Plymouth MN Estate Planning Blog

Monday, November 14, 2016

The Revocable Living Trust


There are many benefits to a revocable living trust that are not available in a will.  An individual can choose to have one or both, and an attorney can best clarify the advantages of each.  If the person engaged in planning his or her estate wants to retain the ability to change or rescind the document, the living trust is probably the best option since it is revocable. 

The document is called a “living” trust because it is applicable throughout one's lifetime.  Another individual or entity, such as a bank, can be appointed as trustee to manage and protect assets and to distribute assets to beneficiaries upon one's death.
Read more . . .


Monday, October 17, 2016

Preventing Will Contests


So, you have a will, but is it valid?  A will can be contested for a multitude of reasons after it is presented to a probate court.  It is in your best interest to have an attorney draft the will to prevent any ambiguity in the provisions of the document that others could dispute later. 

A will may be targeted on grounds of fraud, mental incapacity, validity, duress, or undue influence.  These objections can draw out the probate process and make it very time consuming and expensive.  More importantly, an attorney can help ensure that your property is put into the right hands, rather than distributed to unfamiliar people or organizations that you did not intend to provide for.
Read more . . .


Monday, September 12, 2016

Testamentary Substitutes

In states that have “elective share statutes,” a surviving spouse is legally entitled to a certain percentage of the deceased's estate, even if that spouse has attempted to disinherit or to provide a lesser bequest, or gift, under the will.  In “separate property” states, an elective share statute is likely to be in effect.  If the estate in question is valued at $50,000 or less, the elective share is likely to be the actual amount of the net estate.  

“Testamentary substitutes” are removed from particular assets that would otherwise pass to the surviving spouse.  Assets passing by will or through intestacy could cause a reduction in the elective share amount as well.  Totten trusts, such as Payable-On-Death Bank Accounts (PODs), Retirement or joint bank accounts, gifts causa mortis ("gifts made by the decedent in contemplation of death,”) U.S. savings bonds, jointly held property, and gifts or transfers that were made approximately one year prior to death, are some examples of testamentary substitutes. 

If a gift was made about one year prior to death, yet involves medical or educational expenses, then the gift may not qualify as a true testamentary substitute.  With regard to PODs, the spouse, offspring, or grandchildren will be named as beneficiaries.  The funds of a POD are only distributed upon the decedent’s death.   Testamentary Trusts are listed in the will until the designated property passes to the trust upon the testator’s death.  

Generally, a gift causa mortis is only active upon the decedent’s expected death and is typically revocable.  Moreover, certain elements must exist to create a valid gift causa mortis.  These include an intent to create “an immediate transfer of ownership,” valid delivery, acceptance of the gift by the donee, and the donor’s “anticipation of imminent death.”  There are also certain circumstances by which gifts causa mortis are not valid.  For example, if the donee passes away before the donor, it is unlikely that a property interest was transferred.  Gifts causa mortis are also taxed as if the testator had listed the gifts in his or her will. 

In such cases, testamentary substitutes are generally put back into the net estate total to determine the elective share amount that the surviving spouse will collect.  The aforementioned may vary if property is held jointly, as joint tenants or otherwise, because the spouse may have a right of survivorship in the property.  Estate planning attorneys are aware of all the ins and outs of testamentary substitutes and how they may affect the distribution of your assets.  It is useful, if not essential, to consult with a knowledgeable attorney when making arrangements regarding testamentary substitutes.


Monday, August 15, 2016

Disinheritance


Inheritance laws involve legal rights to property after a death and such laws differ from state-to-state.   Heirs usually consist of close family members and exclude estranged relatives.  Depending on the wording of a will, an individual can be intentionally, or even unintentionally, disinherited.

In most cases, spouses may not be legally disinherited.  Certain contracts, however, allow for a legitimate disinheritance, such as prenuptial agreements or postnuptial agreements.
Read more . . .


