Estate & Trust Administration | Begin the Begin

Facing a Tough Diagnosis – Four Lessons of Gene Wilder

September 1, 2016

flowers-2 With Gene Wilder’s death, the family released a statement that revealed to the world that Gene Wilder had died due to complications from Alzheimer’s disease. The family also stated that Wilder had not wanted to reveal his diagnosis earlier and risk “one less smile in the world.” In releasing the statement as they did, the family has provided us with a few valuable lessons about planning.

What should ‘the public’ know? From the statement, it seems clear that in receiving an irreversible diagnosis, Wilder’s family talked about how to handle the news both publicly and privately. Families that have received terrible news of a terminal or debilitating illness are aware of the difficulties surrounding such information. Questions about who should be notified are common as well as discussion regarding how much information should be disclosed. In addition, the ‘public’ for each person is different. This means for some only immediate family members while friends, neighbors and colleagues have a less detailed picture. Immediate family may include certain close friends and may very specifically exclude others. What about professional advisors? How much information should they have? Each of us has various circles and those circles have to be evaluated to determine who should know and what should be known, which is important to clarify to avoid confusion in the dissemination of information.
What is the care plan? Certainly from a medical perspective there is a prognosis and then treatment plans that are outlined with various degrees of outcomes and complications. But what about the plan to care for minor children, if necessary? Or a caregiver spouse or partner? Who are or will be the caregivers? Has respite care been discussed for those caregivers? Are there modifications to a residence that are needed? What about access to financial information? Should such access be limited or restricted? Has there been discussion about involving a care manager? These are just a few of the questions to consider to determining the plan of action.
Your final moments. Are friends and family present? Is music played? Is a spiritual leader, such as a priest, rabbi or pastor present? Will the final moments be at home, wherever that may be at the time? The final moments are not only for the person dying, but the family and friends who are part of that passing. Discussions such as these are key in determining end of life care.
How to be remembered? An earlier article outlined six questions to ask surrounding the details of how you want to be remembered. Providing some information about wishes and desires regarding a funeral or service is a relief for family members because decision-making at this difficult is clouded by emotions and shouldn’t be overshadowed with the thought of “Is this really what was wanted?”

Thus, as many of us remember Gene Wilder and the various roles he played in the movies, we can also pause to reflect on how we would face such tough diagnosis with our family, and when the time comes, be prepared to have the important conversations. #GeneWilder #incapacityplanning #estateplanning #advancemedicaldirective #livingwill @bgnthebgn

The Increase of Crowdfunding in Estate Planning

August 18, 2016

Crowdfunding seems to be everywhere, but does it have a place in estate planning? Wikipedia defines crowdfunding as “the practice of funding a project or venture by raising monetary contributions from a large number of people…” Thus, it seems that in the beginning crowdfunding was a form of venture capitalism with the public at large. Websites like Kickstarter and GoFundMe allowed for individuals to present an idea and raise capital to get the project off the ground. However, in relatively recent history, crowdfunding has taken on a prominent role in response to any tragedy. Now it seems that if there is a sudden illness or death, crowdfunding appears to help defray costs. But for those both using or donating through a crowdfunding website, there are a few questions to consider.

Are there any tax consequences to a donation? – In general, giving to a fund that benefits an individual is not a taxable gift so long as you stay below certain thresholds. An individual can give up to $14,000.00 per year to each of any number of different people under current law without incurring any gift tax consequences. Typically in crowdfunding, the fund is set up and smaller contributions are requested or simply contributions of any amount, big or small, are accepted, so hitting that threshold is not an issue. Also, keep in mind that your contribution to such a fund is typically not tax deductible. If the contribution is not to a public charity or other qualified tax-exempt organization, then you are not otherwise allowed to deduct your contribution from your personal income taxes.

