficiary that was detrimental to the probate of a Will violated the no-contest clause and the beneficiary’s bequest was forfeited.
But things changed over time and U.S. courts, including those in Florida, began to construe those clauses very strictly. For example, in 1959 in Kolb v. Levy, a Florida appeals court ruled that a contractual claim filed by one beneficiary against her mother’s estate – a claim so large that if she succeeded in a lawsuit it would have consumed most of her mother’s estate – did not violate the non-contest clause because it didn’t directly challenge the validity of the Will.
That’s where Florida law stood until the 1990s, as ideas about an individual’s right to have access to the courts to redress grievances changed. The Florida state legislature declared that no-contest clauses violated such public policies and passed two statutes prohibiting the enforcement of no-contest clauses in Will and Trusts.
Florida’s No-Contest Statutes
Florida Statute §732.517 states that a “provision in a will purporting to penalize any interested person for contesting the will or instituting other proceedings relating to the estate is unenforceable.” Its sister statute, Florida Statute §736.1108, applies to Trusts created on or after October 1, 1993, and states that a “provision in a trust instrument purporting to penalize any interested person for contesting the trust instrument or instituting other proceedings relating to a trust estate or trust assets is unenforceable.”
Currently, Florida is the only state that absolutely prohibit the enforcement of no-contest clauses in Wills and Trusts. A couple of states still enforce them most of the time, but the majority of states consider them on a case-by-case basis. If your Will or Trust was drafted in another state and includes a no-contest clause, it won’t be enforced in a Florida probate court.
Why Are No-Contest Clauses Sometimes Still Used in Florida?
So why do some Florida attorneys still put no-contest clauses in Wills and Trusts if they know they’re not enforceable? Mainly to try to prevent frivolous litigation. Many clients want these clauses in their documents – even though they understand that a Florida court won’t enforce them – because they hope that it shows their beneficiaries, and potentially a judge, their intent as to how they wanted their assets distributed. Does it work? I don’t know. Maybe it does sometimes, but a truly litigious person certainly won’t be stopped by it.
Many Floridians now use a Trust as their primary estate-planning tool. With a Trust-based estate plan, there’s virtually no risk of a Will contest since a Pour-Over Will essentially says nothing. But Trust litigation is always a possibility. Occasionally, the contest relates to the validity of the trust, but, more often, trust litigation involves disputes between a beneficiary and the trustee regarding trust interpretation and asset distributions.
Alternatives to No-Contest Clauses
Depending on the client’s specific situation, there may be other ways – other than using unenforceable no-contest clauses – to prevent or minimize potential litigation risks when a Trust is involved. Creating and funding separate Trusts for problem beneficiaries, adding Trust Protector provisions, or adding a mediation clause may help keep a disgruntled beneficiary from depleting trust assets in a drawn-out court battle.
So, while Florida courts won’t enforce a no-contest clause in a Will or trust, there may be other ways to minimize – although not completely eliminate – the possibility of litigation. Greed, jealously, family dynamics, and money problems are great motivators for litigation, and a few words on a piece of paper are unlikely to stop all.
If you’re worried about preventing potential litigation, or if you think you may have a legitimate reason to contest a Will or Trust, contact an attorney for guidance.