Monday, May 30, 2016

Family Business: Preserving Your Legacy for Generations to Come

Your family-owned business is not just one of your most significant assets, it is also your legacy. Both must be protected by implementing a transition plan to arrange for transfer to your children or other loved ones upon your retirement or death.

More than 70 percent of family businesses do not survive the transition to the next generation. Ensuring your family does not fall victim to the same fate requires a unique combination of proper estate and tax planning, business acumen and common-sense communication with those closest to you. Below are some steps you can take today to make sure your family business continues from generation to generation.

  • Meet with an estate planning attorney to develop a comprehensive plan that includes a will and/or living trust. Your estate plan should account for issues related to both the transfer of your assets, including the family business and estate taxes.
  • Communicate with all family members about their wishes concerning the business. Enlist their involvement in establishing a business succession plan to transfer ownership and control to the younger generation. Include in-laws or other non-blood relatives in these discussions. They offer a fresh perspective and may have talents and skills that will help the company.
  • Make sure your succession plan includes:  preserving and enhancing “institutional memory”, who will own the company, advisors who can aid the transition team and ensure continuity, who will oversee day-to-day operations, provisions for heirs who are not directly involved in the business, tax saving strategies, education and training of family members who will take over the company and key employees.
  • Discuss your estate plan and business succession plan with your family members and key employees. Make sure everyone shares the same basic understanding.
  • Plan for liquidity. Establish measures to ensure the business has enough cash flow to pay taxes or buy out a deceased owner’s share of the company. Estate taxes are based on the full value of your estate. If your estate is asset-rich and cash-poor, your heirs may be forced to liquidate assets in order to cover the taxes, thus removing your “family” from the business.
  • Implement a family employment plan to establish policies and procedures regarding when and how family members will be hired, who will supervise them, and how compensation will be determined.
  • Have a buy-sell agreement in place to govern the future sale or transfer of shares of stock held by employees or family members.
  • Add independent professionals to your board of directors.

You’ve worked very hard over your lifetime to build your family-owned enterprise. However, you should resist the temptation to retain total control of your business well into your golden years. There comes a time to retire and focus your priorities on ensuring a smooth transition that preserves your legacy – and your investment – for generations to come.


Monday, May 16, 2016

A Living Will or Health Care Power of Attorney? Or Do I Need Both?

Many people are confused by these two important estate planning documents. It’s important to understand the functions of each and ensure you are fully protected by incorporating both of these documents into your overall estate plan.

A “living will,” often called an advance health care directive, is a legal document setting forth your wishes for end-of-life medical care, in the event you are unable to communicate your wishes yourself. The safest way to ensure that your own wishes will determine your future medical care is to execute an advance directive stating what your wishes are. In some states, the advance directive is only operative if you are diagnosed with a terminal condition and life-sustaining treatment merely artificially prolongs the process of dying, or if you are in a persistent vegetative state with no hope of recovery.

A durable power of attorney for health care, also referred to as a healthcare proxy, is a document in which you name another person to serve as your health care agent. This person is authorized to speak on your behalf in order to consent to – or refuse – medical treatment if your doctor determines that you are unable to make those decisions for yourself. A durable power of attorney for health care can be operative at any time you designate, not just when your condition is terminal.

For maximum protection, it is strongly recommended that you have both a living will and a durable power of attorney for health care. The power of attorney affords you flexibility, with an agent who can express your wishes and respond accordingly to any changes in your medical condition. Your agent should base his or her decisions on any written wishes you have provided, as well as familiarity with you. The advance directive is necessary to guide health care providers in the event your agent is unavailable. If your agent’s decisions are ever challenged, the advance directive can also serve as evidence that your agent is acting in good faith and in accordance with your wishes.  


Monday, May 9, 2016

Utilizing Family Limited Partnerships as Part of Your Estate Plan

Designed to preserve family businesses for future generations, Family Limited Partnerships (FLPs) and Family Limited Liability Companies (FLLCs) can help shelter your assets and reduce overall estate and gift taxes.   FLPs are also utilized as an integral part of business succession planning.