Are there fees associated with crowdfunding? – The answer is it depends on the site being used to support the fund. Kickstarter applies a 5% fee and then there are processing fees of approximately 3-5% if the campaign is successful. GoFundMe charges a 5% fee and then approximately an additional 3% processing fee. The fees are charged against each contribution. The donor or person contributing is not charged the fees, but the person receiving the funds does not receive 100% of the monies contributed. Thus, if I give $100 to a GoFundMe fund to help pay for costs associated with the illness of a friend’s child, my friend will only see $92 of my gift. This reality then begs the question as to whether it is simply better to write a check directly to my friend. That way my friend receives $100. Of course the theory behind crowdfunding is that if everyone else is contributing then you will want to do so as well, and therefore, perhaps the fees are worth it if in the end more monies are raised.

How do you determine that the request is legitimate? – You need to be careful that you are going to the actual fund page. Spoof pages can pop up or emails that look legitimate can arrive in your inbox. You may click through and donate not realizing that you are not donating to the actual cause or person that you intended. Thus, you should take care to ensure that the URL for the fund that you are using is from a source you know and trust.

Overall, it appears that recently during times of hardship and tragedy, crowdfunding has become a way that people can express their sympathy and/or support for others. I would expect that any monies received are welcomed and appreciated, but may not be enough. Furthermore, crowdfunding is not a substitute for financial and estate planning where questions relating to life insurance, disability insurance, retirement assets, fiduciaries, guardianship and the like are discussed and analyzed to ensure that in the event of the unexpected, covering expenses does not create additional stress. So the question to ask yourself is, what preparations have you made for the unexpected? #crowdfunding #estateplanning @gofundme @kickstarter @bgnthebgn

The Marriage of Divorce and Estate Planning

August 11, 2016

In case you missed the series about the impact of divorce on estate planning, here is a brief recap of some points to consider.

1. The Property Settlement Agreement may require that you maintain life insurance for any minor children. If that is the case, then have you revisited your estate plan recently? What obligations to maintain life insurance do you have? Does the Property Settlement Agreement have certain requirements for the creation of a trust, and if so, what are those requirements? Have the requirements of the Property Settlement Agreement been fulfilled or incorporated through your estate plan? Are there any provisions of the Property Settlement Agreement that will survive death?

2. When was the last time you updated your beneficiary designations on qualified retirement accounts (e.g., 401(k) or IRA accounts), annuities, life insurance or payable on death or transfer of death designations on bank or brokerage accounts?

3. What should happen to your real and personal property? Are there steps you need to take to ensure your real and personal property are distributed to the individuals or entities you want to have benefit?

4. If you are divorcing and have a disabled child, how is that child being provided for upon the incapacity or death of a parent? Is eligibility for public benefits preserved through a properly structured special or supplemental needs trust? Who has authority to make healthcare decisions for the child and in what manner? Has guardianship been determined and the terms in which parents plan to share guardianship specified, if applicable?

5. What happens if an estate plan already exists and you do nothing to update it?

#estateplanning #divorce @bgnthebgn

ALERT – Valuation Discounting Impacted By New Regulations

August 4, 2016

Estate planners and valuation experts have been advising clients for the last year that the IRS and Treasury would be issuing new regulations that would make it harder to transfer business interests without incurring estate or gift tax. The proposed regulations are now here and will reduce the availability of discounting for transfers of business interests that are subject to certain restrictions (e.g., restrictions on marketability). The proposed regulations will go through a 90 day public comment period and a public hearing is scheduled for December 1, 2016. The proposed regulations will be effective as to transfers that occur on or after the date the regulations become final, and in certain circumstances, as to transfers occurring 30 or more days after the regulations become final. Thus, those who hold interests in closely held businesses should contact their professional advisors to determine whether they need to take action before the regulations are finalized. #valuationdiscounts #2704regulations #businessvaluations #estateplanning #businessplanning @bgnthebgn

