Pennsylvania Estate Planning Lawyer & Attorney : Jakubik Law Firm : Serving Philadelphia, Chestnut Hill, Mt. Airy

A recent article in Black Enterprise magazine provided a pretty good primer on the various reasons for using trusts as a part of your estate plan, as well as a description of many of the more commonly used trusts. As the author of the article notes, the reasons to use trusts include:

• You have sizable assets
• You want your estate to be payable to your heirs upon their meeting certain conditions, such as graduating from college, not necessarily immediately after your death,.
  
• You have a disabled relative you would like to provide for without disqualifying that person from Medicaid or Medicare.
• You want to reduce estate and gift taxes.
• You want to protect your assets from creditors and lawsuits.
• You'd like to ensure that the principal or remainder of your estate goes to your children or other heirs after your spouse dies.
  
• You'd like to maximize estate tax exemptions for yourself and your spouse.

There are, of course, numerous other reasons to employ trusts in your planning, and no two client situations are alike. Only through carefule consultation with your attorney and finan cial advisers can you assure that the structure of your plan best meets your goals and objectives and furthers the hopes and dreams that you have for your family and for your legacy.

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A few weeks ago I wrote about ways to avoid probate, in that post I mentioned that property that is jointly owned passes outside of the probate process.  It sounds like a great way to pass your real estate to your children and save money in the process. 

Mina N. Sirkin wrote a great post over at her Law Firm Marketing & Management Systems blog covering this topic.  If you would like to read her post click here.  Basically it boils down to this; when you hold real estate in joint tenancy with someone their problems can become your problems. 

If your child has a judgment entered against them your real estate could have a lien placed on it to satisfy the judgment.  Satisfaction of that judgement could result in having to sell the home to cover the lien.  The other large problem is if you decide you want to sell your home you will need your child to consent to the home.  That issue can be compounded if the child is married, then you will need your child and your child’s spouse to agree to the sale. 

On top of the possible family strife involved the tax basis can also be an issue.  If mom and child hold real estate in a joint tenancy and mom passes away then the child will only receive a half step up in basis.  Here’s an example:  Say mom buys the property for $100,000 adds the child to the title as a joint tenant and when she passes away the fair market value of the property is $500,000.  Mom’s half of the real estate is transferred to the child and that half gets the step up in basis ($250,000) and now the child holds the real estate all by herself.  The child’s half still has the basis it started with, $50,000, and added to that is the half that got the step up in basis, $250,000, for a total basis of $300,000.  So now if the child sells the property for fair market value of $500,000 she would have a taxable gain of $200,000.  (Sale price $500,000 minus basis $300,000 = $200,000 taxable gain)

Contrast that with what would have happened had mom held the property all by herself and then the child inherited the property from mom after she passed.  The child would receive the property with a stepped up basis equal to fair market value, $500,000.  Now when she goes to sell the property she would not have any taxable gain.  (Sale price $500,000 minus basis of $500,000 = $0 taxable gain)

The moral of the story is that you should carefully consider the pros and cons of holding real estate in joint tenancy.  The legal and tax ramifications can be severe.  Proceed with caution!

Source: Minnesota Estate Planning Blog

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The New York Times recently ran the following article on the growing popularity of so-called dynasty trusts. These vehicles provide a means for enabling families to keep valued assets within the family for multiple generations, and to protect their assets from dissipation via the mismanagement of future generations, or the claims of their heirs' creditors. Read the article from the Times in full below the fold. Your estate planning attorney can assist you in determining whether such a vehicle might be of benefit to you,

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There are a multitude of reasons why you should consider preparing - and funding -  an inter vivos, or "living" trust -  as a part of your estate plan. I will be discussing many of these reasons here in the coming months. As an initial matter, however, estate planning attorney Daniel Dorsch has provided a pretty good introductory list of reasons to consider including a living trust as a part of your estate plan:

• You want to avoid probate. Since the property is no longer in your name as an individual, but is now in your name as trustee, there is no reason to go through probate. This is a savings of 5%-10% of your gross estate. An additional benefit is that it will only take weeks instead of years to transfer your property to your heirs.
• The trust will remain private. Unlike a will, which has to be filed as a public record in the probate court, the trust remains a private document even after your death.  
• With certain provision in the trust, you can completely avoid or reduce estate taxes. This can mean savings of literally thousands of dollars.
• You avoid the potential of a guardianship hearing because you have already named someone to take your place if you are unable to handle your affairs. In addition, you can set up your trust to allow your family Doctor to make the decision of whether you can handle your own affairs. The alternative is to allow a judge to do this in a public hearing.  
• If your heirs are too young or immature to handle the money you will leave them when you die, you can use a trust to determine when they will receive the money and how much they will receive each time. For example, you can leave instructions that say, when my child reaches 30, he gets 1/3 of the property. When he reaches 35, he gets another 2/3.   And when he reaches 40, he would receive the final 1/3, or the remaining balance of the estate.
• The trust is less open to attack than a will. This means that your wishes have a better chance of being carried out.  
• In the context of a second marriage, the trust is an excellent way to protect both the surviving spouse and the children from your previous marriage.
• If you have property in another state the trust will eliminate the probate in the other state.  
• Transferring property through a trust allows your property to receive a stepped up basis. This could greatly reduce the amount of capital gains tax your heirs will pay.
• Setting your finances in order will give you peace of mind.

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Today's New York Times brings us  depressing news of yet another attorney fallen from grace for not being able to keep her hands off of the property of an elderly person over whom she had been appointed guardian. The Appellate Division has suspended Emani Taylor for allegedly converting the property of retired Supreme Court Justice John L. Phillips after saying that she had failed to cooperate with the court's investigation into her actions.