A Family Limited Partnership is typically established by married couples who place assets in the FLP and serve as its general partners. They may then grant limited-partnership interests to their children, of up to 99% of the value of the FLP’s assets. When this occurs, two things happen: a) the value of the partnership interests transferred to the children is deemed to be lower than the respective pro-rata value because of minority and marketability discounts and b) the assets are removed from the general partners’ estates.  This allows a transfer of significant assets to the children at lower valuation which results in reduced estate taxes. The general partners continue to maintain control of the FLP and its assets, even though they may own as little as just 1% of the partnership’s valuation.

Limited partners may receive distributions from the FLP which can serve to transfer additional assets from the older generation to younger beneficiaries at more favorable income tax rates.

How Minority and Marketability Interest Discounts Work

Since limited partners do not have the ability to direct or control the day-to-day operations of the partnership, a minority discount can be applied to reduce the value of the limited partnership interests that are transferred.  Furthermore, because the partnership is a closely-held entity and not publicly-traded, a discount can be applied based upon the lack of marketability of the limited partnership interests.  This allows the older generation to leverage the FLP as a vehicle to transfer more wealth to its beneficiaries, while retaining control of the underlying assets.  

With these significant tax benefits, it’s no surprise that many FLPs have attracted scrutiny from the IRS. Many family partnerships have run into issues with tax authorities due to mistakes or outright abuse. Care must be taken to ensure your FLP is properly established and operated.  Specifically, the IRS may look at the following issues when assessing the viability of the FLP:

  • Whether the establishment of the FLP was created solely for tax mitigation objectives. You stand a better chance of avoiding – or surviving – a challenge from the IRS if you can show a legitimate non-tax-related reason the FLP was created. 
     
  • Whether the partnership functions like a business.  Keep your personal assets out of the FLP. You can reasonably expect to transfer closely held stock or interests in commercial real estate into a Family Limited Partnership. However, personal property such as cars or residences may not fare well against an IRS challenge. Similarly, the FLP’s assets should not be used to pay for any personal expenses. The FLP must be a legitimate business entity operated to fulfill business purposes.
     
  • Whether the valuations are based on objective criteria.  Rather than have a partner or family member determine the valuations or discounts for any assets transferred into the FLP, you should have your FLP professionally appraised. A qualified appraiser has a much better chance of withstanding IRS scrutiny.

An FLP can be a powerful planning tool to enable business owners to transfer their stake to the younger generation, while allowing the senior generation to continue conducting operations and mentoring and grooming the young owners.  However, an FLP can be incredibly complex and should only be established with the help of a qualified team of estate planning attorneys, accountants and appraisers.  


Monday, April 25, 2016

The Basics of Conservatorships

Sometimes, bad things happen to good people. A tragic accident. A sudden, devastating illness. Have you ever wondered what would happen if a loved one became incapacitated and unable to take care of himself? While many associate incapacity with a comatose state, an individual, while technically functioning, may be considered incapacitated if he cannot communicate through speech or gestures and is unable sign a document, even with a mark. In some cases, an individual may have no trouble communicating, but may not be able to fully appreciate the consequences of their decisions and hence may be deemed to lack capacity. With proper incapacity planning which includes important legal documents such as a durable power of attorney, healthcare proxy and living will, the individuals named in such documents are empowered to make necessary financial and medial decisions on behalf of the incapacitated person without obtaining additional legal authorization.  Without proper incapacity planning documents, even a spouse or adult child cannot make financial and healthcare decisions on behalf of an incapacitated individual.  In such cases, a conservatorship (or guardianship) proceeding is necessary so that loved ones are able to provide for their financial and medical healthcare needs.