Digital Assets Under Virginia Law

July 14, 2016

In an earlier post, there was a discussion about Maryland’s Fiduciary Access to Digital Assets Act. But what has Virginia done with respect to digital assets? Virginia has not adopted the Uniform Fiduciary Access to Digital Assets Act (“UFADAA”) or any version of it. Instead, in 2015 Virginia adopted a version of the Privacy Expectation Afterlife and Choices Act (“PEAC”). Under this statute, a personal representative or executor may petition a court for access to certain information within a deceased individual’s digital records for the 18 month period prior to death. However, the petition will not permit the personal representative to gain access to the content within the digital records unless it can be shown that the deceased individual consented, in some fashion, to have that information released. If the deceased individual did not consent or deleted the information, the information will not be released. Furthermore, the holders of the digital content have the ability to show an undue burden if they release the information, and therefore, can argue against disclosure. The overall impact of Virginia’s statute is still being tested, and therefore, whether it is now simpler for a personal representative to gain access to digital assets is questionable. Furthermore, the statute does not appear to apply to trustees, guardians or agents under a power of attorney or address access to such digital assets during any period of incapacity.

So, what can you do to protect your digital assets but also ensure that your fiduciaries have authority to act on your behalf with respect to your digital assets? You can make sure your last will and testament, revocable living trust and/or general durable power of attorney are updated to include authority and power regarding digital assets. Moreover, you need to organize your digital assets by making sure the location of hard files and back-up files (i.e., in the cloud, on a USB drive, etc.) are known to your fiduciaries. Your fiduciaries will need to be able to provide user names, passwords, answers to security questions and any other authentication methods associated with the accounts.

Finally, your fiduciaries also need to know what digital assets are out there, so be sure to list the following information: e-mail accounts, domain names, online storage accounts (e.g., Dropbox), financial software, bank accounts, securities or brokerage accounts, types of devices, taxes, retirement accounts, credit cards, insurance (e.g., health, homeowners’, car, disability, etc.), debts (e.g. mortgage or car loans), utilities, social media, digital media (e.g., Netflix, Kindle, iTunes), membership or loyalty programs (e.g., frequent flyer accounts) as well as any other account that requires an online presence (e.g., Skype, Amazon or professional affiliations).

When you really think about it, your digital footprint might be quite extensive and your fiduciaries need the information to be better able to provide for your care and handle your estate. #estateplanning #incapacityplanning #estateadministration #digitalassets @bgnthebgn

Maryland Enacts Fiduciary Access to Digital Assets Act

July 7, 2016

On October 1, 2016, Maryland’s Fiduciary Access to Digital Assets Act will come into effect, thereby giving a fiduciary (i.e., personal representative, guardian, agent or trustee) or a designated recipient (i.e., a person named using an online tool) the ability to request access to a person’s digital assets in certain circumstances. Digital Assets is defined as “an electronic record in which an individual has a right or interest.” The Act allows an individual to direct whether their digital content is disclosed, to whom and to what extent. This authority can be granted through an online tool provided by the custodian (e.g., Google has Inactive Account Manager or Facebook has Legacy Contact) or through an individual’s will, trust or power of attorney. Access may still be subject to the terms of service agreement and gives the custodian of such information (e.g., Google) some discretion as to the breadth of the disclosure and the ability to charge an administrative fee. If a request is made, the Act requires that a custodian comply no later than 60 days from the receipt of the request, including receipt of all the ancillary documentation associated with the request as detailed under the statute.

So, next steps for you? When creating accounts be sure to look for whether the website requires you to complete an online tool. You may want to opt out of using the online tool so that you can better control your wishes through your estate planning documents. Furthermore, if you reside in Maryland, you should review and update your estate planning documents to ensure that access to digital assets has been addressed in accordance with your wishes. Finally, you should create and store in a secure location a list of all your digital assets, including your credentials, so that your nominated fiduciaries know what assets to access during any period of incapacity and upon death. #estateplanning #estateadministration #digitalassets #MFADAA @bgnthebgn

Caveat Venditor vs. Caveat Emptor – Thorsen Case Highlights How Attorney and Client Must Beware

June 30, 2016

The recent opinion from the Virginia Supreme Court in the case of Thorsen, et al. vs. Richmond Society for the Prevention of Cruelty to Animals (RSPCA) contains lessons for attorneys and clients surrounding the preparation of estate planning documents.