Yes, I said that the victim is a retired state Supreme Court  Justice! In fact, having once earned a 10th degree Black Belt, Justice Phillips was known as the "kung fu Judge". Now, thirteen years after he retired from the Bench, much of his property has been dissipated improperly and his financial future is in doubt.

The bottom line here is that NONE of us are immune to this kind of disaster. Have a plan for your own future as you get on in years and take special interest into how older loved ones are protected from avaricious and untrustworthy relatives, advisors (and yes, unfortunately, even trusted attorneys) . Do not be afraid to conduct your own investigation into the affairs of a loved one who appears to be experiencing some unexpected difficulties.

Most important, play an active role in the lives of your elderly relatives. Of course, by doing so you will be bringing much warmth, comfort and happiness into their lives (you will also be setting an example for your own children who some day will be charged with your care, feeding and general welfare). That way, you will be in a position to notice those changes which so often presage an elderly person falling victim to somebody they trust.  

Source: New York Probate Litigation Blog

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Francis Morrissey, the now indicted  former lawyer for the late Brooke Astor, preyed upon other elderly clients, as well. In a fascinating, and disturbing, article published yesterday, the New York Times discussed in detail the myriad of elderly clients that Mr. Morrissey and his cronies and accomplices ingratiated themselves with, and in whose wills Mr. Morrissey somehow often managed to find himself included. The article reveals a scheme involving what, to my mind, are appalling breaches of trust and ethics. Morrissey apparently decided that he would do better by not charging for his legal services and trying to charm his way into being named executor of the client's estate, or, even, receiving a bequest in the estate. After reading this article, allow me to offer a word of caution - beware lawyers bearing smoked hams. Or offering to do your estate work for no charge.

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The issue of competence is quite often at the center of will contests. Until it can be proved otherwise, the mental competence of the decedent is presumed. Rebutting this presumption is entirely the burden of the objectant to a will -- and it is a heavy burden to overcome, but sometimes there may be ways of accomplishing this.

Keep in mind that different levels of competence are required to execute different documents and instruments. While a minimal level of competence is needed to execute one's will (we take into account the fact that final plans may not be made until well after the eleventh hour, when a testator's medical condition may be grave), considerably higher requirements are set for the execution of deeds, powers of attorney, contracts, brokerage house documents, etc.

A major key to determining the competence of a decedent may be found in records of medical care and treatment from times contemporaneous with the execution of the documents which are in question. A recent revision to New York's Mental Hygiene Law allows distributees of decedents to obtain these records without waiting for the issuance of Letters Testamentary or Letters of Administration. This may be especially useful where an executor is slow to provide authorizations to obtain medical records --and may also allow a potential objectant to a will to have a better idea of the chance of success before engaging in costly litigation. Where an in terrorem clause is involved, this allows the gathering of vital medical information before objections are filed and before the clause becomes operative.

Hospital, nursing home and rehab center records may contain a virtual treasure trove of information. It is usually worth the investment of several hundred dollars to purchase them in those cases where you are absolutely sure that Uncle Larry was not in his right mind when he signed over his ranch to his absolutely adoring 22 year old home health aide who consistently maintains that, to pass the time, Larry used to explain complicated theories of quantum physics to her . These records contain daily --sometimes hourly-- records of treatment. They report all of the medications being administered , some of which may have definite impact on one's ability to make business or estate decisions. Sometimes these medications may also interact with each other causing unexpected mental and emotional effects.

Being hospitalized or residing in a nursing home for an extended period may , in and of itself, lead to a depression or produce a "hospital psychosis" where even the best and brightest of us become somewhat disoriented and may exhibit some signs of dementia. All of this is recorded in the nurses notes which accompany the doctor's entries. These notes are often an intimidating scrawl which defies deciphering by a non-medical person.

Spend the money. Hire a qualified forensic nurse-practitioner to review and analyze the records. Sometimes the road simply leads to a dead end but at other times the results may be awesome. These notes reveal the decedent's  comments and behavior when he or she was on powerful medications and left alone to ruminate for long portions of the day. Sometimes they  paint a totally different picture of the Uncle Larry everybody knew, loved and came to for advice. Either way, medical information properly analyzed by a professional will provide a much better vantage point from which to determine whether or not a challenge to competency is warranted.

Source: New York Probate Litigation Blog

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Phil Cubeta, who publishes a blog called "Gift Hub" had a post recently in which he discussed who ought o be involved, or "have a seat at the table," when a family constructs what Phil calls the "legacy plan," what some might more prosaically call a wealth transfer plan. Phil argues, very persuasively, I think, that grown children, typically the natural heirs of the family's planned wealth disposition, should be included in these discussions, but for a variety of reasons seldom are. As Phil states:

what a difference for the better it could make to include them before the plans are drawn. Children who are included will not "misread" the final documents as a critique of them. ("Daddy rules me from the grave through my trust officer because Daddy never loved me, never trusted me, and hated my boyfriend. He called my boyfriend a 'predator.' Why did Daddy do this to me? How did I deserve this? No one will ever love me for myself, only for my money. My peers just want to get a loan. No one can understand why I never had a job. Why should I work? My trust gives me more than I could ever make. I have done nothing all my life. I am a failure!")

In my view Phil is absolutely right. Estate planning is a family affair. I don't mean to say that your children need to know every jot and tittle, every last minute, confidential detail of the family finances (although they will learn them eventually, inevitably). But so many potential problems can be avoided if you share information,and yourplans, and the reasons for them, with your family as you formulate them.

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This past Sunday's New York Times contained an interesting story discussing ways to help teach your kids about teamwork and personal finance. The article stresses - and I wholly agree - that the lessons such exercises can teach are valuable for all children, regardless of your family's financial circumstances. You can read the Times article in its entirety below the fold.

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