A conservatorship is a court proceeding where a judge appoints a responsible individual to take care of the adult in question and manage his or her finances and make medical decisions. The court appointed conservator will take over the care of the conservatee (disabled adult).  When appropriate, the court may designate an individual “conservator of the estate” to handle the disabled person’s financial needs and another person “conservator of the person” to manage his healthcare needs. One person can also serve as both. If you are planning to serve as someone’s financial conservator, be prepared to possibly post a bond that serves as a safeguard for the conservatee’s estate. Individual states have their own guidelines for conservators, so check your local rules for more information.  

To minimize the incidence of mismanagement or fraud, the court holds the conservator legally responsible for providing it with regular reports, called an accounting. Additionally, the conservator may not be able to make any major life or medical decisions without the court’s approval and consent. For example, if you have been named the conservator for a relative, you may not be able to sell his or her house without the approval of the court.

The best safeguard to avoid going through court to get a conservatorship, however, would be to establish a durable financial power of attorney, a power of attorney for healthcare, each authorizing a family member or trusted individual to act on your behalf in case of incapacity.  While your agents have a legal obligation to act in your best interest they won’t have to post an expensive bond either.  Make sure the power of attorney clearly states that it will be effective even if the principal becomes incapacitated.


Monday, April 18, 2016

Preventing a Will Contest & Preserving Peace in the Family

The purpose of writing a Last Will and Testament is to make sure that you – and not an anonymous probate court judge – have control over the distribution of your property after your death.  If one or more family members disputes the instructions in your will, however, then it is possible  that a probate court judge may decide how your assets will be distributed.

Protect yourself, your family members and your last wishes by taking steps to prevent a will contest after your death.  Will contests (this is the legal term used to describe a family member’s challenge to the contents of a will) can be based on one or more of these claims:

  • The will was not properly executed
  • The willmaker was under improper or undue influence from a beneficiary
  • The willmaker or another person committed fraud
  • The willmaker lacked the mental capacity to make the will

There are a number of steps that you can take to help prevent will contests based on any of those claims.  It is important to remember, though, that different states have different laws regarding wills and probate.  What is advisable in one state may be inadvisable in another, which is why the first suggestion for preventing a will contest is:

  1. Obtain qualified legal advice regarding your estate plan.  Estate planning has become a popular “do it yourself” legal task, but you should at least consider having your will reviewed – if not written – by a qualified estate planning lawyer.  Writing your will with the help of an estate planning attorney will also ensure that your will is a properly executed and valid legal document.
     
  2. Don’t delay estate planning.  Plan your estate while you are in good health – “of sound mind and body.”  If you create your will while your physical or mental health is failing, your will becomes vulnerable to claims that it is invalid due to your lack of mental capacity.
     
  3. Consider a no-contest clause.  A no-contest clause (also called an in terrorem clause) in a Last Will and Testament disinherits anyone who contests the will.  Keep in mind, though, that no-contest clauses are valid in some states but not in others.
     
  4. Consider using trusts.  Trusts are becoming more widely used in estate planning , and are useful for various situations.  A will is a public document once it is filed in probate court, and the public nature of the document can give rise to disputes and will contests.  In contrast, a revocable living trust is a personal and private document that does not have to be filed as a public record.  Furthermore, lifetime trusts can be used to provide financially for “troublesome” beneficiaries who might otherwise spend through their inheritance.  Lifetime trusts are flexible and can link financial inheritance to the accomplishment of goals that you set forth in the trust documents.
     
  5. Write your will independently.  To avoid claims of undue influence after your death, make sure you write your will in circumstances that are clearly free from interference by family members or other beneficiaries.  Avoid having beneficiaries serve as witnesses, for example, and don’t allow beneficiaries to attend your meetings with your estate planning attorney.  This is especially important if you are under the care of a family member who is also a beneficiary.
     
  6. Be of sound mind and body.  At the time you write and sign your will, you can ask your physician to perform a physical examination and certify that you are mentally competent to execute your will.  Another option is for your attorney to ask you a series of questions before you sign your will and document that the questions were asked and answered.  It may also be a good idea to make a video recording of the process of signing your will, as another way to prove mental competency.
     
