Redmond Office Law Blog

A lot of times when people think about Estate Planning they think it is exclusively about setting up a Will, a Trust a Durable Power of Attorney or a Medical Power of Attorney. However, there are a lot of side issues that need to be addressed when family members are setting up an Estate Plan. For example, what if a parent or grandparent has co-signed for a family member that will ultimately inherit a sum of money at the time of death? What if a parent has co-signed on a house or vehicle and the child subsequently defaults on the loan? If a parent has cosigned, the parent’s assets or the parent’s estate could ultimately be responsible for the loan if the child was unable to pay. If a parent has co-signed on a loan the parent needs to address how that loan, if unpaid, will be handled as part of their Estate Plan. Will the child’s share be reduced by the amount of the loan if the parent’s estate ultimately has to pay the loan? Will the executor or Trustee of the parent’s estate be able to close the estate until the loan is paid? Will there be funds to pay the loan at the time of death?

In addition to the Estate Planning issues that need to be addressed, the parent’s need to consider such things as what if the property goes into foreclosure, will it affect the parent’s credit score? What if the child files for bankruptcy, will the parent ultimately be responsible for the loan? Finally, will co-signing for a loan affect the parent’s credit in the event the parent’s chose to buy a second home or vacation property out of state. Before co-signing for a loan it is very important that these issues be addressed not only with your accountant or CPA, but also with your estate planning attorney. An amendment to your Last Will and Testament or your living Trust may be necessary to account for future problems.

Many times when an individual has been diagnosed with a disease such as Parkinson’s, progressive dementia or Alzheimer’s our immediate concern is to whether or not that person is competent to execute legal documents. In a recent case, the Court has decided that a person is deemed to have mental competence if they possess sufficient mental capacity to understand the business in which they are engaged and to know and understand the extent and value of their property, including how they want to dispose of it. The individual needs to be able to keep these facts in mind long enough to be able to plan ahead and to effect the conveyances in question without prompting an interference from others. The person can be deemed to have mental competence if they can render a degree of control over and appreciate the significance and consequence of a relationship. With the execution of legal documents such as a living Trust, Durable Power of Attorney, Last Will and Testament or Designation of Patient Advocate it may be in the best interest of the person with the diagnoses of Parkinson’s, Alzheimer’s or dementia to obtain a letter from their physician indicating that although they have been diagnosed with this illness or disease that they are still competent to understand the extent and value of their property.

Dannielle Redmond Streed will be presenting a seminar with the KALAMAZOO COMMUNITY FOUNDATION on September 16, 2008.  Join us to learn how you can leave a charitable legacy that will support our community for generations to come, reduce or eliminate estate taxes, and at the same time accomplish other estate planning goals. 

You can contact our office for more information or to make reservations.

Statistics show us that when people receive large sums of money that they have not earned or worked towards, those funds are typically gone in a very short period of time. For example, history has shown that individuals that have won the lottery approximately 65% of them have subsequently filed bankruptcy. Additionally, statistics show that for those individuals that have won the lottery their divorce rate is four times higher than the national divorce rate.

The same may ultimately be true about inheritance. When children inherit large sums of money that they have not earned or worked towards there is a greater chance of those monies being spent in a short period of time after the actual inheritance. It may be important for more and more parents to delay the outright distribution to children and grandchildren at death. For example, a parent may choose to give their children a stream of income and limited amounts of principal each year, but never give a child one lump sum that could be blown in a short period of time. This process can ultimately ensure that the child must continue to work and understand the value of earning their own money, but also provide that child with a better quality of life. It can also ensure that in the event of difficult times the inheritance is still in place and can get them through a rough spot. Additionally, if the funds have not been distributed outright in the event that child were to subsequently divorce, those funds can be protected from the divorce because no outright distribution occurs and in fact the funds are not part of the marital assets to be divided. The only way to accomplish this control from the grave is with a Living Trust. A simple Will can only provide for outright distribution to a child, whereas a Living Trust can provide for the stream of income or the limited distributions of principal over the course of a child or grandchild’s lifetime.

Having Estate Planning documents is important, but understanding the terminology within the documents is important as well.

The following are terms that you may find in Estate Planning documents and their definitions:

Fiduciary:  A person hold the position of Trustee or someone who has been placed in a position of confidence and must act with good faith and candor.

Grantor/Settlor:  Both of these terms can be used to identify the creator of a Living Trust.

Executor/Personal Representative:  A Personal Representative is the person named in the Last Will and Testament who handles the Probate administration.  The individual used to be called an Executor/Executrix.

Spendthrift:  A person that spends money frivolously and in an extravagant and irresponsible way.

Codicil:  An amendment to a Last Will and Testament.