The case involved the preparation of a Last Will and Testament in 2003 in which Alice L. Cralle Dumville, the testatrix (or creator of the will) desired to make sure that her estranged husband did not receive any of her estate should she die during the pendency of the divorce. To that end, she asked an attorney, James B. Thorsen, to prepare a will leaving her assets to her mother, and if her mother predeceased, to the RSPCA. Ms. Dumville died in 2008 having had her mother predecease her in 2007. The RSPCA was notified that they were the beneficiary of Ms. Dumville’s estate, except a problem was discovered with the will. The will left only Ms. Dumville’s tangible personal property to the RSPCA and made no provision for her real property, which would pass by intestacy to Ms. Dumville’s two heirs at law.

Mr. Thorsen filed suit to correct the ‘scrivener’s error’ in the Circuit Court of Chesterfield County, but the Circuit Court found that the language of the will was clear in that only the tangible personal property was to be distributed to the RSPCA, while the remainder of Ms. Dumville’s assets would pass by intestacy. The RSPCA then sued Mr. Thorsen in Richmond Circuit Court for breach of contract-professional negligence stating that it was a third-party beneficiary to the agreement between Mr. Thorsen and Ms. Dumville. The Circuit Court agreed and Mr. Thorsen appealed to the Virginia Supreme Court arguing that (a) the RSPCA was not an intended third-party beneficiary, (b) a written agreement with any third-party beneficiary was required, and (c) the statute of limitations barred the RSPCA’s action.

In short, the Virginia Supreme Court, in a 6-1 decision, disagreed with Mr. Thorsen and agreed with the Circuit Court finding for the RSPCA. By doing so, the Virginia Supreme Court found that a third-party beneficiary who is ‘clearly and definitely’ the intended beneficiary of a contract (even one where no written agreement exists) may sue to enforce its rights derived from the contract even though the third-party beneficiary may not know it is a beneficiary for many years (as is the case in most estate planning documents). The lone dissenter argued that the majority was establishing a new cause of action against attorneys that should be created by way of legislation, not through the judiciary. Furthermore, the dissent believes that the majority’s decision does not simply apply with respect to third-parties in an estate planning context, but will be applied to all legal malpractice actions.

So, what does this mean for individuals looking to have estate planning documents prepared? First, you should make sure you have read and understand your documents. Otherwise, there is a chance that the estate planning documents do not capture your wishes and the result could be that unintended beneficiaries receive your estate. Next, you may find that the estate planning process is more involved to ensure that you do understand your documents and have read them thoroughly. And ultimately you should be working with an attorney who routinely prepares estate planning documents unlike in this case where it appears that Mr. Thorsen may not have regularly prepared wills.

For attorneys, various commentators have said that likely there is a legislative fix in the works for the 2017 General Assembly session that may include passing a statute that allows for the correction of mistakes in wills, similar to the statute that applies to revocable living trusts. But until then, practitioners may be unwilling to prepare wills and may only be willing to prepare revocable trusts. Furthermore, practitioners will be watching to see if this decision is applied to other situations in which there is a potential third-party beneficiary. Going forward, this is a case which highlights how both the attorney and the client should beware as the possibility for unintended consequences exists on both sides. #estateplanning #ThorsenvsRSPCA #thirdpartybeneficiary @bgnthebgn

Revised Elective Share Statute in Virginia

June 23, 2016

Beginning with the estates of decedents dying on or after January 1, 2017, the elective share statute to be applied in Virginia will be significantly changed. Under current law, a surviving spouse has the right to claim one-third (1/3) of a decedent’s estate if the decedent left surviving children or descendants, or one-half (1/2) of the decedent’s estate if the decedent had no surviving children or descendants. These calculations were based solely on the assets (or augmented estate) of the decedent.