  7. Answer your family’s questions.  Consider sharing your intentions with your family and other beneficiaries.  If you explain the reasons for the decisions you made regarding bequests, you may help prevent will contests after your death.  Instead or in addition, you may write a letter to your beneficiaries that will be read at the same time your will is read.
     
  8. Keep your will dust-free.  Once your Last Will and Testament and other estate planning documents are complete, don’t just file and forget them.  Review your will with an attorney at least once a year and make any necessary changes in a timely manner.
     

Monday, April 11, 2016

When is a person unfit to make a will?

Testamentary capacity refers to a person’s ability to understand and execute a will. As a general rule, most people who are over the age of eighteen are thought to be competent to make and sign the will. They must be able to understand that they are signing the will, they must understand the nature of the property being affected by the will, and they must remember and understand who is affected by the will. These are simple burdens to meet. However, there are a number of reasons a person might challenge a will based on testamentary capacity.

If the testator of a will suffers from paranoid delusions, he or she may make changes to a testamentary document based on beliefs that have no basis in reality. If a disinherited heir can show that a testator suffered from such insane delusions when the changes were made, he or she can have the will invalidated. Similarly a person suffering from dementia or Alzheimer’s disease may be declared unfit to make a will. If a person suffers from a mental or physical disability that prevents them from understanding from understanding that a will is an instrument that is meant to direct how assets are to be distributed in the event of his or her death, that person is not capable of executing a valid will.

It is not entirely uncommon that disinherited heirs complain that a caretaker or a new acquaintance brainwashed the testator into changing his or her will. This is not an accusation of incapacity to make the will, but rather a claim of undue influence. If the third party suggested making the changes, if the third party threatened to withhold care if the will was not changed, or if the third party did anything at all to produce a will that would not be the testator’s intent absent that influence, the will may be set aside for undue influence. Regardless of the reason for the challenge, these determinations will only be made after the testator’s death if the will is presented to a court and challenged. For this reason, it is especially important for the testator to be as thorough as possible in making an estate plan and making sure that any changes are made with the assistance of an experienced estate planning attorney.


Monday, March 28, 2016

Should a Power of Attorney be a part of my Estate Plan?

A durable power of attorney is an important part of an estate plan. It provides that, in the event of disability or incapacitation, a preselected agent can be granted power over the affairs of the individual signing the document. This power can be limited to specific decisions, like the decision to continue life sustaining treatment, or it can be much broader in scope to allow the agent power over the individual’s financial dealings.

Estate planning is meant to prepare for contingencies beyond an individual’s control. A traumatic accident could leave an individual without the ability to manage his or her own financial affairs. Debilitating diseases, like Alzheimer’s, can affect a person’s ability to make sound decisions for him or herself. In these scenarios, someone must be appointed to do make decisions on behalf of the incapacitated individual. Preparing a durable power of attorney as a part of an estate plan accomplishes three things. First, it gives the power of appointment to the individual, instead of to a judge. Second, it avoids the need for a potentially expensive court proceeding necessary to make that appointment. Finally, a power of attorney may be used to respond to time sensitive issues without waiting for a court hearing to grant an agent the power to act.

A power of attorney provides much flexibility for the individual signing it. It can take effect only upon disability, or right away, regardless of disability. It can specify what funds may or may not be used for. If a person does not want to live in an assisted living facility, he or she can make sure that money from his or her own bank accounts is not used for those purposes. Different assets can be managed by different agents. The power of attorney can give an agent power to distribute assets as gifts on a specific schedule to collaborate with an existing estate plan. The level of detail and amount of instruction that is possible as a part of the document is unlimited. It will always be quicker and more economical than a guardianship or conservatorship proceeding, and it will always serve the disabled person’s interests better than the broad powers granted to an individual by a court.


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