Estate planning for blended families can be both challenging and emotional, but ignoring the issue altogether is never a solution. Today’s blended families typically include both children from previous marriages and assets from previous marriages. Often, a blended family is made up of children from a previous marriage and many times children of that second marriage include the “his, her and our”. When dealing with blended families it is important to sit down and decide how much you want to provide for your spouse versus how much you want to provide for your children from your first marriage. Some important things to consider as part of this estate planning process, include how your current estate plan is currently set up, who you have designated as beneficiary of a life insurance or retirement plan, and how co-mingled joint accounts or joint real estate will ultimately pass at the second death.

With a thorough estate plan, couples in a blended marriage can easily provide for a second spouse without providing for outright distribution to that spouse. For example, if the husband owns the home and wants to provide that his second wife has lifetime use of the home, a Living Trust can give the wife use of the home and even provide that taxes and insurance will be paid by his Trust. However, at the wife’s death the Trust can provide that the house is sold and the proceeds from the sale of the house is distributed to the children of the husband’s first marriage.

A Living Trust can also provide for a stream of income to a surviving spouse with provisions that at the second spouse’s death the remaining principal will be distributed to the children of the first marriage. There are many options available in a blended family situation, but sitting down and talking about them is the first step.

For many of us discussing end of life decisions is a tough discussion to have with an estate planning attorney and with our family. Unfortunately, there are additional issues that may need to be addressed beyond the issue of whether or not you want to be kept on life support. With the changes in the estate tax laws upon us, many families are being forced to address the issue of whether or not a family member will be kept alive to take advantage of future estate tax changes. For example, if a grandparent were to die this year the maximum amount that can be passed tax free to the heirs is $2 million. However, in 2009 the maximum that could be passed tax free to the heirs is $3.5 million and in 2011 the amount that could pass tax free to the heirs is unlimited. However, in 2012 the maximum that can be passed drops to $1 million.

It may seem a bit morbid to discuss keeping a family member alive just to save taxes, but with the estate tax rate at 45%, it may be more important to discuss than you think. With the up and down changes in the estate tax laws, we now need to be aware that life support issues and tax issues are related.

It’s amazing how many television sitcoms reference the topic of estate planning. Despite the fact that the topic may be addressed in a somewhat humorous manner, it is still a constant reminder of how important estate planning can be.

In a recent episode of a popular comedy sitcom one of the characters just finished watching the movie “The Other Side of Darkness” and decided that he did not want to be left in a coma like the lady in the movie. The sitcom character then hand wrote his wishes and indicated that he did not want to be on a feeding machine, life support, a lung blower, etc. When he asked one of his friends if he could “pull the plug” the friend’s first concern was the legality of the document. Clearly, a Living Will or Designation of Patient Advocate or Medical Durable Power of Attorney is best if the document is more formal. One formality may include having the document prepared by an attorney and having your document witnessed by an independent third party. However, just having the document prepared and signed is not enough. You also need to review the terms of your Medical Power of Attorney with the advocate or individual that you have designated to make decisions for you in the event one of these life support issues were to arise. As in this popular comedy sitcom episode the character had to make sure that the friend he had chosen to act on his behalf was not only comfortable making these decisions for him, but that he would be strong enough to make those tough decisions when the time came.

We will never know how someone will react when they are faced with removing a friend, family member or loved one from life support, but we can only hope that we make the process that much simpler by having discussed it in great detail well before it ever occurs.

As more and more family members face entering a nursing home there are a lot of pre-entry issues that need to be addressed by the family. Many nursing homes have agreements that allow a patient to sign away their right to sue over poor nursing home care. When children are faced with placing a parent in the nursing home it is usually one of the most stressful times of their life and many of these details are overlooked. When planning for a family members nursing home care may seem like a lot of work, but there are a few basic steps that a family should consider if they are facing an illness of an elderly parent or grandparent. These steps include:

1. Making sure that the person that will be entering the nursing home has a Durable Power of Attorney for Financial and a Medical Power of Attorney.

2. Additionally, the family member should try and make contact with as many of the nursing homes that are under review and obtain as much of the paperwork in advance so that the contracts and agreements from each of the nursing homes can be reviewed prior to actual entry.

When it comes to Estate Planning, most people worry about how they will pass their more valuable items, like retirement accounts, bank accounts and real estate. However, it is also important not to lose sight of the smaller tangible items, such as jewelry, antiques, heirlooms, tools, guns, etc.

There are many options to choose from, including identifying the order in which children choose, making a list of specific items that are to automatically go to a specific beneficiary, or providing that a family auction be held and require each beneficiary to bid on what is more important to them. Whatever you decide is best, make sure you put your wishes in writing.