Under the new law, a surviving spouse will have the right to claim a percentage of one-half (1/2) of the value of the marital property included in the augmented estate. What does this mean? First, the marital property consists of the following: (a) a decedent’s net probate estate, (b) a decedent’s non-probate transfers to others, (c) a decedent’s non-probate transfers to the surviving spouse, and (d) a surviving spouse’s property and non-probate transfers to others. (Yes, you read correctly. A surviving spouse’s assets are now included in the calculation.)

Of the total value of the marital property portion of the augmented estate, the surviving spouse may be able to claim up to fifty percent (50%). The determination of whether the surviving spouse can claim the full 50% depends on the length of marriage. Thus, if a couple is married for 5 years, then the surviving spouse could claim 30% of the 50% elective share available or 15% of the augmented estate.

Furthermore, under current law, certain statutory allowances are available to a surviving spouse who claims the elective share. Those statutory allowances include the family allowance and exempt property allowance, but specifically exclude the homestead allowance. Under the new law, a surviving spouse could claim all three allowances and still make a claim for the elective share.

Finally, current law has no explicit process by which an incapacitated surviving spouse can make his or her claim. Under the new law, an incapacitated surviving spouse, by way of his or her conservator or agent under a durable power of attorney, will have the ability to claim an elective share. In addition, any elective share amount that is awarded to an incapacitated surviving spouse must be set aside in a testamentary trust and administered for the surviving spouse’s needs. At the surviving spouse’s death, provided he or she has not regained capacity and terminated the trust, any remaining assets in the testamentary trust will be distributed in accordance with any residuary clause of the predeceased spouse’s will or to the predeceased spouse’s heirs by intestacy. Effectively, in that situation, the elective share will not benefit the heirs of the surviving spouse.

So, how does this change impact you? If you are considering getting married and plan on entering into a pre-nuptial agreement, or are already married and looking to enter into a post-marital agreement, the right to the elective share can be waived. But, you should first understand the right you are waiving. Second, if you are the conservator or agent under a power of attorney of an incapacitated individual whose spouse died leaving him or her very little, then the elective share may be a viable option depending on the length of the marriage.

Third, in subsequent marriages, the families (i.e., children) of the first marriage are generally concerned with the distribution of their parent’s assets, particularly if the new spouse is the surviving spouse. Now the length of the marriage is factored into the equation and the amount available to a surviving spouse is as low as 3% for less than 1 year of marriage (or 1.5% of the augmented estate). This is a huge difference from the one-third (1/3) share available under current law and may alleviate concerns about financial exploitation.

Thus, this change appears to be in response to shifting attitudes towards marriage, that is, marriage is an economic partnership and is less about avoiding spousal impoverishment. And the changes to the elective share statute help bring Virginia up-to-date with the current dynamics of marital relationships. However, as with any new law, only time will tell what tweaks may need to be made as the law is implemented and to determine whether there are any unintended consequences as a result of the changes. #estateplanning #electiveshare #incapacityplanning #estateadministration @bgnthebgn

How Divorce Can Impact Your Estate Plan – Failure to Update an Existing Plan

June 16, 2016

Now that we have addressed property settlement agreements, beneficiary designations, real and personal property and special needs, what happens if an estate plan already exists and you do nothing to update it? Presumably, the existing plan was prepared during the marriage and has the former spouse in fiduciary positions and named as a beneficiary. The entire plan should be updated to reflect new trustees, personal representatives/executors, financial powers of attorney and healthcare agents. But often, recently divorced individuals simply do not have the inclination to handle one more legal matter (particularly if the divorce was not amicable).

Virginia law has a savings clause that may apply. Under Virginia law, if a person creates a last will and testament while married, divorces and subsequently dies without updating his or her last will and testament, the divorce “revokes any disposition or appointment of property made by the will to the former spouse.” Va. Code §64.2-412. In addition, any appointment of the former spouse as a fiduciary under the will, including as executor, trustee, conservator or guardian, is revoked. However, this law does not change any financial power of attorney or healthcare power of attorney under which the former spouse may be named. Furthermore, the law does address provisions contained in a trust agreement. Therefore, a former spouse may have authority to act or be treated as a beneficiary unless changes are made or other state statutes apply.

Moreover, if there is an irrevocable trust or “spousal lifetime access trust” (SLAT) that benefits a spouse, then there may continue to be income tax consequences to the creator of that irrevocable trust even though the parties divorce. The regulatory and legislative history surrounding the applicable tax code sections (Sections 71, 672, 677 and 682) is not as clear as it should be, in certain circumstances, as to whether a grantor (or creator of the trust) will still be held liable for the income tax associated with the irrevocable trust that otherwise benefits an ex-spouse. Therefore, the trust agreement and relevant tax law need to be reviewed and a determination made regarding any ongoing tax liability.

Overall, taking into account all of the considerations described throughout this series, it is clear that after a divorce (and perhaps even during a divorce), it is imperative that you begin the process of updating your estate plan to avoid the potential of having a former spouse in a position of authority during incapacity or upon death and to avoid a former spouse unintentionally benefiting from your demise. #beginthebegin #divorce #estateplanning #updateyourestateplan @bgnthebgn

How Divorce Can Impact Your Estate Plan – Special Needs

June 9, 2016

As we continue to explore the impact of divorce on an estate plan, another issue that arises is the care and support of children, particularly children with disabilities. Presumably, the property settlement agreement will handle ongoing financial support and initial custody, but what happens during the incapacity or upon the death of a parent? An earlier article discussed the benefits of planning for any life insurance requirements under the property settlement agreement. But in addition to a general plan for life insurance, it may be necessary to designate the life insurance to a special or supplemental needs trust to allow the disabled child to qualify for public benefits. The special or supplemental needs trust can be created within one’s personal estate plan (e.g., a subtrust under a Last Will and Testament or revocable living trust) or as a standalone trust created prior to incapacity or death. Setting the proceeds of the life insurance aside in such a trust will help protect those proceeds for the disabled child’s benefit, protect those proceeds from the child’s potential creditors and allow for flexibility in public benefits planning.

And what if the child is receiving public benefits like Social Security Income (SSI), is on Medicaid or receives a Medicaid Waiver and child support is awarded? In that situation it is prudent to consider the creation of a self-settled or (d)(4)(A) special or supplemental needs trust to receive the child support payments. Such self-settled trusts have very particular required provisions in order for the disabled child to maintain eligibility for public benefits, but will avoid reduction or elimination of the available benefits if properly structured and implemented. This is an issue that should be addressed during negotiations and to include in the property settlement agreement, and therefore, not to figure out after the divorce is final.

As for the guardianship/custody of the disabled child, how will that be handled? If the child is a minor, then the parents will hopefully reach an agreement as to co-parenting and incorporate that agreement in the property settlement agreement (or as determined by the court if agreement cannot be reached). For an adult child who is disabled, a guardianship proceeding to establish that the child is disabled and to appoint a guardian must be commenced. The resulting court order will address the parents’ authority to act jointly or separately, after making reasonable efforts to contact each other, regarding the child’s medical care and housing, including (a) emergency medical treatment, (b) non-emergency hospitalizations, (e) personal care appointments, (f) immunizations, (g) routine dental and vision appointments, (h) admission to a facility, and (i) developmental assessments, among other things. Furthermore, the court order will address what happens if a parent cannot continue acting as guardian due to incapacity or death. Ultimately, guardianship of a child with disabilities ends up being less about which parent has the child on a particular holiday (also important) and more about the type and quality of care the child will need and how that care will be provided.

So consider the following: (1) If you are divorcing and have a disabled child, how is that child being provided for upon the incapacity or death of a parent? (2) Is eligibility for public benefits preserved through a properly structured special or supplemental needs trusts? (3) Who has authority to make healthcare decisions for the child and in what manner? #divorce #specialneeds #estateplanning #specialneedstrust